Risk Management: Implementation of Corporate Governance

Responsibility is the fundamental component of corporate governance, i.e. a business and board of directors should take responsibility for their actions. In response to the Deepwater Horizon disaster, BP tried to push the responsibility of the oil leak to the company they had leased the drilling vessel from. They publically stated that although they managed the operations of the rig, the responsibility in its entirety was not theirs. However, as the scale of the disaster increased, BP had no option to push ownership of the actions anymore and was forced to take it upon them. Following the unsuccessful attempts to stop the spillage, BP finally managed to stop the leakage into the sea by lowering the containment cap into the ruptured well. However, the company feared that complete halting of the leak any time before five months following the explosion was extremely difficult. Post-incident investigation of the incident revealed serious IT failures and a lack of appropriate risk management implementation prior to the construction of the project. Politicians began questioning BP’s role in the disaster, and it was concluded that BP had never considered the possibility of pipeline rupture of oil spillage in its drilling plans. BP later stated that the accident happened due to a series of systemic and equipment failure, and that there already were multiple control mechanisms and procedures to prevent the disaster or reduce the spill, which unfortunately never succeeded.

BP acknowledged that the risk of oil leak and the resulting impacts of a possible disaster should have been there in their risk management strategy, and although the probability of such a disaster happening was low; it should definitely have been assessed thoroughly. BP chief executive Tony Hayward suggested that it was ‘an entirely fair criticism’ and that the company was not completely prepared for the disaster or for the subsequent impacts of it. BP spent more than $1 billion to contain the spill and had promised to pay compensation claims which added up to several billion dollars. Later, BP declared the investigation of the oil spill ‘open’ and agreed to fund a $500 million research for finding better ways of using technology in tracking oil spills. The research program spanning over 10 years will focus on studying the effects of oil and dispersant on the seabed, and will also improve the existing technologies of detecting oil and dispersing oil and dispersant on the seabed and on the surface.