Find Insurance Online

In Senate testamony on May 11th, 2010,  the three companies did their best to point the finger at each other, with the result that neither BP, Transocean or Halliburton would admit, undoubtedly for liability purposes, any contributory role. In the midst of such liability evasion, those of us in the wider society want to get to the bottom of the accident so future such accidents can be prevented. In pointing the finger at the other guy while ignoring one’s own role, the managers of the three companies are added insult to injury.  The BP executive did not mention that several days before the explosion on the Deepwater Horizon oil rig, BP officials chose, partly for financial reasons, to use a type of casing for the well that the company knew was the riskier of two options, according to a BP document. Specifically, BP managers opted for a “long string” pipe for the well rather than a liner tieback that would have cost $7 million to $10 million but would have added barriers to prevent gas from reaching the surface.  BP managers were not unaware of this risk. The concern with the method BP chose, the document said, was that if the cement around the casing pipe did not seal properly, gases could leak all the way to the wellhead, where only a single seal would serve as a barrier. As another instance of cutting corners to save time and money, BP engineers used just six “centralizers,” rather than twenty-one as recommended by Halliburton, to stabilize the well before cementing it. According to an April 16, 2010 email from BP’s well team leader, the problem was that the extra centralizers would have taken ten hours to install. Another official wrote of the decision: “Who cares, it’s done, end of story, will probably be fine.”   BP managers also decided not to take twelve hours to completely circulate the heavy drilling fluid in the well that would have enabled detection and removal of any leaking gas. BP also skipped a test to determine if the cement had properly bonded to the well and rock formations. A petroleum engineer independent of BP told a congressional committee that the decision was “horribly negligent.”



Workers from the rig and company officials said that hours before the explosion, gases were leaking through the cement, which had been set in place by the oil services contractor, Halliburton, which Dick Cheney once ran. But it was not merely the casing and cement that were problematic. On 60 Minutes on May 16, 2010, a worker who was on the rig when the accident happened spoke of a BP manager overruling a Transocean manager to cut corners, such as beginning to drain the pressure fluid from the well before the third “cork” was installed.  The methane was able to reach the rig’s engines because there was insufficient pressure to keep the gas down in the well.  Also, a BP manager had earlier ignored the worker’s warning that there were shreds of rubber coming up in the drilling–the rubber being from the device that was supposed to take pressure readings (e.g., whether there is gas in the well).  Nevertheless, the BP manager who testified before the Senate blamed Transocean and Halliburton managers, and on the morning after the 60 Minutes interview BP’s COO said he was just focused on the clean-up and knew nothing of such “details” even though his specialty was in development and exploration. Both in cutting corners and in ignoring his job description, BP’s COO demonstrates a willful disregard for societal norms wherein society itself is protected and accountability is accepted.  Sadly, this attitude is not uncommon in the business world.

Perhaps as business operations expand in businesses too big to fail, the societal dangers in the attitude are magnified because more damage can result. In other words, it becomes increasingly dangerous to a society to allow such an attitude to exist.  Where societal norms are ignored by business managers, perhaps the societal norm that allows for their authority should be rescinded as well. This is a social contract reading of society, wherein if one side of the norms are broken, the other side is deemed invalid as well.  The problem is that social contracts unravel rather slowly or incrementally, such that a dangerous attitude can be allowed to remain in a position of authority.  It is worth investigating whether violating societal norms is actually detrimental to a company’s bottom line. 

To the extent that a social contract has a certain inertia, it may be that the bottom line can survive long enough to allow the attitude to survive and perhaps even prosper.   These matters are distinct from questions of justification, which lie in the field of business ethics, and from those of whether more government regulation is needed, which lie in the field of business and government. We can define corporate social responsibility as meeting the general expectation in a society that people admit to their wrong-doing or mistakes and make amends.  This is different from the ethical question of whether people should admit to their wrong-doing or mistakes and if so why.  It is also distinct from the question of the proper relationship between business and government.  Business and society involves the relationship of business interest and societal norms.  To treat the latter (or the former, for that matter) as ethical requires ethical justification, which is more than simply aligning business and societal norms.  In other words, a societal norm is not in itself ethically justifying (consider Nazi Germany as a case in point).  With these distinctions in mind, I turn now to the field of business and society.

I contend that the people at BP (and Halliburton) admitting to their role and paying for economic damages incurred by third parties would be more important than BP’s charitable giving, even if some people in the wider society may have let BP off the hook for the accident if the company’s managers had decided to announce a new philanthropical project unrelated to the accident. Working on another society problem does not make up for having not admitted to BP managers' negligence.  Culpability, on other words. cannot be obviated or transferred so easily.

Too often, business managers use the term “responsibility” even as they are evading it for financial reasons. BP initially estimated the daily output of the leaks at between one and fourteen thousand barrels a day; BP picked the low end-point because the amount of fines the company would pay was tied to the volume. That the company managers were misleading the wider society didn’t seem to factor into their financial decision. As a result, the anticipated damage to the Gulf (and the world) was not sufficiently appreciated in the wider society. The convenient use of  the term “responsibility” can be gleemed from the Senate testamony of Lamar McKay of BP.  “As a responsible party under the Oil Pollution Act,” he said, ”we will carry out our responsibilities.” But he quickly added that Transocean “had responsibility for the safety of the drilling operations.”  That is to say, he acknowledged the obligation to be responsible for his mistakes while conveniently ignoring the mistakes made at his company. By pointing the finger at people at another company, McKay was contradicting his own asseveration on being responsible.  It is like he was lying even as he insisted that people shouldn’t lie.

