Did BP's Alaska management act unethically?

There was a British Petroleum whistleblower on CNBC this morning who claimed that senior management at BP's Alaska oilfields knowingly skimped on necessary maintenance and repairs because their bonuses were tied to cutting costs.

Is this believable? Yes, because people respond to incentives, including the rewards of cheating.

I also believe that senior managment has a greater propensity to cheat because honest people have less success climbing the corporate ladder.

I hope people won't use this news story to indict the entire oil industry, which as a whole is probably more honest than the average industry.

Comments

[bbartlog]

Maybe my expectations of corporate behavior are too damn low, but I have to admit I was just happy that they shut it down before it caused an environmental catastrophe. With things like the Bhopal disaster and Exxon Valdez happening semiregularly, I just can't get too worked up about misguided maintenance delays where the problems were actually caught...

[SFG]

I also believe that senior managment has a greater propensity to cheat because honest people have less success climbing the corporate ladder.

Quite believable. I wonde if there's any way we can prove this?

[cpurick]

"I also believe that senior managment has a greater propensity to cheat because honest people have less success climbing the corporate ladder."

Myth. Honest people who do not understand how to succeed are easily tempted into believing that successful people must somehow be cheating. Closely related to the class warfare belief that rich people must be stealing their money.

[bbartlog]

If by 'successful people' you mean simply people who have money, I would agree - work hard, save money, you too can be a millionaire (cf. 'The Millionaire Next Door' and all that). At least in the US of A.
But... we were talking specifically about climbing the corporate ladder. I'm skeptical that being wholly honest is really the winning strategy; the competition is too social in nature, the timber of humanity is too crooked. I guess I am advocating a middle point of view. Cheating and lying may not be necessary to advance, but the notion that this is a pure competition which rewards only the most able is also a myth, though not as damaging as the idea that all CEOs are crooks at heart.
As a case study of failure in corporate decisionmaking you could look at nepotism at Ford Motor Company. Granted, this is not *cheating*, but it should put to rest the idea that competence is the key to promotion. William Clay Ford Jr (great-grandson of Henry Ford) has presided over the destruction of about $45 billion in shareholder value since he became chairman and CEO. The market will ultimately 'correct' the mistake by destroying Ford Motor Company, but to understand what happened you'd be better off with Shakespeare than Milton Friedman.

[cpurick]

"the notion that this is a pure competition which rewards only the most able is also a myth"

I didn't say the system rewards "the most able." Heck, I don't even think it rewards the most deserving, but that doesn't mean those who are rewarded most are any less honest.

[Peter]

As a case study of failure in corporate decisionmaking you could look at nepotism at Ford Motor Company. Granted, this is not *cheating*, but it should put to rest the idea that competence is the key to promotion. William Clay Ford Jr (great-grandson of Henry Ford) has presided over the destruction of about $45 billion in shareholder value since he became chairman and CEO. The market will ultimately 'correct' the mistake by destroying Ford Motor Company, but to understand what happened you'd be better off with Shakespeare than Milton Friedman.

It should have been Henry Ford's grandson, not great-grandson, who presided over the company's decline. The so-called Stupid Grandson Theory says that it is usually the third generation of a family company (in other words the founder's grandchildren) who make a total mess of things. Seagram Corporation is a textbook example. On a smaller scale you have the Barney's department store mini-chain. In most cases the children of a company's founder carry on the business in reasonably good form, but when their children take over all hell breaks loose. What's probably the most likely explanation is that the founder's children remember how hard their father struggled to achieve success and do their best to carry on his legacy, while the grandchildren never knew anything but success and therefore take it for granted.

[SFG]

So they got away with it for an extra generation. Good genes.

[Ned]

I recall an incident described by Levitt and Dubner in their book, "Freakonomics." A man ran an honor-pay bagel servive in the Washington, DC area. Basically, he put out boxes of bagels in various offices every morning. Bagel-munchers were supposed to put a dollar per bagel in the honor-pay box. At the end of the day, he collected the uneaten bagels and the boxes of money. He noted that many more bagels were stolen (i.e., not paid for)on the executive floors than on the worker-bee floors. Was this due to a greater sense of entitlement by the executives? Or was it that inherently dishonest people were more likely to rise to the executive ranks?

[superdestroyer]

Peter,

I had not followed Seagram's but in doing a little research, it seems that the third generation, Edgar Miles Bronfman, Jr, just was not happy running an industrial company and wanted to be around celebrities.

You could say the same about many of the children of politicians. Al Gore Seniro and Al Gore Jr were both senators but the third generation you get Kristin Gore writing jokes for SNL.

[SFG]

" Was this due to a greater sense of entitlement by the executives? Or was it that inherently dishonest people were more likely to rise to the executive ranks?"
Maybe the workers thought it was some sneaky plot by management to see who the crooked types were and chipped in out of fear.

Though I guess maybe the crooked types should be promoted...