Decoupling Responsibility from Power: The Case of Transocean in the BP Disaster

With much power comes implicit responsibility. Hence, on February 21, 2011, the world recoiled when Gaddafi violently turned on his own people--using his power sans responsibility in a selfish attempt to stay in power. So too, the world had been shocked in April, 2010 when BP's Deepwater Horizon oil rig exploded in the Gulf of Mexico and that the Gulf itself was at risk. That a company could ruin something as big as the Gulf of Mexico came as a surprise to many. That a company, or three in this case, could have minimized such a risk by, for example, sending the U.S. Government contingency plans on Gulf clean up that included rescuing sea animals that actually live in the Arctic, shocked the public just as much. How could people holding such power treat its use with such carelessness concerning any downside?  The defense of having followed company policy or having excuted business procedures pales in comparison with the societal demand that power, whether public or private, be handled responsibly.  In other words, people take it for granted that power is given to adults rather than to children.  I think we would be surprised how often this has not been the case.  The case of Transocean demonstrates this thesis.

Transocean, which owned the Deep Water Horizon oil rig that exploded in April of 2010,  was the subject of a criminal investigation into possible tax fraud in Norway. The company indicated in S.E.C. filings that Norwegian officials could assess it about $840 million in taxes and penalties. The filings also contended that a final ruling against Transocean could have a “material impact” on the company. The company was also the target of tax inquiries in the United States and Brazil. Furthermore, drilling equipment from Transocean was shipped by a forwarder through Iran and until 2009 the company had held a stake in a company that did business in Syria. The State Department claimed at the time that Syria and Iran sponsor terrorism.

In reaction to these charges,  a Transocean statement simply claimed that the managers at the company had always acted appropriately and that they would prevail in any investigations. This is interesting, for “always” is quite an accomplishment.  Once I took a self-inventory and one question was “I always tell the truth.”  Of course, no one always tells the truth, so the question was geared to assessing how truthful one is in taking the test.  Had I answered yes, I would have been lying. The transocean statement, taken by itself, indicates a proclivity to lie, for no human being always acts appropriately. Transocean's statement evinces a certain arrogance, as if to say, "We are above reproach."  Such an attitude is dangerous where there is sufficient power at one's disposal that one's actions can do real damage to the planet.

Transocean, which drilled in some 30 countries and employed more than 18,000 people, owned nearly half of the 50 or so deepwater platforms in the world in 2010. “These people are capable and considered the gold standard of deepwater drilling,” said Peter Vig, managing director at RoundRock Capital Management, an energy hedge fund in Dallas.  I contend that expertise in drilling does not sufficiently counter the kind of charges that were brought against the company. To focus only on expertise in operating machinery or in managing a company as though they were all that matters in business is to hold an extremely narrow perspective on what counts. Furthermore, to let blantantly false asseverations stand (such as of always acting appropriately) is to enable a pattern that can literally destroy a major marine ecosystem.

Source:

Barry Meier, "Owner of Exploded Rig Is Known for Testing Rules," The New York Times, July 7, 2010.

Related material is in Cases of Unethical Business, which is available at Amazon.

Justice as Fairness: Writing Down Greek Debt

In 2012, 80% of Greece’s private creditors agreed to “voluntarily” convert their Greek debt into debt of a bit less than half the face-value (plus a lower interest rate). With such a proportion having agreed to the swap without triggering credit default swap insurance payouts, Greece could get the E.U. to agree to force the remaining 20% to involuntary write-downs. That would trigger the credit default swaps, at least in theory.

Because any write down of Greek debt by other E.U. states or the E.U.’s central bank (equivalent to the Federal Reserve) would be tantamount to additional aid to Greece, the E.U.’s basic law would again need to be amended (which must be unanimous). So the E.U. (and the international IMF) exempted themselves even as they pushed for “voluntary” write downs by private debt-holders. This hardly seems fair. Moreover, any pressure from the E.U. could have been sufficient for the credit default swaps to be triggered. To be truly voluntary, the write downs would have to have come from the private bondholders themselves rather than from governmental pressure. Even so, that 80% agreed, it is only fair that the remaining 20% be forced to capitulate. Otherwise, holding out could be a strategic competitive advantage financially. Refusing to compromise while other similar parties do is unfair whether between private creditors or governments.

In my view, Greece should have secured the E.U.’s approval on instituting the collective bargaining statute in order to get all of the state’s private holders of Greek bonds to take a write down. It would have triggered the credit default swap insurance claims, so the bondholders might actually have preferred being forced even if more of their Greek debt was written off. Furthermore, E.U. officials should have subjected the E.U. states to join the private bondholders. At the time of the 80% voluntary agreement in 2012, Greek debt in 2020 was forecasted to be at 120% of Greece’s total economic activity.[1] This is still quite high, particularly given the recessionary impact of the continued Greek austerity. Unfortunately, the (excessive) power of state officials at the E.U. level meant that a conflict of interest interfered with amending the E.U.’s basic law to permit the state governments and the ECB to take write downs.

In terms of ethical theory, one could apply John Rawls’ Theory of Justice here. In this theory, there is a veil of ignorance concerning where one will be in the system for which one is making rules. Not knowing whether one would represent a government or private bondholder, for example, one would not be likely to add the rule in which only the private bondholders write off their Greek bonds. Not knowing which E.U. state one would represent, one would not add a rule favoring Germany and France over Greece. Not knowing whether one is an official of the E.U. Commission or a member of a state legislature such as the Bundestag, one would not make a rule allowing the states to protect their interests at the expense of the E.U. Rawls adds that because of the veil, any rule would see to it that the position of the least well situated is improved. So it would not be the case that Germany could dictate to the E.U. or so successfully protect German interests at the expense of Greece. Indeed, the bias would be in seeing that the people least well off in the least well off state are not further downtrodden as a result of any proposed rule. This might be part of Rawls penchant for redistribution, however. At the very least, we could say that the rules enacted under justice as fairness would be in the interest of the system itself rather than any particular part thereof. In terms of the writing down of Greek debt, the E.U. could have been fairer in how it went about designing its rules. There was not exactly a veil of ignorance on the vested interests that were in a position to protect themselves at Greece’s expense.

1. Charles Forelle, Stelios Bouras, and Alkman Granitsas, “Greece Passes Key Debt Test,” The Wall Street Journal, March 9, 2012.