Pointing the finger is childish, even if it is done for financial reasons. Steven L. Newman, president and chief executive of Transocean, did no better that the BP executive when he said that the accident had to have arisen from elements of the work done by other companies. “Were all appropriate tests run on the cement and the casing?” he asked, apparently implicating Halliburton. Tim Probert of Halliburton said in turn that all work on the casing by his company was carried out “as directed by the well owner,” meaning BP.  Suggesting that the men act like adults and take responsibility for what their coworkers had done (or failed to d0), the ranking Republican minority member on the Senate Energy and Natural Resources Committee, Lisa Murkowski of Alaska, told them to stop the finger-pointing. “I would suggest to all three of you that we are all in this together,” she said. Notice that she is pointing to a societal norm, rather than using an ethical rationale. She is essentially asking the executives to step up to societal standards. Unfortunately, there was no sign that the three boys would take responsibility for their actions, as they continued on, still oriented to the other guy.  The cost to society includes a more difficult route to uncovering the cause of the accident and possible accidents to come from BP. The company’s clean-up efforts do not address the cause of the accident; the spending does not go far enough. In other words, BP can’t spend its way out of it…or can it?  Are there societal norms that allow it to suffice?  My question is this: why hasn’t the social contract unravelled that has allowed the managers at BP to continue to hold their jobs (and BP to remain in business)?  Is economic liberty at play here–society saying that there is room in such liberty for a shirking attitude?

Sources:
http://www.nytimes.com/2010/05/27/us/27rig.html?hpl
“Congress Says BP Crew Focused on Costs,” The Wall Street Journal,  June 15, 2010, p. A5.

As BP was wrestling with stopping the oil leak in the Gulf of Mexico and cleaning up the oil, a controversy broke out between the company’s stockholders and the  US Government on whether any dividends should be declared and paid before the company has taken care of the Gulf.  BP earned more than $16 billion in 2009. Based on higher oil prices, in the first quarter of 2010 the company’s profit more than doubled to $6.08 billion from $2.56 billion  in the first quarter of 2010.  BP’s dividend payment accounted for about £1 of every £8 handed out by British companies in 2009. Given the higher profit in the first quarter of 2010, stockholders were expecting more in dividends.

The question was how much the company’s costs in regard to the Gulf would or should cut into the dividents; the political question was whether any surplus wealth should be paid to investors before the company’s legal and moral obligations were taken care of in the Gulf region.  Although not suggesting that their company was not obligated to stop the rupsure and fund the clean up, BP officials claimed that their company had already paid in other ways.

Already by mid June, 2010, BP shares had fallen more than 40 percent since the fatal explosion at the Deepwater Horizon drilling rig in April, wiping more than £50 billion, or $73 billion, from the company’s market value. The drop came after lawmakers in Washington called on BP to suspend its dividend and advertising campaign to pay for the cleanup, and a senior official said the Justice Department was “planning to take action.” Most shareholders rejected concerns that the costs of a cleanup and possible damages could force BP into Chapter 11 bankruptcy protection, and said the drop in the share price is not justified by the value of BP’s assets.  BP officials indicated the company’s executives would decide in July whether to keep the quarterly dividend at 14 cents a share for the second quarter. In 2009, the company paid about $10.5 billion in dividends.

By June 10 2010, the company’s cost in regard to the oil spill had reached about $1.43 billion. A BP official said it was “too earlier to quantify other potential costs and liabilities associated with the incident.”  Earlier in June, BP officials told investors that the company had $5 billion cash on hand and that it was generating “significant additional cash flow” as the price of oil remained above $60 a barrel. BP had 18 billion barrels of proved reserves and 63 billion barrels of resources at the end of 2009 that it could draw on.

Iain Armstrong, an analyst at investment manager Brewin Dolphin in London agreed with BP that the company had enough money to pay for the cleanup efforts and also rejected any potential concern that the company might not be able to pay for its debt. “It’s gotten completely out of hand,” Mr. Armstrong said. “It’s a totally overpoliticized situation. There is a disconnect between reality and BP being totally lambasted… . Ironically, by being extremely strong financially, BP has become a target here,” he said. I contend, however, that BP became a target because of its atrocious safety record and its culpability at Deepwater Horizon.

BP falsified regulatory documents by indicating that there was zero percent risk of an off-shore rig accident creating a rupsure and that the company had the technology to stop and clean up such a problem.  Tony Hayward admitted after the explosion that BP lacked the “tools you would want in your tool kit” to close a blown deep-water well.  In other words, the earlier claim to have had the technology was a lie (which MMS never bothered to disconver, as the agency had been captured).  Lest it be said that no group of people is perfect, BP’s history attests to justifiable blame.

In 2005, a blowdown drum overfilled with liquid hydrocarbons at BP’s Texas City refinery killed 15 and wounded 170.  BP was cited for old equipment, overworked and unsupervised employees and contractors, and managerial inattention to safety. The US Chemical Safety Board put the cause as “organizational and safety deficiencies at all levels.”  Meanwhile, a shoddy ballast system was found at BP’s offshore platform Thunder Horse.  In 2006, a corroded pipeline in BP’s Purdhoe Bay field in Alaska leaked thousands of barrels. In the following year, Tony Hayward became the CEO. He promised to make safety his priority. Yet in 2009, the Occupational Safety and Health Administration fined BP a record $87.4 million for more than 700 safety violations at the Texas City refinery. Nonetheless, David Nicholas, a BP spokesman, wrote, “Safe, reliable operations have been and continue to be our number one priority.”  Not only has this not been the case, BP managers (and lawyers) have been more interested in minimizing liability than being responsible for the consequences of the lapses.

