SAFETY AND ENVIRONMENT | The cost of beancounting

The following article was written by Clay Maitland, one of the most respected voices in the maritime industry.

Im my opinion, it is worth reading, if only to remind us that, at a time when cost management tends to be more important than safety risk management, beancounting can be indeed very expensive.

Here is Mr Maitland’s article:

Robert Dudley is an American oil man who became an employee of British Petroleum, oops, BP, when it absorbed Amoco, the former Standard Oil of Indiana, in 1998.

As of Friday,  Mr Dudley has taken the lead in managing BP’s, er, response to the Gulf oil spill.

Amoco, remember, was the owner of the Amoco Cadiz.

There are similarities between what happened to that vessel in 1979, off the coast of France, and what is happening now; both oil companies had/have rigid cost control systems in place, but no apparent means of minimising risk, or an awareness of the consequences of a failure to control it. In both cases, this failure led to vast financial and environmental loss.

One of many ironies is that the methods by which risk may be analysed and managed began with the Corporation of Lloyd’s, in the coffeehouse kept by Edward Lloyd in Tower and later Lombard Streets, in the City of London, in the reign of Charles II.

To assist shipowners and underwriters who frequented the coffeehouse, a list was maintained of the ships offered for the insurance of hulls and cargo.

These lists became in 1760 a printed volume or register book, and by 1775, the familiar classification of A1 Lloyd’s was used to denote the highest class of ship. The analysis and control of risk of loss became an essential principle, without which ships and cargoes could not be profitably insured, and shipowners avoid ruin.

Today, some of the world’s most knowledgeable and sophisticated experts in containing risks can be found within the ranks of London marine insurers. One hopes that Mr Dudley, who may be the successor to Tony Hayward as BP Chief Executive, will make use, at long last, of this resource.

It is also fervently hoped that he brings with him an institutional memory of the cause of the Amoco Cadiz oil spill.

Many readers will remember that she and her sister ships were ordered and built at the Astilleros yard in Cadiz; that all had a design flaw affecting their steering gear (not good for large tankers to have); that this caused significant loss of hydraulic fluid, which if not remedied, resulted in loss of control.

Amoco was warned to get this problem fixed on all of the Astilleros builds. This would have cost piles of money, so a less expensive solution was found: equip each Amoco tanker with large spare supplies of hydraulic fluid, carried in barrels.

This less expensive solution worked to management’s satisfaction, if not that of Amoco’s crews, until Amoco Cadizwas caught in a storm in the Bay of Biscay.

As part of the Amoco management system of control of all things great and small, each of its masters was required to be in close and frequent contact with company headquarters in Chicago. The effect of the sustained heavy weather encountered by the AMOCO CADIZ, culminating in a particularly severe storm as the vessel approached Ushant, was that most of the spare hydraulic fluid had been used.

Steering control failed, and the master, Capt. Bardari, radioed Chicago for permission (Amoco policy denied him the authority to do this without head office approval) to call for salvage tugs.

At first, and for some time, Chicago declined to grant permission to Capt. Bardari to do so, since this would probably entail his signing a Lloyd’s Open Form of salvage agreement. Surely a less expensive solution could be found.

Eventually, head office in Chicago relented, and allowed Capt. Bardari, poor soul, to call for assistance.

The stormy weather continued,  and his emergency call was answered by only a few salvors, one of which was a famous company called Bugsier.

More time was lost haggling over the potentially costly Open Form. The Bugsier tug, appropriately named Samson, arrived too late, and Amoco Cadiz was driven on the rocks of the Breton coast. The oil that spilled onto the French beaches and oyster beds, among other resources, resulted in very large damages against Amoco. A less expensive solution could not be found.

A noteworthy result of the Amoco Cadiz disaster was an extensive revision of the SOLAS Convention.
What has not, however, been done from 1979 to the present time, either in national or international law, is to deal with the disastrous effect of a business model that, particularly at some large companies, has tended to put cost controllers in policy-making positions.  This was true, at the time, at Amoco.

Such a man was Lord John Browne.

In contrast to the new management of Exxon, after the Exxon Valdez allision, (1989) which adopted pervasive, and effective, quality and safety management policies, John Browne was a ferocious cost-cutter who reined in spending across the board, including safety.

So has his successor and protege, Mr. Hayward. Despite the lash of outrageous circumstances: the Prudhoe Bay pipeline leak, the Texas City explosion, and about 760 safety violations in its refineries, cited by the U. S. Occupational Safety and Health Administration between 2007 and 2010, the corporate culture, despite all the “green” advertising, resisted effective awareness of the extraordinary risks that were being run.

Not so Exxon, now Exxon Mobil. Shortly after the Exxon Valdez spill in Prince William Sound, Alaska, Exxon’s board of directors met, and fired the CEO. It then convened a committee of senior executives, and instructed them to create and institutionalise a pervasive system of safety awareness and management within all of Exxon’s plants and other assets, including ships and rigs. Exxon Mobil now has an outstanding safety record.

This kind of cultural change requires leadership by example. If deepsea drilling is to be resumed, as I think it must, then a way to do it safely and competently will have to be found. All of the oil companies, and their suppliers and contractors must be forced to abandon hardheaded “cowboy” cultural attitudes toward safety and the environment.

There is definitely a need for federal legislation that defines and requires certificated safety management programmes; the Exxon Mobil system would provide an excellent model. A structure of outside audits will be a necessary requirement. The Institute of London Underwriters could provide useful advice.  A safety management and risk control system that delivers value, and is not “bolt-on” window dressing, requires the active engagement of senior officers of the company, and freedom from a “one size fits all” budgetary corset.

Much in the manner of Sarbanes-Oxley, there must be explicit accountability for safety awareness, and the company’s management system, from top to bottom within the company, from the “C” suite to the wellhead.

The key element is of course government enforcement; yes, another layer of bureaucracy is now inevitable! The Exxon Mobils, who will voluntarily change their safety culture, are not universal phenomena; without laws that compel compliance,the cowboys and the beancounters will continue to make their own rules, and life will be risky for those pensioners.

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