Regulatory Authorities Have Often Grappled With Legalistic Mechanisms Commerce Essay


Having outlined a framework of analysis, the essay will now build on this framework by considering the terminological issues contained within the question. While revisiting the terminology in the essay question, legalistic mechanisms are the laws, executive orders and other legal instruments that set the ground rules for governmental and non-governmental activities (UN/ISDR, 2005, p. 6). These mechanisms can be either binding, or non-binding (OCHA, 2009). Laws, executive orders and other legal instruments all fall in the category of binding mechanisms, (UN/ISDR, 2005, p. 6), whereas non-binding mechanisms comprise of appropriate institutional frameworks that are needed to carry out policies and legislative measures. These include organizations or institutions such as the U.S. Environmental Protection Agency (EPA) (Esworthy, 2012, p. 6), with a recognized role to play in disaster risk management.

In the light of the definition of legalistic mechanisms as elaborated in the previous paragraph, a clear distinction between 'company' and 'corporation' shall now be explained. It is argued that a company or corporation is a creation of the law, and therefore exists as a 'corporate person' with such entitlements as owning property, sue and be sued, and negotiate contracts. The legal mechanism employed in giving a legal existence to a company stems from the fact that two or more individuals can come together, and by virtue of their action of establishing a company, they are perceived as having brought forth a new person in law (Ochich, 2008).

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The understanding as outlined in the recognition of companies or corporations as 'legal persons' therefore presents such entities with the provision of being held liable for the acts or omissions of themselves, or their representatives. The practice in the early common law presented corporations as entities that could not be criminally prosecuted under the law as separate entities (Storm, Undated) for such crimes that require personal participation such as burglary, sodomy, bigamy, rape, incest, assault, murder and treason (Ochich, 2008). However, new models have been explored over time in order to flexibly apply corporate liability to the corporations. These models have been particularly applicable in the United States under the EPA where a flexible and adaptable enforcement mechanism for corporate liability is in place (Esworthy, 2012).

The rise of corporate liability subject coincided with the rise of public consciousness in calling for stringent legal mechanisms to safeguard the safety of the workers, and by extension the environment in which the corporate entities were drawing the resources. This was evidence by corporate bodies transforming their culture in response to consumer demands and to comply with the existing legal mechanism. Over time, this transformation became the part of the organization, thereby giving rise to safety as a culture as reflected in individual and group values, attitudes, competences and patterns of behaviour that determine the commitment to, and style and proficiency of, an organization�s health and safety programmes (Institute of Lifelong Learning, 2012, pp. Unit 6: 6-12).

Having considered the terminologies contained within the question and their broad application in corporate entities, the essay will broaden the understanding of these terminologies by profiling two cases involving corporate liability, with the primary focus of finding a convergence between legal mechanisms and organizational safety.


Texas City Oil Refinery Fire and Explosion - Texas

On March 23, 2005, the BP Texas City refinery experienced a catastrophic process accident. The refinery, a 19.3-million-gallon-a-day facility in Texas City, Texas, exploded, killing fifteen workers and injuring more than 170, during the restarting of a hydrocarbon isomerization unit (British Petroleum, 2005, pp. 7-14). Following the explosion, the BP US Refineries Independent Safety Review Panel issued ten safety recommendations (BP US Refineries Independent Safety Review Panel, 2007), including calling on BP's corporate board to closely monitor safety performance at its facilities (CSB, 2007a). Federal investigators from the Occupational Safety & Health Administration (OSHA), an agency of the United States Department of Labor discovered more than 300 safety violations (CSB, 2007b, p. 200) at the facility and fined BP $21.3 million (Chappell, 2005). The CSB attributed the disaster to ill-advised cost-cutting that skimped on maintenance. BP ultimately accepted responsibility to criminal violations of the Clean Air Act and paid $50 million in criminal fines. In October 2009, OSHA again fined BP for 709 violations at the same Texas plant, including many of the same violations that caused the fatal 2005 explosion. This time the fine was $87.7 million (OSHA, Undated).