At Deepwater Horizon, when an employee discovered that one pod of the blow-out preventer was leaking, a manager simply shut it down and used the other pod (rather than fixing the leak). Another worker found such low hydrolic pressure in the device that he knew it was time to leave.  In Congressional testimony, Tony Hayward said BP regarded the equipment as the fail-safe mechanism, even as blow-out preventers in general have a 44% failure rate and the device at Deepwater Horizon was known to have a broken pod. Furthermore, after the well fire, the company low-balled the estimated volume of oil going into the Gulf in order to minimize its future liability.  During the first week after the explosion, the company’s estimate was 1000 barrels per day.  During the second week, the company estimated 5000.  Meanwhile, company documents show an estimate of 100,000 per day as a worse-case scenerio. That the wider society would not be sufficiently informed of the magnitude of the clean-up required did not seem to bother the managers at BP, whose concern was mainly to minimize the company’s liability (and thus maximize their stockholders dividends).  Selfishness among the culpable is telling. At the very least, responsibility can be defined as paying for the harm consequent to one’s mistake.  Satisfying such responsibility has priority over dividends, which are residual, after all. In making the protection of dividends (and the stock price) a priority, BP’s managers evinced a reversal of priorities that was ahistoric for the modern corporation.

It is for these reasons, not because BP is a giant corporation or is British, that BP was the target of such scathing rebuke by the American public and the American governments. Mr. Armstrong said that President Obama should not forget that 40 percent of BP shares are owned by United States shareholders. “So he’s not doing them any favors either,” he said. Again, I beg to differ. Acting in the public interest, Barak Obama is doing us all a favor.  Of course, the politics of this matter were no doubt different in Europe.

London’s mayor, Boris Johnson, said Thursday that the drop in BP’s shares was slowly becoming a political issue in Britain. “When you consider the huge exposure of British pension funds to BP and the BP share price and the vital importance of BP then I do think it starts to become a matter of national concern if a great British company is being continually beaten up on international airwaves,” he told BBC Radio on June 10th. However, Reuters quoted Prime Minister David Cameron as saying, “This is an environmental catastrophe. BP needs to do everything it can to deal with the situation, and the U.K. government stands ready to help. I completely understand the U.S. government’s frustration.”

In a general sense, the governments are relatively oriented to the public interest, whereas BP, as a private corporation, has a fiduciary obligation to its stockholders.  Robert Reich referred to this obligation as a company’s “corporate social responsibility” on the Countdown with Keith Obermann show on MSNBC on June 14, 2010.  “Social” can admittedly be in reference to stockholders’ social concerns (though “social concerns” is rather vague); however, the term can also refer to society, which is larger than any group of stockholders. To BP’s management, it makes perfect sense in terms of corporate governance to declare and pay dividends as long as the company has enough resources to cover its actual and contingent liabilities related to the gulf.  Considering the billions that the company has in oil reserves, it could satisfy both. In an economic sense, the dichotomy may not make sense.  However, politically, there is resistance to the declaration and payment of dividends, and this “irrational” element is ignored by BP to its economic peril.  Essentially, the political reaction is challenging the right of the company to continue to exist. At the very least, the objection is that the company should not be run as normal.  In other words, the political claim is ultimately that BP has broken the social contract that legitimates its right to conduct business within the US.

Lest we have become too ahistoric, it might be worth our while to study the history of the modern corporation.  Originally, the modern joint-holding company was delegated a function to do for the public by a government.  If the company had enough left over after performing the function, it could give the surplus to the stockholders.  Through the twentieth century, the interests of the stockholders became increasingly central, eclipsing even the “delegated public function” aspect of the charters.  Essentially, a society gives a group of people permission to do a function. This implies that doing the function, and taking care of any adverse consequences caused by the company, are primary.  The political demand of the American governments is that dividends not be declared or paid until BP has rectified the Gulf region as required by law, societal norms, and ethical standards. From the standpoint of BP having been granted permission to operate in the US (leaving aside the billions in contracts from the US Government), the demand is not so much the product of irrational exuberance.

In effect, BP’s managers ignored systemic risk.  In being the closest we have to anyone able to solve the problem, BP is too big to fail. Managers at the company lied about being able to handle a major rupture. The MMS regulatory agency went along, having been coopted by the industry it was to regulate.  This is a failure of business as well as government.  All the emphasis on BP taking orders from the US Government in the wake of the rupture can be interpreted as “reaction formation” given the powerlessness felt in government having been so dominated by private interests ahistorically oriented to their stock price.  If the Gulf of Mexico seemed broken, this condition could be read as a symptom of a political-economic rupture.  I suspect that big business has gotten too big—taking too big risks, capturing governments, and acting with impunity.  As if the financial crisis of 2008 was not enough of a warning call, the oil spill of 2010 depicts too big to fail in very concrete terms.  Whether governments have sufficient power to reassume the driver’s seat in delegating public functions to private commercial associations depends on whether legislators have enough backbone to limit the size and wealth of big business.

Sources: http://www.nytimes.com/2010/06/11/business/11bp.html?hp
Countdown with Keith Obermann, MSNBC TV, June 21, 2010; Byran Walsh, “The Spreading Stain,” Time (June 21, 2010), pp. 51-59.

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 artic, 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 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: http://www.nytimes.com/2010/07/08/business/global/08ocean.html?_r=1&hp

See related: http://euandus3.wordpress.com/2010/06/10/bp-dividends-to-stockholders/   http://euandus3.wordpress.com/2010/06/17/tony-hayward-sticking-to-script-safety-is-bps-priority/

In a 5-4 decision on January 21, 2010, the US Supreme Court ruled in Citizens United that federal restrictions on corporate spending in elections constituted a violation of free speech. Critics called it wrong to equate corporate “speech” with individual speech and said the ruling would allow special-interest money to flood election campaigns. The bipartisan nature of the opposition to this ruling is striking in these largely partisan times. The court’s ruling is opposed, respectively, by 76, 81 and 85 percent of Republicans, independents and Democrats; and by 73, 85 and 86 percent of conservatives, moderates and liberals. Majorities in all these groups, ranging from 58 to 73 percent, not only oppose the ruling but feel strongly about it. Even among people who agree at least somewhat with the Tea Party movement, which advocates less government regulation, 73 percent oppose the high court’s rejection of this particular law. In addition to overwhelming opposition to the decision, there’s also bipartisan support for Congress to try to reinstate restrictions on campaign spending by corporations and unions.

