Investors and governments should press BP to earmark $25 billion for an oil spill restoration fund, argue Mark Tulay and Stephen Viederman

"The Sea, once it casts its spell, holds one in its net of wonder forever", wrote Jacques Cousteau.

Today for thousands of residents in the Gulf coast impacted by the 40 million gallon BP spill this wonder has turned to horror and despair.

BP has spent over $1.5 billion responding to the oil spill.

But with the launch of a criminal investigation and the steady stream of civil lawsuits being filed, BP's troubles are only beginning.

Individuals holding BP in their retirement plans are also feeling the sting as BP's share price has plummeted to nearly half of its high at the time of the explosion.

Experiencing a series of environmental and social disasters over many years, BP seems to have learned little that would prepare them for the next disaster. The Deepwater Horizon explosion, the Houston oil refinery explosion or the Alaska pipeline leaks, are not black swans, highly unlikely and unpredictable events.

Rather, they are 'predictable surprises' resulting from the neglect of proper procedures.

BP is now being rebranded not as Beyond Petroleum, but as the Bayou Polluter. The company faces EPA fines of up to $4,300 per gallon if it is determined that gross negligence caused the spill.

By some estimates, the total costs to BP could exceed over $40 billion, far eclipsing the $3.8 billion costs for the Exxon Valdez spill.

Many are now wondering if BP can survive the tarnish to its brand. Andrew Ross Sorkin reported on June 8, 2010 that Shell and Exxon "are licking their lips" at the prospect of a takeover.

And, he suggests, "flinty legal minds are dreaming up scenarios in which BP would file bankruptcy and separate the costs of clean up - and potentially billions of dollars in legal claims - into a separate entity."

BP's troubled history

The Deepwater Horizon debacle has exposed deep faults in BP's corporate governance and project planning. BP was an early leader on climate change in its sector. They also made larger investments in alternatives and renewables than its peers did. However, the emperor had no clothes, as it is also the most heavily fined energy company in the US.

BP has already come under fire for its failed containment of the spill and its handling of the financial settlements. The Times of London reported that BP's CEO Tony Hayward repeated his commitment to pay all 'legitimate' claims but angered residents in saying that because "this is America," many of the claims will likely be "illegitimate".

Alabama's Attorney General Troy King told BP to stop encouraging settlement agreements among coastal residents that he said stripped people of their right to sue in exchange for a $5,000 settlement. BP has already lost credibility on all counts and would be well served to take the high road on settlement issues.

BP has already come under fire for its failed containment of the spill and its handling of the financial settlements. An autopsy is needed to determine what went wrong. BP is the new Enron.

How should we respond?

Demand Board accountability: The response from the BP Board on this disaster has been deafening silence. Investors should scrutinize BP's Board governance structures and demand a full and immediate accounting of their failures and the actions that they will take to strengthen their project planning and Environenmental, Health and Safety (EHS) policies and procedures.

Support research that focuses on the quality of management defined not only in financial terms but also with regard to EHS concerns.

Engage politically to ensure that BP covers the full cost of making the Gulf whole-for as long as it takes. For fishermen and others, this cost will be measured not in years but in decades.

Paying the full costs should also mean that tax deductions for any of the restoration costs they would try to take would be disallowed. Investors and governments should press BP to earmark $25 billion for an Oil Spill Restoration Fund and hand over the governance and fund distributions to community-based organizations.

When news broke of the Exxon Valdez oil spill in March of 1989, the slow and inadequate response to the disaster ushered in a new wave of leaders in the environmental movement. One of these new visionary leaders was the late Joan Bavaria, the driving force behind CERES which was founded in 1989 to advance a sweeping 10-point code of environmental conduct.

On the wall of Bavaria's cluttered Boston office was a sign that read: "Life is a test. It is only a test. If this were your real life, you would have been given better instructions."

Bavaria was put to the test in 1990 as she visited Prince William Sound on the first anniversary of the Valdez spill and wrote "The extent of the damage is still disputed and probably will be forever. But one thing was crystal clear...such disasters need not happen, they must not happen, and we must not let time heal this wound so well that we forget the tears, the tragedy, and bet again on luck to pull us through." This message rings as true today as it did in 1989.

While the tragedy of the Gulf oil spill itself cannot be undone, let's hope that Mr. Hayward is prepared to follow through on his original commitments and follow Joan's advice of 21 years ago as he deals with the aftermath of clean-up and compensation.

Mark Tulay is the founder of Sustainability Risk Advisors, Stephen Viederman is strategic advisor to the Christopher Reynolds Foundation.
mark@sustainabilityrisk.org
s.viederman@gmail.com



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