British Petroleum and the ‘small people’
Posted: Thursday, June 17, 2010 8:03 pm
By DOUGLAS COHN
and ELEANOR CLIFT
WASHINGTON — The financial implications of the Gulf oil spill are extraordinarily complex, and sorting them out will take diplomatic skill along with legal knowhow to make sure the people most affected and not lawyers are the beneficiaries of any settlement.
President Obama’s criticism of BP for its handling of the spill played well here in America, where voters are angry at the company for despoiling the environment. But in Britain, where BP is based, people felt the company was being unfairly demonized, and they directed their anger at Obama for statements they blamed for driving down BP’s stock value. Meanwhile, BP’s chairman, Carl-Henric Svanberg, did not help matters by snobbishly pledging to take care of the “small people,” referring to Americans who have been impacted by the disaster.
The rhetoric on both sides of the Atlantic grew so heated that the new British Prime Minister, David Cameron, sought assurances from Obama that he understood the gravity of the situation as it relates to the British people. In a phone conversation over the weekend, Obama affirmed to Cameron that the dispute over BP would not affect trans-Atlantic ties, and that the goal of U.S. policy is to make BP accountable for the damage it has caused, but to stop far short of doing something that might force the company into bankruptcy.
Obama referred to BP by its original name, British Petroleum, which the company shed in 2001, preferring to use only the initials, or its new green name, Beyond Petroleum. It is Britain’s largest company and holds a major share of the British public’s wealth and retirement funds. BP has ample resources to cover what it calls “legitimate” claims, but there is always the threat, once lawyers are involved, to expand the meaning of legitimate, and to bog down the claims process in an endless spiral of class action suits.
The memory of the Exxon Valdez tanker spill in 1989 remains fresh in everybody’s memory. Litigation took decades, and an initial declaration of $5 billion in punitive damages, equal to one year of Exxon profits at the time, was whittled down to $500 million in a series of law suits that stretched all the way to the Supreme Court.
Given the extent of the damage in the Gulf, both economic and environmental, it is improbable that BP would get off that easy. To the contrary, genuine concerns have been raised about making the company’s liability so onerous that it would seek relief through bankruptcy. The stockholders would be the first to lose in that scenario, but more significantly, the British economy would be put into a tailspin. With Europe already reeling from Greece’s debt crisis, the global economy would take a big hit along with the fragile U.S. recovery.
Any solution the Obama administration devises must meet these basic principles. It can’t bankrupt BP and by implication the British people; any settlement must find a way to avoid the major portion of any payout going to attorneys; and the U.S. Treasury must not be the bailout banker of last resort.
Congress is working on legislation to raise or abolish the $75 million cap on liability that was put into place after the Exxon Valdez spill. BP has said that it will not restrict its payments to that limited liability and has agreed to place $20 billion in an escrow fund as a start. But how much more money BP sets aside to cover damage claims along with how that money will be allocated will be argued by lawyers. BP had its lawyers talking to workers injured in the explosion just hours after the accident, and now Obama must rely on lawyers working for the White House to establish a framework that will ultimately direct money to the Gulf victims in a timely fashion.
Obama would do well to brush up on his Shakespeare and the line from Henry VI, “The first thing we do, let’s kill all the lawyers.”
Copyright 2010 Douglas Cohn
Published in The Messenger 6.17.10
DOUGLAS COHN, ELEANOR CLIFT