So when Target sent a check for $150,000 to MN Forward, a Minnesota-based political group backing a gubernatorial candidate with penchant for opposing gay rights, people wondered what business Target has in taking sides on that issue, even if the group was also pro-business. MN Forward endorsed and was paying for ads for the Republican gubernatorial candidate Tom Emmer. On Emmer’s website he defines marriage as a “union between one man and one woman” and he has come under fire for his $250 contribution to a Christian rockband that has been known to speak harshly of gays. Emmer told the Minnesota Star Tribune that the controversial rock band “You Can Run But You Cannot Hide,” were “nice people,” following band member Bradlee Dean’s reported comments that Muslim countries that support execution of gays are “more moral than even the American Christians.” To be sure, the managers of Target were not spending their companies’ “free speech” in defense of such a view, but that the wealth qua free speech was nonetheless being spent on a candidate who had made such a comment makes the Target CEO an unwitting accomplice.
Rather than viewing Target managers distancing themselves from Emmer’s view of gays as corporate social responsibility, I contend that the problem lies in taking spending as speech. Put another way, Target would have better stores if it sticked to its knitting, as it were.

Diverting money even to political campaign groups that further a pro-business agenda is off from the business’s main business, which in the case of Target is to sell retail. Besides the collateral damage from unwittingly helping campaigns on issues that are not even pro-business, diverting cash reserves to political campaigns puts corporations in the business of electoral politics, which is another sort of retail. In the case of Target, it is not as though the stores could not be improved from a business standpoint.  Once I accompanied a foreign friend of mine to a Target to return the coat he had given his wife for Christmas. Because he had paid by check, he had only the option, according to the “customer service” employee, of exchanging it. He could not get his money back—though he could have had he paid cash or by credit card. The “reasoning” of Target’s managers was that a check is “like kind” to an exchange voucher.  My friend and I left the store committed not to return, and I have not. Even in terms of influencing electoral politics in a pro-business general direction, Target’s management has plenty else to do closer to home—if indeed it is a home.  Rather than being socially responsible, a company ought to focus on its knitting.  That—doing business well—is the responsible thing to do because it is what a business’s owners expect from the managers of their property. Rather than being able to influence electoral politics beyond their expertise, managers ought to be restrained more by stronger corporate governance. To be sure, managers have a tendency to over-reach. Treating their spending decisions as “speech” only enbles them.

Sources:
http://blogs.abcnews.com/thenumbers/2010/02/in-supreme-court-ruling-on-campaign-finance-the-public-dissents.html
http://abcnews.go.com/Business/target-best-buy-fire-campaign-contributions-minnesota-candidate/story?id=11270194

Typically, responsibility is something people working in a business presume applies to the other guy…whether a customer, supplier or distributor.  The idea is that then the other guy will pay for the problem.  That someone working in the business might have been at fault is not even considered, at least outwardly, in this mentality of otherness-responsibility.  Responsibility here means “I won’t pay; you must pay!”  It is essentially immature self-centeredness and cheapness used as a weapon.

In general terms, responsibility follows, or depends upon, there being some action thought to be required of someone.  Only if Susan is to pick Billy up at practice at 4:30pm is it her responsibility to do so.  The attribution of responsibility depends on the premise that Susan is required, or has agreed, to make the pick-up.  Were it unclear whether she or say Mary were to make it, Susan could reply to someone’s claim that she is responsible for picking up Billy that she is not responsible because it is Mary’s turn.  The attribution of responsibility depends on an agreement as to function or action coupled with a particular agent.   In the case of a businessperson telling a customer what the customer’s responsibility is, the customer could reply “I did not agree to do X so I am not responsible for it; in fact, you are responsible for it because your advertisement states that your firm does X.”  So disagreements about responsibillity are actually disagreements as to who does what.

Corporate Social Responsibility as a movement presumes that managers do X beyond their respective firm’s maximizing or satisficing shareholder returns.   The managers have a fiduciary responsibility to act in the interests of the owners of the wealth that is the corporation because it is a requirement that the managers do so.  Expanding the managers’ functions beyond maximizing returns (and minimizing cost consistent with those returns) is a matter on which reasonable people can disagree because the question is really about what sort of society we want.   However, using responsibility as a way of imposing such an expansion beyond that which has been agreed to is to use the term prescriptively—meaning that there is over-reaching involved.   I would like managers to do Y as well as X, so I declare managers to have a responsibility to do Y (as well as X).   Responsibility really isn’t the right word here because the underlying agreement on the agent-function matter has not been established.  In other words, responsibility properly follows from a given agent-function rather than institutes it.   Claiming that corporations have a responsibility to act in concert with public opinion or extant social norms—to the extent that it goes beyond the business profit calculus—is to use responsibility in a way that presumes more than is presently the case.  This use of the term is really an instance of ideological prescription rather than a reminder of an agreed social contract that has modified the corporate fidicary duty to the owners of the private property.    Using the term responsibility to create an agent-action foundation puts the horse before the carriage.

So we over-reach when we say that the bankers of the commerical and investment banks that are too big to fail have a responsibility to act within public opinion on the bailout (e.g., concerning bonuses and trading on the banks’ own books).  Even if it is in the long term interest of the financial institutions that the financial system remain viable, the managers correctly point out that their responsibility (i.e., agreed upon actions) is to act in their stockholders’ interests.   To say that the big banks had a responsibility to rescue Lehman Brothers in September, 2008 even if doing so is not in their respective stockholders’ interests is essentially to express the public’s (and government’s) wish that Wall Street step up to the plate and do what is good for the system.   To make saving a bank too big to fail part of the big banks’ responsibilities, there would have to be a requirement that they do so (unless they agree that it is part of their activities).   That is to say, there would have to be a law or regulation because otherwise there is not apt to be the sort of mutual agreement out of which responsibilities can be extracted.  A person can say, “the law says you must do Z, therefore it is your responsibility to do Z.”  The response can’t very well be “Well, the law doesn’t apply to me so it is not my responsibility to do Z because I haven’t agreed to do it.”  This is not to say that a typical manager wouldn’t like to use such a line if he or she could get away with it.  Such a self-maximizing mentality makes the legal foundation of responsibility all the more important.

