Case Study One: BP and the Gulf of Mexico
The ruling by Judge Carl Barbier of the US District Court in New Orleans at the start of September 2014 poses a possible $18 billion in civil liabilities – a large part of the total costs for BP arising from the 2010 Deepwater Horizon oil disaster. The ruling asserts that BP acted with gross negligence and willful misconduct. BP is appealing and the legal process will undoubtedly take years to resolve itself.
My book on the ‘social license’ starts with the BP case study, in fact the first chapter is named “Macondo” – the name given by BP to its oil field in the Gulf of Mexico. I do not get into the legal arguments of the case directly as my book is about social license and not legal license, but the issues of due diligence: knowledge, preventing and mitigating risk and negative impacts, and levels of disclosure are highly relevant to the way I think businesses should manage their social license. I contend that better management of such things, whilst not necessarily preventing such disasters in all cases, can have a profound effect on the future activities of a company should they occur.
For those familiar with existing definitions of “the social license to operate”, the Macondo example might seem a strange one for me to have picked to start the book. There was no community directly adjacent to the deep-water drilling facility (other than those on the rig itself), it is often reported as an environmental disaster more than a social one and clearly it has a strong legal dimension. But I wanted to show the reader, from the start, that the ‘social license’ can have wider utility than just mining operations in Australia, Canada or Latin America, and that those implications can relate even to high-profile cases such as Deepwater Horizon.
One way that organizations, and in particular business, can manage the social license of their activities, is through multi-stakeholder approaches where businesses, governments and civil society (and sometimes trade unions) sit together to find pragmatic responses to complex problems. Very often this can include agreed strategies of prevention and risk mitigation. Acquiring knowledge of business risks and potential negative social impacts is now a requirement of business if it wishes to respect human rights under UN and OECD norms. The irony is that on some other issues before the 2010 disaster, BP had been rather good at understanding the value of multi-stakeholder approaches in minimizing social harms. BP was one of the founding companies of the Voluntary Principles on Security and Human Rights, which aims at controlling the behavior of public and private security forces, flowing from its own experiences in Colombia in the 1990s. BP is also a corporate party to the Extractive Industries Transparency Initiative that focuses on revenue transparency, comparing business revenues with government receipts. In addition, BP engaged Senator Mitchell to oversee its work in Indonesia, and responded to stakeholder concerns about social risks relating to the Baku-Tbilisi-Ceyhan (BTC) pipeline between the Caspian and Mediterranean Seas. Lord John Browne (the former BP CEO) describes these approaches in his two biographies and Christine Bader is eloquent on how such work inspired her during her time with the company in her book ‘The Evolution of a Corporate Idealist’.
It is because BP is a company associated with good social practice in some other parts of the world, that the Gulf of Mexico example is also highly relevant to discussions on social license. What was it about deep-water drilling that did not necessitate a similar multi-stakeholder approach to the risks involved? If there had been greater consensus between BP and its competitors about the appropriate levels of social risk management, would they have testified against the company in Congress in the same way? Since the disaster, BP has committed $500 million over 10 years to fund independent scientific research through the Gulf of Mexico Research Initiative which will indeed focus on issues of risk and mitigation and might develop greater stakeholder consensus in years to come. But in many ways the horse has already bolted.
I am interested why oil companies do now take a ‘know and show’ consensus –building approach on issues such as security or revenue transparency, but not on other issues of high public concern. Take for example the fracking debate in many parts of Europe where concerns over environmental impact are not (yet) informed by objective evidence and impartial opinion. If the greatest danger associated with fracking is indeed water contamination, why is so little attention given to the use of such fracking technology in water scarce areas of northern South Africa or Botswana, whilst so much is given to well-healed Sussex villages near Brighton? Will the fracking debate in Europe go the same direction as the GMO debate a generation earlier, where emotion gets in the way of the facts? Despite this social risk, as well as significant commercial and well as energy security dimensions, there is no significant multi-stakeholder initiative on fracking proposed as of yet.
For me the Deepwater Horizon example raises the importance of involving stakeholders in agreeing what adequate mitigation and risk management actually means before disaster strikes. It is much more expensive and time-consuming to do this after the fact, after social license has been severely eroded. In fact it might take a generation or two to actually to regain sufficient trust, legitimacy and consent. So why do we not see multi-stakeholder approaches to other material issues for the industry that are perceived to have significant environmental or social risk? At the end of the day, it is a leadership issue. CEOs need to convince shareholders and political leaders their voters (and perhaps also themselves first) that social license is indeed a material concept. As the recent University of Queensland report has shown, the loss of community trust can cost a mining company up to $20 million a week if operations are blocked, so it can also impact the bottom line even before the lawyers get involved.