Is huge BP penalty a warning for all companies?
The company and its former employees were also hit with criminal charges after a deadly 2010 accident. Other executives are paying attention.
Does the record BP (BP) settlement with the U.S. government send a warning shot over the executive suites of national and international corporations?
On Thursday, BP announced it would pay $4.5 billion in fines for its role in the deadly 2010 accident on one of its deepwater drilling rigs in the Gulf of Mexico. That oil rig explosion killed 11 workers and created one of the worst oil spills in U.S. history.
The settlement includes more than $1.25 billion in criminal fines, the largest penalty of its kind -- as well as payment to other government entities for the restoration, preservation and conservation of Gulf Coast areas affected by the disaster.
The federal indictment also charged BP with 11 counts of felony manslaughter, one count of felony obstruction of Congress and violations of several environmental acts. In addition, two men who worked on the Deep Water Horizon Rig at the time of the accident were charged with manslaughter -- and a former BP vice president has been charged with obstruction of Congress and making false statements.
And those individual criminal charges, some observers say, are being noticed among middle and upper-level corporate management.
"For corporations it's true that they would rather get a civil penalty rather than a criminal penalty," says David Dana, an environmental law professor at Northwestern University. "But on the other hand, at the end of the day, they're both money -- and they're a cost of doing business."
As an example, Dana points to the deadly 2005 explosion at BP's Texas City, Tex., refinery. The Occupational Safety and Health Administration fined the company $87 million for not taking care of safety violations at the plant.
Dana notes there's been a "tremendous hesitance" in the past to bring criminal charges against individuals in environmental accidents and disasters -- or at best criminal charges were brought against low-level employees at the disaster site.
Which is why he says the indictment of a former BP vice president is unusual.
"I think that is something that will get the attention of people working in companies like BP at a managerial level," he says, "because nobody really wants to risk actual, criminal indictment or conviction."
At the same time, BP's settlement with the government doesn't bring an end to the billions of dollars in civil claims being leveled against the company by U.S. states, businesses, property owners and individuals.
But according to Dana, both the criminal and civil charges have sent an importance message to corporations. "I think a lot of people think that ultimately, what effects safety in these kinds of facilities is corporate culture," he says, "how much the corporation sends a message to everyone down the line that they're dedicated to actually spending money to be safe -- as opposed to the opposite message, which is 'we just want to get production rolling, no matter what.'"
For that message to be effectively communicated, Dana said, "it can't just come from the very bottom, it has to come from at least the middle or the top. So the higher-up the person is that's held responsible, I think, the bigger the possible effect on corporate culture."
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Shareholders held a mostly symbolic protest vote last year in response to high executive pay.
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