On the question of whether more government regulation is needed for banks too big to fail (as well as health insurance companies), I would shelve the use of the term responsibility and look instead at the mentality of managers in general (as well as in the industry in question).   Whereas the Senate can be likened to a herd of cats instinctively unwilling to be managed, a corporation can be likened to cats circling tuna.   The tuna is their required function: to act in the interests of the stockholders (typically short term).  To expand a business manager’s function to include working against systemic risk (banking) and working so all American citizens are covered (health-insurance) is an excercise in futility unless these functions dovetail with the stockholder/profit interests.  So in addition to government regulation being necessary (as responsibility is not sufficiently viable as a constraint because the agent-action foundation has not been established),  regulators would have to monitor the companies to keep the managerial feet to the fire.  Also, the regulators would have to be monitored because of the managers would have an incentive to capture the agencies that otherwise pin in the firms.  The managers will constantly be trying to turn toward the tuna.  Whether hardwired or socialized by managerial culture to do so, managers can be expected to incessantly strive for more tuna.

As an example of such striving being at the antithesis of constraint, logging companies that sold forests to the US National Parks in the mid-twentieth century continued logging even after the managers knew the sales had gone through.  Also, the managers of the banks too big to fail fought financial regulatory reform in the wake of the banks’ own culpibility in the crisis of 2008.  In addition to reading this as presumption to excess, it can be interpreted as the allure of the tuna always there.  Even if a cat could feel guilty for having knocked over a vase on the way to the food, the animal would turn right around and fight efforts to thwart it from the tuna.  The guilt is extrinsic to the animal as it pursues the tuna.  That is to say, we impose ought on an activity that is simply an “is” to the cat.   As Hume points out, you can’t get ought from is.  The cat’s mentality is essentially to keep striving for tuna, which ideally (to the cat) means ignoring constraints (if possible).   If managers could routinely ignore the law when it is in their interest, it is futile to believe that they would be the sort of creatures that would allow themselves to be guiled into acting within the contours of social norms.  What I am getting at is this: In the CSR movement, there is far too much reliance on the good faith of managers of companies—as if they can be lured away from the tuna, even for a minute for a good cause. The CSR movement ignores the managerial nature, or mentality, or tries to modify it with insufficient force.   The mentality is far too intractable and the use of responsibility far too over-reaching for CSR to be viable in the real world. Essentially, the CSR movement, even in its beginnings in the 1950’s by a few well-meaning though naive businessmen, presumes Hume’s naturalistic fallacy as somehow invalid (meaning that extant societal norms can be taken as normative on their own basis and managers can be presumed to have a responsibility to act in sync with them even if doing so is not in the stockholders’ interest).

We should not rely on CSR or good corporate citizenship in lieu of government regulation when business firms (or entire industries) put us or our society at risk of harm.  The business calculus understands requirements, not “oughts,” and responsibility follows (rather than establishes) the requirements.   To presume otherwise is mere wishful thinking along with a dash of imposing, which is really the self projecting itself on to the world—making the world in its own image.

In 2008, drug companies raised the wholesale prices of brand-name prescription drugs by about 9 percent, according to industry analysts. That added more than $10 billion to the nation’s drug bill, which was on track to exceed $300 billion in 2009. By at least one analysis, this was the highest annual rate of inflation for drug prices since 1992. “When we have major legislation anticipated, we see a run-up in price increases,” says Stephen W. Schondelmeyer, a professor of pharmaceutical economics at the University of Minnesota.  A Harvard health economist, Joseph P. Newhouse, said he found a similar pattern of unusual price increases after Congress added drug benefits to Medicare a few years ago, giving tens of millions of older Americans federally subsidized drug insurance. Just as the program was taking effect in 2006, the drug industry raised prices by the widest margin in a half-dozen years.  “They try to maximize their profits,” Mr. Newhouse said. However, the drug companies claimed they were having to raise prices to maintain the profits necessary to invest in research and development of new drugs as the patents on many of their most popular drugs were set to expire in a few years. The drug makers were proudly citing the agreement they had reached with the White House and the Senate Finance Committee chairman to trim $8 billion a year — $80 billion over 10 years — from the nation’s drug bill by giving rebates to older Americans and the government. However, if realized, the price increases in 2009 would effectively cancel out the savings from at least the first year of the Senate Finance agreement. Moreover, some of the critics claimed that the surge in drug prices could change the dynamics of the entire 10-year deal. “It makes it much easier for the drug companies to pony up the $80 billion because they’ll be making more money,” said Steven D. Findlay, senior health care analyst with the advocacy group Consumers Union.

My analysis:

That the firms were trying to maximize their profits ought not be viewed as  new thing.  That is what they do.  To expect a shark not be be a feeding machine is at the very least highly unrealistic.  It is not fair to the shark that was designed to feed.  If a shark is able to feed, it will.  If a drug company is able to charge more for its products, it will.   It is interesting that the question of motive is deemed relevant.  I myself wonder whether the price increases are really motivated by the anticipated expirations of patents or the $80 billion to be paid as part of the health-care reform.  Can I trust the self-serving explanation of the firms in the face of the experts’ studies of historical price patterns before major pieces of legislation affecting the industry?  A shark will feed; we don’t ask about its motives.  Were a shark to have reasons, they would be whatever furthers its feeding. Whether it is lying would be irrelevant.  In fact, the normativity of truth-telling would not register, as it does not have a taste-element.   We project onto the shark when we presume a motive or that a normative judgment is pertinent.   If the shark can feed, it will.  It is a feeding machine. Social responsibility does not make sense to a feeding machine or to those humans in their capacities in running the machine. For them, it is a technical matter. To realize the wider social goals through business, the wider goals must be put in line with the feeding incentives. As the umpire and protector of the chessboard, the government can structure the rules of the game--and there must be rules for any game--such that the incentives match. The question is perhaps whether the rules might function as nets and suffocate the sharks, or channel them as mighty yet dangerous swimmers.