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Deepwater Horizon Blowout and Oil Spill - Gulf of Mexico

On April 20, 2010, a gas release and subsequent explosion occurred on the Deepwater Horizon oil rig working on the Macondo exploration well in the Gulf of Mexico (British Petroleum, 2010). There were 126 workers on board, 11 out of which were killed, and 17 were injured (National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, 2011, p. 57). The rig burned for 36 hours (British Petroleum, 2010, p. 9) until it sank on April 22, 2010 (National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, 2011, p. 57). In the 87 days that followed, tens of thousands of workers engaged in on- and off-shore containment and clean-up activities (Department of Health and Human Services, 2011, p. 4). Various strategies were used by BP and government officials to cap the and by July 15, 2010 when the well was capped, nearly five million barrels of oil (205.8 million gallons) had spilled into the Gulf of Mexico. Federal science and engineering teams revised their estimates on the rate of oil flow several times, and concluded that between April 20 and July 15, 53,000-62,000 barrels per day spilled into the Gulf (Robertson & Kraus, 2010). This was to be the largest human, economic, and environmental oil spill disaster in U.S history. The Presidential Panel (Office of the Press Secretary, 2010) labeled the spill preventable, caused by a series of failures and blunders by the companies involved in drilling the well, and the government regulators assigned to police them (National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, 2011).

This essay shall now use the two cases to explore the argument that legalistic mechanisms are effective in promoting organizational safety, and examine the theories that make organizations or legal mechanisms effective - or inadequate.

Following the Deepwater Horizon Oil Spill, and perhaps informed by previous incidents of a similar nature, a flurry of lawsuits were filed by lawyers on behalf of commercial fishermen, shrimpers and injured workers against BP, Transocean, Cameron and other companies involved in the drilling process (The New York Times, 2012). In anticipation of huge fines that were to come as a result of the lawsuits, BP begun apportioning financial liability to its partners and contractors. For instance, Anadarko Petroleum agreed to pay $4 billion, Cameron International agreed to pay $250 million and Moex Offshore agreed to pay $90 million to federal and state governments, including $70 million in civil penalties. This clever maneuver can be explained in the light of previous oil spills and oil-related disasters in which BP had learnt as a company on different strategies of managing financial liability. In ensuring financial safety, BP had pegged its production on the performance by its contractors assigned on each facility. BP linked the performance to liability in the event of loss and negligence, which was restricted to the asset itself, and not on the broader network on BP-owned assets and facilities in the Gulf of Mexico or Texas. BP also presumably insured its business interests, as reflected in the wake of Deepwater Horizon oil spill, whereby insurance premiums rose by as much as 15 to 25 percent in shallow waters and up to 50 percent for deepwater rigs (National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, 2011, p. 245). As such, BP was able to 'disperse' liability to insurers, partners and contractors.

A company can easily be bankrupt if faced with such colossal amounts of fines. However, BP was able to remain in business in the period before and after the two disasters:

BP reported a loss before interest and taxes of $3.7 billion, nearly one-sixth of its 2009 profit of $26.4 billion. In the most recent quarter (2012), BP reported sales of $93 billion and a profit of $5.5 billion (Tobik, 2012).

This brings into question the effectiveness of fines as a means of enforcing corporate liability. The 2010 spill had already cost BP $38 billion in charges, including an additional $847 million in the second quarter of 2012, and even threatened its existence at one point (The New York Times, 2012). Given the experience that BP had in dealing with such kind of litigations, the Nov. 15, 2012 settlement (Lustgarten A. , BP Agrees to Plead Guilty to Crimes in Gulf Oil Spill, 2012b) essential removed all the possibilities of further criminal charges. The settlement presented the restricted nature of fines as a legalistic mechanisms used by the EPA. The only other potential for increasing the fines against BP is on the Clean Water Act and the Migratory Bird Treaty Act, to which BP had already started raising funds by selling some of its assets in the Gulf of Mexico (Reed, 2012). The inadequacy of fines as an enforcement tool is that there is a legal minimum and maximum limit as set by the statues. For instance, under the Clean Water Act, the fines are limited to $1,100 to $4,300 for each barrel spilled (National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, 2011, p. 211). It can be argued that fines can drain the resources that an organization, such as BP, can invest in improving safety. However, a given sheer amount of annual profits that BP makes from oil production, such fines to appear lenient and a mere 'slap on the wrist' (Lustgarten A. , 2012c). Considering the ease at which a business giant such as BP has handled the financial penalties associated with the 2005 Texas Oil Refinery Explosion and the 2010 Deepwater Horizon Oil Spill, it is possible to conclude that the fines authorized by the statute are grossly inadequate and undermine any deterrent effect of the enforcement provisions. Organizations with multi-billion dollar profit volumes have had a tendency of treating such trivial sums merely as a business cost (Center for Progressive Reform, 2010, p. 19).

