On September 4, 2014, District Court Judge Carl Barbier ruled BP (British Petroleum) to have engaged in "willful misconduct" prior to the Gulf Oil Spill. This ruling took place in a civil trial in which the culpability of various participants was assessed. Due to this misconduct, the judge ruled that BP should be responsible for 67 percent of the penalties resulting from the spill. The remainder of the penalties are being shared by Transocean, the owner of the oil rig (30%) and Haliburton, a cement company (3%).
This prosecution is taking place under the Clean Water Act, which was passed in 1972 to fight the pollution of America's water sources. This act typically fines companies $1,100 per barrel of spilled oil, but in cases of gross negligence the fine goes up to $4,300. Assuming that appeals do not reduce the penalties, BP is estimated to pay 18 billion dollars. After this ruling was published, BP's stock value dropped by six percent.
Questions:
1. Does a set-in-stone number like $1,100 per barrel remain fair when the scale and difficulty of managing a disaster go so high? On one hand the colossal environmental and health hazard that BP caused merits it. On the other hand BP's recklessness may not have been so extreme as to merit 18 billion dollars.
2. BP shareholders likely had little to no knowledge of this misconduct, and virtually no control over the situation. Should shareholders be able to sue BP over this 6% loss due to BP's negligence?
Note - In a legal sense, shareholders are not entitled to anything under current laws. (Source)
Full articles:
Washington Post
BBC
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4 comments:
The article seems to specifically reference legal action over misinformation provided to investors-- which is completely valid. However it makes very little sense from either a legal or economic perspective for the owners of a company (shareholders) to sue their own company (run by their own employees) for negligence.
Any money they cash out of the company and give to stockholders (which they could do internally) would simply come out of the stock price.
TL;DR The stockholders made a losing bet-- there is no way they can generate free money to repay themselves.
I completely believe that BP deserves to pay 18 million dollars. The extremity of their negligence merits paying even more. The biological damage, that will take hundreds of years to fully remedy, is colossal and therefore the punishment needs to be colossal. Paying such huge fines is necessary because it sways companies from cutting corners in the construction of their rigs which is what causes spills in the first place. Money doesn't fix what happened to the environment, but it can help, and that's what's important here, not the stockholders. We all live on this earth and it needs to be protected, and that should be more important than anything because otherwise we are killing ourselves.
I think that the constant $1,100 or $4,300 fine per barrel of spilled oil is necessary to ensure that all companies that spilled oil will face the same consequences. This way, a company cannot back out of a fine, despite causing such harm to the environment; someone must take responsibility. Such an extreme fine will (hopefully) lead to more work on preventing oil spills.
Although the Securities and Exchange Commission states that it will use BP’s paid fine of $525 million to send some money back to the shareholders, the article also says that there is no other way for the investors to gain compensation, due to the Morrison v. National Australia Bank case. The court decision says that shareholders facing losses on foreign-traded shares essentially cannot take legal action. In addition, all investors take the risk of having their stock plummet, as well as increase in worth, so BP is not completely to blame for their losses.
In response to BP’s negligence, I completely agree that they should be responsible for all of the penalties, as required by law. This gross negligence is going to lead to hundreds of years of damage to the Gulf and it may never recover to its previous state. If we allow BP to have a reduction in penalty, this will set a tone that penalties may be waved or reduced, when they should not be. This may entice other businesses to overlook negligence, as it may not affect their pocketbook as much.
With regard to the stockholders, unfortunately I think they just have to deal with the drop in the stock price. This is the risk of investing, and sometimes shareholders lose, therefore I do not think stockholders should be able to sue BP.
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