EUIST

EUIST

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Regulation that matters – e-discovery and BP litigation regarding safety failures in the U.S. – BP goes greener or just meaner?

March 20th, 2007 · No Comments ·

In the past we have pointed out that security breaches can be extremely costly for
shareholders:

ChoicePoint – privacy and security breaches – stock is dropping like a rock (Login as a Guest – click on this link again and voila)

Recently, we have also addressed how e-discovery regulation ever more force firms to able to produce written e-mails quickly or else pay huge fines:

Baker McKenzie – be careful what you write in e-mails

Now shareholders have had enough and BP’s senior executives suffered a 50% cut in their peformanc bonus. This includes Tony Hayward, head of exploration and production, who will succeed Lord Browne summer 2007.

One reason is surely the recent string of safety failures in the U.S. The stock price has suffered accordingly as the graph below shows, BP is doing worse than the FTSE World Oil & Gas Procuers index, bad news for investors.

http://www.cytrap.eu/files/EU-IST/2007/image/2007-03-07-BP-SharePrice-since%201995.gif

If you cannot see the graph, get it from here: 2007-03-07-BP-SharePrice-since 1995.gif

In February, a panel led by James Baker, the former U.S. secretary of state, concluded that BP’s management up to board level was to blame for the March 2005 Texas City refinery explosion that killed 15 people and injured more than 100 people.

But shareholders are fed up. This report explains how BP’s leadership was compensated, and the principles and practices that underpin their compensation

BP Directors’ Remuneration Report 2006 (extract from the BP Annual Report and Accounts 2006) 2007-03-BP-2006DirectorsRemunerationReport.pdf

While it clarifies some things, it still leaves many questions open. And now, the firm is being faced with e-discovery, whereby the e-mail trail is taking center state in the BP litigation.

Apparently, Susan Moore, BP regulatory affairs manager, has admitted in a sworn deposition to deleting documents after plaintiffs’ lawyers subpoenaed her laptop on an anonymous tip that she had information useful in the lawsuits from thos injured and killed in the refinery explosion.

Moreover, some of the e-mails that got shipped around question the merit of attending courses about corporate ethics in graudate programs. Hence, one might attend a course about corporate ethics during one’s MBA studies but, unfortunately, in practice it appears that little if anything trickles through to daily work practices….. Get some bits here:

BP – e-mail trial takes center stage in litigation

It also indicates that a firm’s archiving procedures must be up to best practice.

_Conclusion_

Worst is that we are talking about BP, a firm that on 2000-07-24 unveiled a new “green” brand image, in an attempt to win over environmentally aware consumers. And BP’s John Brown (our Lord) stated the rebranding could boost profits. It may have but at what a price?

Not only does this story indicate that shareholder value is being affected by such terrible mistakes, worst is that the internal controls used by the board and top management did not provide the information required to manage these issues (or risks?) in a way one would expect from such a firm. If the board is unable to have an internal control system in place that helps manage risks effectively, it will risk a repeated performance. In fact, since James Baker’s led panel concluded that top management and the board was to blame for the March 2005 Texas City refinery explosion, the board may and up in front of judge…..

If this is good corporate governance…. you be the judge but it is surely not according to the The Combined Code on Corporate Governance, is it? The latter requires:

    C.2.1 The board should, at least annually, conduct a review of the effectiveness of the group’s system of internal controls and should report to shareholders that they have done so. The review should cover all material controls, including financial, operational and compliance controls and risk management systems. (p. 15)



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