Great power carries great responsibility

BP P.L.C. is under pressure for alleged failures in its risk management track record as discussed in Mike Bradford's news story on page 3 of this issue.

This company is a world leader in one of the most important areas of economic activity—the discovery and exploitation of natural resources.

The company and its leading competitors, literally and figuratively oil the wheels of the modern global economy and, as such, hold a highly responsible position.

What it does and, probably more importantly, the way it does it, matters to us all.

Environmental pressure groups in particular spend a lot of time scrutinizing the activities of companies like BP and are very keen to share their thoughts and more often criticisms with anyone who will listen, politicians, regulators, media and above all investors.

It is probably for this reason that the company, just like its main rivals is given so much attention by the global media when it makes mistakes.

Thus when a company like BP experiences an explosion in a plant like the one that killed 15 people in Texas City it suffers.

When a company like BP is accused of polluting the precious environment of Alaska through failing to maintain leaky pipes it is attacked from all quarters.

And when a company like BP suffers huge losses from natural catastrophes like the hurricanes of 2005 and 2006, because it is said to have bought insufficient cover, people ask awkward questions.

This is also why the response to such events by companies like BP are watched so closely—and surely few in this business can have been impressed with its highly defensive and reactive stance on all counts.

The multiple risk management failures identified by the United States Chemical Safety and Hazard Investigation Board (or CSB as it is known) over the deadly blast in Texas City, suggest a company that is paying lip service to its responsibilities to all stakeholders, not just shareholders.

BP denies that its exploding plants and leaking pipes are a direct result of cost-cutting and "risk blindness" (in the words of the CSB), just as it announces a raft of sweeping changes to the way it identifies, analyzes and manages its risk.

To the outsider, this looks like a tactical response to a very big strategic set of questions that demand a more root-and-branch review.

To avoid a repetition of this sad case, and to help convince all stakeholders that they are willing and able to live up to the wider responsibilities that come with operating in such a strategically important economic activity, companies like BP must surely do more.

They must place themselves at the head of the risk management pack through a deep and vigorous application of the principles of true enterprise-wide risk management.

Ticking the boxes, buying a bit of insurance and crossing your fingers is just not good enough when the stakes are as high as this.