If we as self-governing citizens do not want the sharks to feed on a given plant, we could make it very costly for them to do so. Simply forbidding them is apt to be disobeyed, and thus costly to enforce. Telling them they shouldn’t feed on something tasty simply does not make sense to a shark. They will be like cats circling an open can of tuna, constantly trying to figure a way around the artificial barrior.  As an alternative, leaving the matter to the sharks themselves to regulate would be like having the wolves police the hen house. In terms of social responsibility, getting mad at a shark for having what we presume is the wrong motive is utterly futile.  We tend to assume or project motives on business managers other than simply to feed. If we want to delimit the feeding, we might look into how the tank we have designed permits or even encourages over-feeding. That is to say, we can change the tank. 

We can’t very well change the shark without making it no longer a shark.  We could pass legislation outlawing profits, then we would not have companies, and they produce our products that we consume.  We want some feeding.  We are convinced that we need some feeding in the tank.  We just don't want such feeding that compromises the tank (or us). The question is how to prevent over-feeding at our expense. Presuming the shark will respond to our charges of its immoral motive is a non-starter, but we can redesign the tank, which the shark must take as a required constraint. 

For example, we can apply anti-trust law such that any sharks that become too big for the tank get chopped up and become shark-food.  We can install steel bars in the tank to limit where the sharks can feed (i.e., maximum prices or profits).   That the drug companies are price-setters rather than takers strongly points to the need for anti-trust enforcement.  Of course, if the sharks are threatening to eat our representatives, we can’t count on our politicians to give us straight talk on significant reform of the tank any time soon.  Rather, they will try to convince us that they have sufficiently modified its structure, when in fact they are enabling the sharks to continue over-feeding.  Perhaps the officials are sharks themselves.  Sharks, whether in business or government, policing a tank of sharks while the rest of us wonder why the over-feeding goes on and on is simply a recipe to get gouged, or bitten.

Source: http://www.nytimes.com/2009/11/16/business/16drugprices.html?_r=1

Reacting to the debt troubles of Dubai World (which was carrying $59 billion in debt in 2009), the director general of the Dubai Department of Finance, Abdulrahman al-Saleh, said  “Creditors need to take part of the responsibility for their decision to lend to the companies. They think Dubai World is part of the government, which is not correct.”  This sentence strikes me as odd.  Al-Saleh was suggesting that in deciding to make a loan to a company, a banker takes a risk, which entails the possibility of working with the company if it comes up short in cash.  Is such flexibility in the vocabulary of the typical loan officer, much less in the culture of major banks?  I doubt it.

On the same week that Dubai World’s problems were being made public, the Obama administration announced plans to pressure mortgage companies to reduce payments for many more troubled homeowners, as evidence was mounting that a $75 billion government-financed effort to stem foreclosures was foundering.  "The banks are not doing a good enough job,” Michael S. Barr, Treasury’s assistant secretary for financial institutions, said in an interview. “Some of the firms ought to be embarrassed, and they will be.”  Even as lenders had accelerated the pace at which they were reducing mortgage payments for borrowers, a vast majority of loans modified through the program remained in a trial stage lasting up to five months, and only a tiny fraction had been made permanent. Mr. Barr said that the government would try to use shame as a corrective, publicly naming those institutions that move too slowly to permanently lower mortgage payments.  However, shaming is not the only weapon in the government’s arsenal. 

The Treasury Department waited until reductions were permanent before paying cash incentives that it had promised to mortgage companies that lowered loan payments. “They’re not getting a penny from the federal government until they move forward,” Mr. Barr said.  A week after Barr’s statement, the Treasury Department said it would withhold payments from mortgage companies that weren't doing enough to make the changes permanent. ”We now must refocus our efforts on the conversion phase to ensure that borrowers and servicers know what their responsibilities are in converting trial modifications to permanent ones,” Phyllis Caldwell, who was named to lead the Treasury Department’s homeownership preservation office, said in a statement.  So here we find that dreaded word—responsibility—as if it applied to the mortgage issuers as well as the homeowners.  Considering Senator Dick Durbin’s statement that the banking industry owns Congress (which he said after the industry’s lobby effectively scuttled a bill to allow judges to adjust mortgage terms for homeowners in trouble—even as the banks played a role in the bad mortgages), it is not surprising that even two years later, little benefit had come to mortgage borrowers from the U.S. Government, even as the banks had been rescued by TARP funds.

The banking industry has been more powerful, even though it was at least partially complicit in the crisis. Of course, Wall Street bankers have instinctively resisted claims that they were part of the problem that led to the financial crisis in September of 2008. Al-Saleh’s admonition to lenders that the bankers in his country step up to the plate was ignored in favor of the mantra, “it's the other guy’s fault so why should I pay?  I'm not budging.”  This is the mentality of a spoiled child.  The rest of us don’t see it as such when it applies to people in expensive suits because we are too impressed with the trappings of money and power.  As long as bankers get away with making their own rules in the halls of governments, the power ties will remain as though undisciplined children.

