At the risk of sounding like a certain credit card commercial, I thought it useful to paint a quantitative picture of what the financial analysts and industry commentators have made of the Deepwater Horizon/BP oil spill so far:
- Total Costs of the clean up to date = USD3Bn
- Value wiped from BP’s market capitalisation since April 2010 = USD91Bn
- Daily costs of the clean up = USD100m per day
- USD20Bn pledged for a compensation fund for those affected by the spill
- BP annual dividend suspended for 2010 = USD10Bn
- Potential fines incurred under US anti-pollution laws to date (@USD4300 per barrel) = USD9 billion
No doubt the economic costs are staggering, and coupled with the disastrous environmental aftermath it is easy to pillory BP and its CEO Tony Hayward for their actions and conduct.
One would also find the irony of the video below from 2009 in which Mr Hayward is being quoted as saying :“We had too many people who wanted to save the world…..we lost sight of the fact that our primary purpose is to create value for our shareholders”.
Whilst the quote may well have been taken out of context, it serves as a timely reminder that a corporation’s actions through its executive directors is ultimately motivated by their original purpose of existing – for the shareholders.
Indeed some of BP’s institutional shareholders feel they are also victims of the disaster and are seeking to form a class action against the company. Lawyers will allege that BP’s management, led by CEO Tony Hayward, misrepresented the company’s true safety record thereby artificially inflating its share price.
To me this example epitomises an illogical divide in the responsibility and culpability of shareholders and their demand for financial returns. George Monbiot of The Guardian has been critical of the wider economic ramifications being debated in relation to the financial costs to BP of the spill “(pension) fund holders now attacking it (BP) for deploying the dangerous strategies they endorsed….they should be suing themselves”
So what can be done?
Shareholders should be recognising the responsibility and power they hold in being able to table and vote on certain motions though their investment as company boards are ultimately accountable to the equity owners.
Two main forms of action that can be undertaken by shareholders to send a message to the company’s managers are:
- Withdrawal of funds/sale of investment – In 2002 Henderson Global Investors in the UK suspended BP from their socially responsible investment funds over concerns around safety problems in BP’s Alaska operations.
- Shareholder activism – recent public backlash over executive pay has been demonstrated through shareholders rejecting director remuneration proposals. Eg. In 2009 Royal Dutch Shell suffered the largest shareholder revolt in UK corporate history after its controversial remuneration report was voted down.