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Fines are not the only method employed by regulatory bodies. The EPA uses innovative strategies and tools to identify and correct non-compliance, restore environmental damage, and impose penalties intended to deter future violations (Esworthy, 2012, p. 18). This continuum of response mechanisms ranges from compliance assistance, compliance incentives, and monitoring and enforcement (EPA, 2011a). This range of tools escalate in terms of their level of severity and intensity thereby giving first-time offenders better flexibility to change and comply, while imposing heavy penalties to repeat offenders. BP had a poor record in terms of violations, fines and disasters associated with the company. In the period leading to the 2005 Texas Refinery Explosion, the regulatory bodies had tried to use other less punitive regulatory tools against BP such as warnings, monitoring, and inspections. The patience of the regulatory bodies was nonetheless tested and stretched (Lustgarten A. , 2012c) by BP's perennial culture of using fines as a way of settling liabilities. The other option that regulatory bodies may have to use is debarment. Debarment is a government-wide legal mechanism that which when imposed by a Federal agency prevents a corporate entity individuals from participating in government contracts, subcontracts, loans, grants and other assistance programs (EPA, 2011b). BP is no stranger to debarment. In previous disasters, including the 2006 oil leak in Alaska, BP was able to avoid debarment by pleading guilty to felony charges and signing a settlement agreeing to five years of probation and promising to institute a �revised corporate attitude.� (Lustgarten & Knutson, 2010). The aftermath of the Deepwater Horizon Oil spill presented a similar pattern of settling liability. Debarment is nonetheless not an easy option for the Federal authorities to take because of BP's important position to US economy. For instance, BP paid the federal government more than $674 million in royalties in 2009 for its government leases, and it provides nearly 12 percent of the U.S. military�s fuel supply (Lustgarten A. , 2010). According to POGO (Project on Government Oversight), a project that maintains a database of contractors that have been cited for misconduct, BP accounts for 63 violations, but also has $1033.3m in Federal contracts in FY 2010 (POJO, 2012). According to the White House, the Interagency Suspension and Debarment Committee (ISDC), increased suspensions and debarments of companies that failed to play by the rules rose from 1900 in FY 2009 to more than 3000 in FY 2011 (Joe Jordan, 2012). However, with BP still in business and getting government contracts, it is difficult to foresee how effective debarment is, as a legal mechanism, to large multinational corporations such as BP.

Since the enforcement mechanisms do not seem to have the desired deterrent effect on BP, what are the alternative means through which BP can uphold organizational safety? In the definition of terminologies, it was noted that the safety of an organization is intertwined with its culture. One of the visions of Sir John Browne was to transform BP into a high-reliability organization, not only in business but also in safety of its workers and the environment. BP's organizational culture nonetheless portrayed a different picture. This essay shall examine this argument through the comparison of a different high-reliability establishment i.e. a US Navy aircraft carrier. The exposure to risk and harsh elements on drilling platform operations are comparable to those on an aircraft carrier. However, quoting University of Michigan professors Karl Weick and Kathleen Sutcliffe, William M. Duke, the Director of Learning and Development for Afterburner Inc argues that:

U.S. Navy aircraft carrier flight operations demonstrate slightly less than 3 fatalities per 100,000 flight hours in spite of operating in an extremely hostile, complex, and constantly-changing environment where the average age of the workforce is only 21 years (Duke, 2010).

