BP clean up: A contest between citizenship interests and shareholders
This from yesterday's Wall Street Journal:
In a letter sent Sunday to U.S. Coast Guard Rear Admiral James Watson, BP said it expects to have the capacity to capture between 40,000 and 53,000 barrels of oil a day by the end of June. That compares with 15,000 barrels a day now, out of a flow of 20,000 to 40,000 barrels scientists estimate are coming from the well.
BP, which said further enhancements will increase the collection capacity to as high as 80,000 barrels a day by mid-July, submitted its latest plan after Mr. Watson, the federal government鈥檚 second-in-command for the spill response, told the company Friday its previous plan was insufficient and gave BP a 48-hour deadline to come up with a revised approach.
Mr. Watson said in a statement Monday that 鈥淏P is now stepping up its efforts to contain the leaking oil,鈥� noting that the new plan鈥檚 call for collecting 50,000 barrels of oil by the end of June is two weeks earlier than the previous timeline.
But the Journal isn鈥檛 telling the truth. BP is not capable of writing a letter or 鈥渟aying鈥� anything, 鈥渟ubmitting鈥� anything, or 鈥渟tepping up its efforts.鈥�
You see, BP is not a person.
Like any other corporation, BP is a collection of contracts. The collection includes employment contracts 鈥� with people who are paid to be executives, with others who are expert in how to plug holes a mile below the surface of the Gulf, and with lots of workers. There are contracts with BP鈥檚 creditors, who expect to be paid on time. There are contracts with numerous suppliers, with other companies like Halliburton, with the owners of tankers. And there are contracts with the U.S. government, which has leased part of the Gulf to BP for drilling.
At the center of this web of contracts are BP鈥檚 shareholders, who legally own BP. That means they own BP鈥檚 assets 鈥� oil reserves under land or ocean bed that BP as a corporation is entitled to, its physical capital (rigs, tankers, and so on), and its financial assets, which amount to tens of billions of dollars.
BP鈥檚 shareholders (including pensioners who have shares of pension funds, small investors who own shares in mutual funds, and major investors, all over the world) are interested in only one thing 鈥� maximizing the value of their shares. Over the last month and a half, these shareholders have got clobbered. Some have sold out to other investors who believe BP鈥檚 share values will rise. Others are holding on in the hope that they will.
It鈥檚 impossible for BP to commit to doing anything because BP is not a human being capable of making commitments. BP鈥檚 executives (like Tony Hayward) work for BP鈥檚 shareholders. They can be replaced by BP鈥檚 shareholders if BP鈥檚 shareholder aren鈥檛 satisfied with their performance. Or, more likely, BP鈥檚 shareholders can sell out to major investors who will then replace BP鈥檚 executives if they don鈥檛 like the job they鈥檙e doing.
It doesn鈥檛 matter if Tony Hayward is called to the White House. It doesn鈥檛 matter that President Obama says he鈥檇 like to fire him. Hayward鈥檚 first responsibility is to BP鈥檚 shareholders.
Some Americans are also be BP shareholders, but their interests as U.S. citizens aren鈥檛 represented in their roles as shareholders. Their citizenship interests are represented by our government, headed by the President.
As citizens, we want the hole in the Gulf plugged up as fast as possible, we want the spill contained, and we want everything cleaned up and damages paid 鈥� no matter how much it costs BP鈥檚 shareholders. But if we鈥檙e BP shareholders, we want to minimize all such expenditures 鈥� including our long-term liabilities.
Get it? There鈥檚 no conflict between Britain and the United States. The conflict is between two kinds of interests 鈥� shareholder interests and citizen interests.
And unless or until citizenship interests predominate in the Gulf 鈥� unless or until BP鈥檚 shareholders are forced by law to part with their assets to ensure the safety of the American public 鈥� shareholder interests will come first. That鈥檚 why it鈥檚 so important for the Administration (and, if necessary, Congress) to take steps to put BP America under temporary receivership, establish an escrow fund of at least $10 billion that BP must pay into, and whatever else is necessary to trump shareholder interests.
------------------------------
海角大神 has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. This post originally ran on .
