Business as Usual for BP

BP denies it “cut corners” in its drilling operations in the Gulf of Mexico, but how do you distinguish “cutting corners” from making a series of “cost conscious decisions”?  According to The Wall Street Journal, being “cost conscious” seems to have meant cutting out a number of safety steps.

In one email, written shortly before the explosion on Deep Water Horizon, a BP official wrote about a decision to deploy 6 stabilizers, instead of the more costly and time-consuming 21 recommended by its contractor:  “Who cares, it’s done, end of story, will probably be fine.”  Needless to say it wasn’t “fine.”  (See, “BP Focused on Costs.”)

Why should we be surprised? No doubt this sort of thing happens all the time. Cutting costs is what business is supposed to do, whether it is designing more efficient assembly lines or distribution centers, streamlining benefits, outsourcing services, replacing domestic workers with robots or local operators with sophisticated call centers, etc.  This has become all the more crucial as the pressures of investor capitalism have made the bottom line more important than any of the other factors that businesses have normally tried to balance.

According to The Journal, Tony Hayward, the CEO of BP, “repeatedly said he was slaying two dragons at once: safety lapses that led to major accidents . . . and bloated costs.”  But an internal report noted a common theme:  “a failure to follow BP’s own procedures and an unwillingness to stop work when something was wrong.” (“As CEO Hayward Remade BP, Safety, Cost Drives Clashed.”)

This reflects a disconnect inside the organization.  No doubt Hayward was sincere in his efforts to improve safety, but it wasn’t translated into procedures and policies in the field.  That is, it did not lead to an awareness of how the pressure for greater efficiency would in fact drive employees to take risks when the alternative was to increase expenses or miss deadlines.  Success in production was noted, safety seldom seen – until disaster struck.

“Workers had ‘high incentive to find shortcuts and take risks,’ said a former BP health and safety manager on rigs . . . . ‘You only ever got questioned about why you couldn’t spend less—never more.’”  One consequence of such a management style, of course, is to push blame further down the chain of command.  Upper managers can think they are doing their best to promote safety because they ignore the pressure they are putting on employees in the field to compromise.  Employees are congratulated and rewarded when they make their targets  — and blamed when “accidents” happen.

This is a typical feature of bureaucracy.  But how to correct for it?  One solution would be to install an officer at the top whose job it was to monitor safety, a Chief Safety Officer, who had the power to intervene in operations as needed.  But a cruder and perhaps better solution would be to make sure the cost of such a mistake was so high that the company would be profoundly incentivized actually to put safety first.

If the cost of a major accident was the risk of bankruptcy, that might lend new meaning to the term “cost conscious.”