Sources: http://www.nytimes.com/2009/11/30/business/global/30dubai.html?ref=world ; http://www.nytimes.com/2009/11/29/business/economy/29modify.html?scp=1&sq=pressure%20mortgage%20companies&st=Search ; http://www.msnbc.msn.com/id/34204856/ns/business-real_estate/

Long before cellphones became ubiquitous, industry pioneers were aware of the risks of multitasking behind the wheel. Their hunches have been validated by many scientific studies showing the dangers of talking while driving and, in 2009, of texting. Despite the mounting evidence, the industry built itself into a $150 billion business in the United States largely by winning over a crucial customer: the driver. For years, it marketed the virtues of cellphones to drivers. Indeed, the industry originally called them car phones and extolled them as useful status symbols in ads, like one from 1984 showing an executive behind the wheel that asked: Can your secretary take dictation at 55 MPH? “That was the business,” said Kevin Roe, a telecommunications industry analyst since 1993. Wireless companies “designed everything to keep people talking in their cars.” The CTIA, the industry’s trade group, supported legislation banning texting while driving. It has also changed its stance on legislation to ban talking on phones while driving — for years, it opposed such laws; then it became neutral. “This was never something we anticipated,” Mr. Largent, head of the CTIA, said in 2009.  However, Bob Lucky, an executive director at Bell Labs from 1982-92, said he knew that drivers talking on cellphones were not focused fully on the road. But he did not think much about it or discuss it and supposed others did not, either, given the industry’s booming fortunes. “If you’re an engineer, you don’t want to outlaw the great technology you’ve been working on,” said Mr. Lucky, now 73. “If you’re a marketing person, you don’t want to outlaw the thing you’ve been trying to sell. If you’re a C.E.O., you don’t want to outlaw the thing that’s been making a lot of money.” One researcher who spoke up about his concerns was quickly shut down. In 1990, David Strayer, a junior researcher at GTE, which later became part of Verizon, noticed more drivers who seemed to be distracted by their phones, and it scared him. He asked a supervisor if the company should research the risks. “Why would we want to know that?” Mr. Strayer recalled being told. He said the message was clear: “Learning about distraction would not be very helpful to the overall business model.” So why did the industry lobby turn to neutral in 2009, when it had for years resisted any governmental regulation on cell phones? 

It is important to remember the rationale of the “overall business model” so we don’t project some sort of fuzzy corporate social responsibility motive.   The industry’s shift to neutral matches a trend in its bottom line:  in the 1980s and early ’90s, wireless companies got 75 percent or more of their revenue from drivers, a figure that fell below 50 percent by the mid-’90s and is by 2009 below 25 percent.  The negative publicity on cellphones from distracted drivers killing people could cost the industry more (in dollars and cents) than what it could otherwise make by selling phones to more drivers.     Public affairs offices and industry lobby groups are simply reflections of the financial interest of the “business model.”   We ought not be fooled, as if an industry suddenly sees the light and does what is right.  Of course, it is in the financial interest of an industry to have us view it as such, but this is of course just more of the same.   Remember that the cell phone industry had reason to know of the problem of distracted drivers but ignored it in following a single-minded profit trajectory.

Source: http://www.nytimes.com/2009/12/07/technology/07distracted.html?ref=business

On a cold and rainy weeknight in the early spring of 2010, I treated myself to a light movie (Valentine’s Day) at a small movie theatre. Only a handful of moviegoers were there that night.  Before the film, I discussed movies generally with the manager, who had been playing cards on his office computer.  He had just one employee working.  She was acting as cashier, concessions clerk, and film projectionist.  The image of the manager playing solitare on his computer while the employee covered these functions reminded me of something that has bothered me about American management more generally.  This in turn prompted me to come upon an insight regarding managing and presiding (which in turn prompted me to write this post).
It struck me that the manager of the small theatre was essentially presiding.  That is to say, he was literally “sitting before.”  He misunderstood management as “being there” in case there are any problems that would compromise the theatre’s viability.  But with just one employee doing conventional tasks, the likelihood of such a manager being called into action for any “macro” problems was pretty remote.  I would argue that he was confusing presiding (something a president does) with managing.  To manage is to be actively engaged in the operations of an organization; it is not to “sit before.”  In other words, being the manager is not a free pass out of taking part in operations.  For example, the theatre manager could have manned the concession stand (or ticket counter) even if the other employee was not busy. The manager - employee distinction has been overdrawn in American business.  In effect, management has been replaced by presiding.

What makes the “management by presiding” oversight particularly interesting is that the reverse has been the case among presidents of large companies (and the US), who essentially manage.  The president of Microsoft, for example, does not function as a figure head.  Rather, he has a managerial function.  I submit that virtually every large American business is misusing the title “president” (and vice-president).  Essentially, what they mean by “president” is just another upper-level manager (with the emphasis on upper-level).  I think it could be argued that very large businesses could use real presidents, whose role it is to act as the figure-head—actively intervening only when intestine arguing within or a major incident compromising the continued viability of the company occur.  An ongoing management role would undercut such a president’s credibility (and power) in stepping in when there really is a major problem.  We see such undercutting in the modern US Presidents, whose ongoing partisanship has compromised the respect they would need in intervening in a major crisis facing the US.  The overwhelming majority of US Presidents have spent their “presiding capital” in putting out bush fires…hence they have too little water left for the rare but potentially devestating major forest fire.

Therefore,  in the US, we have small managers acting like presidents, and harried presidents acting like managers.  I suggest that the “management vs. leadership” fad that so mesmerized American business schools in the 1980s finally be replaced by “managing vs. presiding” because we need to clarify these two roles.  A potentially interesting question involves where to place “leadership” in this new dichotomy.
We should resist the temptation to apply “leader” to both managing and presiding.  Leadership too often in presiding undercuts that role (as one can lead the way to a bush fire), and leadership applied to management at a low organizational level can backfire as presumptuous and pretentious. Leadership applies to presiding only when a president 1) stands for the entire organization or polity in mapping out a general direction that the management/government can follow or 2) actively intervenes in a crisis that theatens the entire organization or polity.  Leadership applies to managing only when operational tasks or legislation are informed by a change in principles or ideal.  Just as managing should not be switched with presiding, leadership should not be applied willy nilly just because it sounds good.

