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business newsBP Situation Can't Be Salvaged
By
Jeff Macke May 03, 2010 3:15 pm
There's no reason to invest in a company that the world regards as pure evil.
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The British oil concern responsible for adding some 5,000 barrels of crude oil per day into the Gulf of Mexico was declared the Most Evil Company on Earth (MECE) last Friday. (See The Ugly Truth About BP and Its CEO).
Any company can be evil, but it takes uniform mendacity, proactive acts of wickedness, and objective idiocy to be the MECE (pronounced “meek” as it is evil which has inherited the earth). As of Friday, BP had all three going: It was passing the buck on the spill (either to Transocean (RIG) or God, depending on who was talking), dumping oil into the Gulf at a rate it persistently lowballed, and doing absolutely nothing that could be deemed “right” by anyone who wasn’t writing me a hostile email.
I toyed with the notion of an upgrade after seeing CEO Tony Hayward on the Today show this morning. Hayward was live from Louisiana, looking properly stressed and standing in front of seemingly busy crisis workers. Perfect. Meredith Vieira, a nice but no nonsense-type person, lobbed Hayward a PR softball with her opening question. “Does the buck stop at your desk?” she asked, noting that President Barack Obama had said as much over the weekend.
This was a big moment for Hayward. I’m not made of stone. Even though he’s British I was rooting for him. Hayward inherited BP’s history of atrocious acts of hypocrisy and environmental abuse. He seems a decent bloke slightly, if not totally, over his head with this. Can’t blame him for that. 5,000 barrels of oil a day could swamp anyone. Vieira was handing him a gift. All he had to do was say something that expressed remorse and take responsibility. “The buck stops with BP and on my desk, Meredith” would have been a home run. “The Buck stops here” would have shown a nice touch of American history. “Yes” would have been sufficient. Americans would have been impressed. The title of MECE would have been reassessed.
Instead, Hayward, lawyered up to the gills, went with “Well... It wasn’t our accident...” Meredith turned on him like a Rottweiler grabbed by the stubby tail. “How can it not be your accident?” she interrupted with a hint of outrage. You don’t go on the Today show to spout legalese defenses. You go on the Today show to get dewy eyed and tell Vieira what she, and America, wants to hear: We take the blame, we’re endlessly sorry, we’ll spare no expense to make this right. Hayward’s chance for a good impression and an upgrade for his company was gone.
The rest of the interview was better but largely irrelevant. Vieira asked why BP was so slow to respond, citing the company’s comment last week that only 1,000 barrels were leaking per day. She quoted him as saying that these type of accidents are unlikely, which is true but certainly doesn’t seem to be the case to the Today show audience. Hayward answered logically and factually. These accidents are obviously rare. Accidents happen. It was, indeed, Transoceans’ equipment. And none of those facts matter even a little bit in terms of easing BP’s pain. BP is screwed. It has entered the corporate hell that is the justified class-action lawsuit in America. If it isn't truly evil it should consider becoming so, as the evil probably do better in hell.
Judging by my emails, many of the comments about Friday’s column, and even Barron’s over the weekend, a vocal of BP enthusiasts disagree that the company is looking evil and has yet to come to grips with what has happened. BP bulls are vociferous, angry, and dead, flat-out, simply wrong. Like BP, they think you can climb a wall of facts to get out of corporate hell. You can’t. You get out of corporate hell by climbing an enormous mountain of money paid to lawyers and victims. The money wall takes years, even decades to build. Which is fine because getting out of hell also requires waiting for another company in a related industry to screw up worse than you did. See 2010: The Robin Hood Economy.
Union Carbide got out of Bhopal hell because it didn’t have to go to court in America and Exxon (XOM) dumped a record amount of oil in waters off Alaska. But Union Carbide remained evil up until Dow Chemical (DOW) bought them in 2001. Exxon, though largely finished with a two-decade legal process, won’t be off the hook for the worst oil spill in history until BP’s spill takes the title sometime in the next few weeks. Somewhere in Exxon offices they’ve got a Gallons Spilled tote board that they are watching the way Jerry Lewis used to watch the donation total board during his telethons. Balloons will drop from Exxon’s corporate ceilings when someone else is officially responsible for the Worst Oil Spill in History.
But I digress. Whether it’s fair or not, in the court of public opinion and the legal courts, BP is on the hook for the ongoing spill. The oil is going to kill Gulf Coast industry and Gulf tourism, and it will impact all shipping up the Mississippi. There will be no shrimp season this year. There likely won’t be one next year. BP was reportedly circulating a waiver among coastal Alabamians offering them $5,000 in exchange for their not suing BP. Not shockingly, the Alabama Attorney General killed that effort in the crib. If you want to get Americans to sue you for $20,000, offer them $5,000. And if you want to look like the face of corporate evil, you try to reach proactive settlements with unsophisticated small business people whose lives you’re on the cusp of ruining. See How the BP Spill Impacts the Seafood Industry.
British Petroleum is going to spend the next two decades in American courts. It's going to look like every evil corporation you’ve ever seen in a John Grisham movie. it's going to spend hundreds of millions defending itself and at least as much paying out claims. BP might as well stamp its company logo on every oil-slicked Gulf bird and dry-docked shrimp boat because it's going to be on television every single day, accompanied, always, by graphics along the lines of “Shrimp Fisherman Homeless, Living in Docked Boat, Due to BP Spill.” If you disagree, ask your spouse for a one-word response to the word “Exxon.” I’ll wager you a buck they say “Valdez”.
You may believe BP is doing a bang-up job on damage control. You may think the market’s “over-reacting” last week and today by crushing BP’s stock. You may argue that a sophisticated analysis of this situation shows that BP is neither evil nor on the financial hook. Mr. Market and I would respond that what BP bulls believe doesn’t matter. Neither does Tony Hayward’s logical defense. Right or wrong, BP is the new face of environmental disaster. BP is who the Green’s will point at while fighting Obama’s desire for more offshore drilling.
In short, BP is both evil and screwed. The stock may bounce today and will certainly recover from some level, at some point soon. I’ll be on the sidelines, regardless. Not as a moral stance and not even because I’m offended by BP’s idiotic response to this crisis. I’ll be on the sidelines because, in my experience, it’s more lucrative to invest in companies the world doesn’t regard as pure evil.
No positions in stocks mentioned.
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