Recent media coverage has suggested that the leaders of BP should be held criminally liable for the injury to commerce and the environment resulting from the current deep water spill. Because the platform was cited many times in the past for violations—the apparent negligence of managers becomes a claim of criminality. Maybe. Bernie Madoff is a criminal. He is in jail. His victims will never experience recovery.
Criminalizing BP leaders is an idea supported by some BP shareholders. Why? Such an action may minimize the economic burden to the shareholders for the costs to remediate the damage to the Gulf of Mexico. Yup. Even the shareholders want fair weather protection from "themselves"--understood as their manager representatives when there is a big problem.
BP shareholders should hope that there is no legal theory that allows the shareholder to be personally assessed in the event the resources of BP prove to be inadequate during the remediation phase. This used to be how the “world” worked until theories of limited liability emerged a long time ago. Yes, there was a time when investor liability was un-limited. (This was a time when only the really really big boys could play--a topic for another day).
Too big to fail. Too big to fix. These ideas have defined the public debate in recent years as it bears upon the institutions of our financial system (investment banks, banks, brokers). One of the proposed system design remedies for the financial industry is to compel surviving companies to assume the obligations of peer institutions that fail. (Insurance companies have been doing this, by the way, for decades in many states).
If oil spill disasters had to be shared by the entire energy industry, maybe self-policing of platforms would have a better chance of working. Maybe.
If we try to get past the language---“too big to fix”, “criminalizing the managers”, and “too big to fail”—a simpler word that may be really useful is the word “utility”.
Utilities make profits. Utilities attract capital quite efficiently (which is to say they reward capital and have sufficient liquidity to support shareholder, bond and debt markets).
Instead of debating if we should “break up” a bank if it gets to big—as a measure currently holding sway in Congress---it might be easier to simply say, ‘when one institution controls more than 10% of all deposits—the industry, in this case all banks, are automatically subject to rules that govern utilities until such time as there is more marketplace diversification (less concentration risk).
There would be no need to contemplate how to liquidate monster companies in the event of their failure—the financial equivalent of now trying to fix the Deepwater Horizon oil leak real time a mile down.
When all is going smoothly, and the “big” continue to consolidate themselves until they are ever bigger—we stop “hoping” that everything is okay—that the public interest is somehow safeguarded. We establish a standard that simply gets triggered when one company exceeds a certain pre-defined market share for several consecutive quarters—bingo—the entire industry, including all public and private companies in the space—converts to rules of governance and the public interest control of a utility.
This is the future.
The public knows, and is at ease with the fact that it has no claim on company profits. The public is learning (again) that it seems to have an implicit “stake” in the downside performance of an industry. The essential nature of the theory of the utility addresses this dynamic.
Before the downside is externalized to the public—this is the place to be proactive. The model of the utility is a tested modality. Even as the culture of capital likes “bigness”---because it likes efficiency, scale and the power of brands--it must be remembered that it also likes unfair advantage—when this can be accomplished. There is no reason to hope that the culture of capital is going to somehow regulate its native impulse to dominate through competition. Capital is a culture. Cultures are irresistible and willful.
Creating new government oversight or new government agencies—can be tempting to consider but they are largely irrelevant. Subjecting an industry to the guidance of a utility, as it bears upon pricing and returns earned by capital—may do a lot to help mollify concentration risk (big getting bigger at society's peril).
What is at the heart of the BP debacle? Two opportunities: all energy industry members should be made to participate in the remediation of any one failure, for one. And two, that portion of the energy industry not currently subject to utility rules, converts to a “utility” model as soon as any one member becomes “too big to fail or fix”.
The Share-Capital Foundation provided this op-ed. www.share-capital.com