Without realizing it, I was essentially following such a fad when I wrote my dissertation on leadership (and ethics) after swimming through a decade of the “leadership vs. management” fad. I have since dove deep into ethical and political theory to touch a more solid intellectual foundation.  From this vantage-point, I have looked back up at the water’s surface to see the frogs still playing on the surface—jumping from lilly pad to lilly pad as if the green patches were foundations.  For a while, I published articles in the Journal of Business Ethics, only to have a reviewer (and a section editor—a lawyer actually) so obviously not understand the philosophy applied yet still, in a presumptuous manner, procede nonetheless to pass judgment on that which they did not understand.  You can’t fight ignorance, especially when it is puffed up with itself and in a position of power. Would it kill a business ethicist to admit to not understanding Nietzsche, for example?  A while back, I received an email from a business ethics “scholar” boasting of having taught a college course on the philosopher after having read one or two of his books.  Incroyable!  Nietzsche would call such pretentious weakness utterly emetic. The literature on “corporate citizenship”—another fad following on the heels of corporate social responsibility in business ethics—is no better. Here “scholars” who have not studied political theory (beyond a few books) presume to spout their ideology qua scholarship.  I mention all this by way of uncovering the squalid state of the “academic” field that ran with “management vs. leadership” in the 1980s (and into the 1990s).  I would argue now that ethical principles (i.e., business ethics) are not the primary vantage-point from which to study “management vs. leadership.”  One would do better to consult organization theory and the leadership literature in political science.  I would like to think that twenty-first scholarship would put an end the ideological fads masquerading as scholarship and the related dilettantes that true scholars excessively tolerated during the last half of the twentieth century. However, the continued dearth of solid academic scholarship in business ethics and the continued wandering of its herd animals onto extrinsic pastures suggests that we will have to wait a while longer for the decadence of the twentieth century to finally die out.  There are of course exceptions to the rule.  Dr. William C. Frederick, for example, who was one of my professors when I was in graduate school, did some diving of his own. He transcended the superficial fad of corporate social responsibility by swimming down to the more solid rock of Ecology in order to apply principles of that science to human organization.  I am proud to think of Bill as one of my teachers.  We both began our dives in the early 1990s—perhaps we were both tacitly rendering a “verdict by direction” on the extant field of business ethics that had become preoccupied with corporate social responsibility (as if it constituted an ethical principle).  As scholars, both Bill and I wanted something more substantive intellectually.  As human beings, we don’t often know completely why we make changes of direction; we tend not to dive deep enough to question what we are doing and what changes we plan to make.  Yet from hindsight the reasons can be plain as day.

The practice of managers presiding and presiders managing demonstrates the innane tyranny of the status quo wherein doing simply follows doing.  That is: too many people not thinking about what they are doing (or not doing). Too many small-time American managers are like cows, chewing their cud while “lower” herd animals do the heavy lifting.  In true, such managers are herd animals themselves. There is no reason why someone who has a manager title can’t lift too…it comes down to laziness and presumptuousness utilizing “presiding” as a subterfuge.  Furthermore, there is no reason why people in authentic presider offices need to run around like rabbits in order to impose (or reproduce) themselves on others.

Mark Bly, BP’s head of safety and operations, released on September 7, 2010 an internal report blaming not only the company, but also its partners for the Deepwater Horizon rig explosion and oil spill. A spokesman at Transocean quickly lashed out, calling it a “self-serving report” that minimized what was critical: BP’s “fatally flawed” well design. For example, “Over a 40-minute period, the Transocean rig crew failed to recognize and act on the influx of hydrocarbons into the well,” the report states. A BP spokesman declined comment on whether BP staff were also supposed to be monitoring the pressure. Companies such as Royal Dutch Shell monitor all their wells in real time from central locations. Also, the “unstable” cement mixture used by contractor Halliburton allowed hydrocarbons to leak into the well, the report said. However, it was BP managers who decided to use a long production string rather than a casing tie back, decreasing the number of barriers to gas flow. Also, BP employees neglected to run a cement bond log (CBL) to test the integrity of the cement. They installed fewer than one third of the recommended number of centralizers, dramatically increasing the risk of cement channeling and gas flow Failing to conduct a complete “bottoms up” circulation of the well to insure the quality of the cement seal. Lastly, they did not run a lockdown sleeve to secure the production string to the well head, eliminating yet another barrier to a blowout. In his report, Bly defended the well’s design, which has been criticized by industry experts. “The investigation team reviewed the decision to install a 97/8 in. x 7 in. long string production casing rather than a 7 in. production liner, which would have been tied back to the wellhead later, and concluded that both options provided a sound basis of design.” To relegate or ignore the contributing factors of design while pointing to Halliburton’s “unstable” cement mixture suggests a subterranean motive. A likely candidate is minimizing damages from the many legal challenges facing BP.  That is, Mark Bly was essentially trying to spread the blame in order to spread the damages so his company could limit its losses from the well explosion. Such a purpose deviates from BP’s commercials wherein BP managers protest that they are doing everything they can to take responsibility for the disaster. Were it only true that saying it made it so. Even as BP’s media blitz was extolling the company’s responsibility, claims were being so scrutinized that the US Government pressured the company to allow an independent party deal with the claims. Sadly, some people are doubtlessly being taken in by the commercials. Just being on the air proffers a certain degree of legitimacy. It is more difficult to discern how a report is being used. A shark is a feeding machine. So too is a company. To expect a company to all of a sudden lose sight of its function is to believe in the tooth fairy.

Source: http://www.msnbc.msn.com/id/39046088/ns/us_news-environment/
.