Disaster could have been averted with better risk assessment.
A year ago, high-powered BP executives were still fumbling with options to end the oil spill that began gushing into the Gulf of Mexico from BP’s exposed Macondo well. ‘This catastrophe, with effective risk management, could have been prevented,’ suggests Andrea Francis, an instructor of accounting in the business & technology department at LaGuardia Community College. ‘An effective risk assessment and management system could have alerted senior executives to the level of financial and environmental exposure in the event of an oil spill.’
But a shareholder group that characterizes itself as socially responsible believes the oil giant still lacks transparency in its risk management efforts. ‘We want to see clear plans – not just mea culpas – for BP to assess and address operational risk and safety issues,’ argues Mark Regier, director of stewardship investing at MMA Praxis Mutual Funds, which is part of an international shareholder coalition. ‘We want to know how this function has been strengthened, how it is being evaluated and managed, how the board will oversee this function, and how progress will be measured and reported.’
Mindy Lubber, president of Ceres and director of its Investor Network on Climate Risk project, observes: ‘Investors are not in the mood to trust the company blindly.’ This is evident from the fact that 43 percent of shareholders either abstained or voted against Sir William Castell – chair of BP’s safety, ethics and environment assurance committee – at the April annual meeting, compared with only 2 percent last year.
Meanwhile, BP chairman Carl-Henric Svanberg indicated at the meeting that restoring BP’s reputation and focusing on the company’s risk management policies remain top priorities. ‘Understanding and managing risk is demanded by the nature of the industry,’ he noted. ‘But we can obviously do better.’.
Investors are calling for more details, however. Geary Sikich, principal with Logical Management Systems, a consulting and executive education firm that specializes in enterprise risk management and issues analysis, says companies need to stay alert and start implementing strategies to prevent a mishap similar to BP’s from occurring. ‘You must learn to create a mosaic from diverse sources of information and diverse elements within and without your enterprise,’ he notes. ‘Companies need to learn how to respond to change, disruption and uncertainty.’
Disruptions are a constant issue for enterprises, whether small or large, global or local. Companies need to learn from these ‘disruptive’ events in order to
transform and move forward. ‘Looking ahead, a strong argument can be made that industry standards should be revisited – or created, where they do not exist,’ says Francis. ‘These actions could aid in the prevention of a disaster of this magnitude, which had a far-reaching impact on individuals and ecosystems.’