For Sir John Browne, the primary focus of improving systems meant that BP adapted to technology for achieving its business objectives. Geo-political changes in the oil industry had forced BP and other multinational oil companies to seek oil in some of the places once presumed to be difficult to access (Lustgarten A. , 2012a). Nevertheless, technology had made it possible for BP to be able to drill and extract oil in the deep waters of the Gulf of Mexico, where the output would compensate for the invested technology. However, just like the complexity presented by an aircraft carrier, the operation of an oil rig as a 'stand-alone complex system' could have encouraged BP to focus on the overall culture, especially on the workers that interact with the system on a day-to-day basis. One of the transformations in the Horton-Browne era for BP was the decentralization of decision-making. BP in the late 1980s had been a bureaucratic organization, which comprised several layers of management in a matrix structure. In some cases, simple proposal changes required 15 signatures (Locke et al., 2011, p. 4). However, after privatization by the then Prime Minister Margaret Thatcher, and decentralization of decision-making by Robert Horton (BP's CEO from 1989), BP had more flexibility in decision-making that also coupled with taking risks in business ventures and reducing costs. Horton's legacy in the organizational structure of BP meant that employees were encouraged to take responsibility and exercise decision-making initiative at all levels (Ibid). This legacy precipitated to David Simon (BP's CEO from 1992) and Sir John Browne (BP's CEO from 1995), both of whom expanded decentralized decision-making authority and responsibility for meeting performance targets to contracted onsite asset managers. The culminated in each facility operating as a 'stand-alone complex system' which meant that the knowledge, information, and decision-making was based on the available information at-hand at the facility, and with the workers. As Sir John Browne noted, BP had no option but to get its legacy sorted out, get faster on its feet, do more deals, and become more innovative". (Lustgarten A. , 2012a, p. 36). Onsite managers in turn precipitated the stand-alone complex system mode of operation and decision-making to the employees that were working on the site. This organizational model had its advantages with managers independently taking decision onsite. However, the downside of this model was the inculcation of a culture that encouraged compromise on safety in order to meet performance targets as reported by a 2004 inquiry (Lustgarten & Knutson, 2010). The same autonomous culture failed to encourage learning from incidents and best practices between managers and workers from different assets, even though they were working in the same industry (oil) and the same organization (BP). As a complex organization, BP's culture of learning could have benefitted from system-wide experiences in an isomorphic model (Institute of Lifelong Learning, 2012, pp. Unit 1: 1-11). It can be argued that indeed the Texas Refinery Explosion or the Deepwater Horizon Oil Spill could have been prevented if the management in BP hierarchy would have emphasized on collective mindfulness, vigilance, and a learning culture. However, onsite managers had little incentive to share best practices on risk management from the various BP exploration and production sites, and past events in the industry from other companies. As noted by Jeanne Pascal, a career EPA attorney (retired) in the aftermath of the Deepwater Horizon Oil Spill, "they just don't learn" (Lustgarten A. , 2012a, p. 16). The two disasters, and indeed the previous incidents involving BP had one latent pattern that was manifested in the inability of the organization involved to effectively synthesize and share the information from separate �precursor� incidents with the relevant people across the organization so that appropriate action could be taken to reduce the risk of disaster (Cookea & Rohledera, 2006).

Drawing from the reports on the Texas Refinery Explosion and Deepwater Horizon Oil Spill, it is possible to theorize that the path taken by BP was an attempt to have a high-reliability technical system on the rigs and refineries that were being operated in a 'garbage can' organizational model (Cohen, March, & Olsen, 1972). The reports established in the aftermath of the disasters that BP used to operate in problematic and ill-informed decisions on worker safety (National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, 2011). This was reflected in the many citations received by BP for violations from OSHA. The intimidation of the workers and the pressure to achieve performance targets made it seemingly difficult for the workers to provide objective information that could have been critical in decision-making for onsite managers. The workers instead provided statements that they knew would be pleasant to the managers, even when it meant that the safety of the complex system, and their own safety would be compromised. Therefore BP's organizational culture placed it in a position where it was culpable to its own decision-making thereby leading to the disasters by failing to connect the complex technical and social systems (Cookea & Rohledera, 2006). During the Deepwater Horizon Oil Spill, the failure of the blowout preventer, well design, and a faulty cement job constituted the technical failure, whereas the errors of judgment by drilling managers and crew members presented the social failure. Using Turner's systems approach theory on the disaster presents an argument that BP's culture of ignoring the warning signs and adapting escapist liability measures such as financial payouts served to incubate the faults in the systems to the extent that it led to catastrophic events. Incubation was also evident in the regulatory agencies. The inadequacy of regulatory bodies and enforcement mechanisms, coupled with the ability of large multinational corporate entities to continue operating served to make such catastrophic events unavoidable. BP's culpable failure in the light of liability was its inability to foresee and prevent the Texas Explosion and the Deepwater Oil Spill. This was coupled with BP's system failure to pay attention to warning signs and institute measures to correct the problems.


It is difficult to draw a conclusion on whether the technical systems failed, or the complex social systems led to the disasters in Texas City and the Gulf of Mexico. What is important as in the concluding arguments is that the disasters should serve as a reference point for the oil industry to learn and for BP to re-examine its corporate safety culture. BP remains a key player in the United States business environment. Therefore, BP is likely to continue with its business interests in the US. The vision of the previous CEOs in transforming the technical and financial qualities of BP has been visible. However, these transformations have also come with catastrophic events that have dented the corporate safety image of BP. It is therefore important that the next generation of CEO to invest on efforts to transform the safety culture within the corporate giant. As summed up by the presidential panel that investigated the Deepwater Horizon Oil Spill, �Complex Systems Almost Always Fail in Complex Ways�.