Sunday :: Aug 20, 2006

Corporate Governance - Not so good

by Duckman GR

There's a reason why humanity has created organizations to mangage their sociatal congress. And that organization has taken many varied forms, constantly evolving or devolving over time as circumstances and Gaia change.

There are those who extoll the benefits of Corporate Governance, and the virtues of the Free Market. But those people are well and truly wrong, and let me cite some examples. Unless otherwise noted, highlighting is mine.

Let's start with this beauty from SAIC, a big research and engineering corporation, and their $170 million failed FBI software upgrade.

Because of an open-ended contract with few safeguards, SAIC reaped more than $100 million as the project became bigger and more complicated, even though its software never worked properly. The company continued to meet the bureau's requests, accepting payments despite clear signs that the FBI's approach to the project was badly flawed,


David Kay, a former SAIC senior vice president who did not work on the program but closely watched its development, said the company knew the FBI's plans were going awry but did not insist on changes because the bureau continued to pay the bills as the work piled up.

"SAIC was at fault because of the usual contractor reluctance to tell the customer, 'You're screwed up. You don't know what you're doing..." said Kay.

The corporation didn't say anything because the FBI continued to pay the bills. And that's all that mattered.

We all recall the recent problems BP is having in Alaska, right?

For BP, whose earnings topped $22 billion last year, the shutdown could prove both a blessing and a curse. While the company could certainly be hurt by the expense and image problems raised by the leak and repairs, it also stands to benefit if oil prices surge because of uncertainty over the shutdown.
Before its inspections in July, the company had last run a high-tech tool called a "smart pig" on the western side of the field 1998. Spokesman Ronnie Chappell Saturday said it had never previously done so on the eastern side where a leak was discovered a week ago.


Epstein blames government regulators for not forcing the industry to do better.

This demonstrates they don't learn their lessons very well, as evidenced by the next example, and more, on the flip side...

Joseph Hazelwood and the Exxon Valdez found Thigh Reef in Prince William Sound on March 24, 1989, spilling about 258,000 barrels of oil, killing some 260,000 to 580,000 birds, and fouling around 1,300 miles of coastline. But how did this disaster happen, and why was it's impact so widespread?

Because Arctic ecosystems were poorly known and assumed to be fragile, environmental concerns were an integral part of the negotiation and building phases of the Alaskan pipeline and associated facilities. [Which included tanker operations-DGR] Numerous safeguards were included in the project. But, over the years, an "atrophy of vigilance" had taken hold - many of the precautions had been relaxed, personnel had been cut back, and equipment had not been maintained (Gramling and Freudenburg 1992: 176). This falling away of concern was partly a result of the oil industry's safety record in Alaska. After years of more or less troublefree operation, the pipeline did not seem as disruptive to the environment as originally anticipated.... Tankers had successfully passed through the Valdez Arm 8,700 times!

Big Oil grew tired of spending the money for something that didn’t generate profits or at least cash flow. Why should we pay for something for nothing, they wondered? Their attention wandered to other prizes, like ANWR, and the operation continued on, the dangerous becoming routine, the machine continuing to run, until Hazelwood found the reef.

Well, there's a split responsibility with Corporations, one to the shareholders, one to the public domain within which they operate. And a management team is only concerned with that which can most directly affect their future, and it isn't the public domain. Their accountability is to the next quarterly report, not the next ten year plan, or five year plan. And therein lies the problem. And here's what happens with that conflict.

To gain initial approval for the trans-Alaska pipeline, Exxon and its six oil company partners promised to use double-hulled tankers, to have pilots and escort tugs during the entire transit of Prince William Sound and to do all other things necessary to prevent a major spill in Prince William Sound. They also promised to have equipment on hand that would clean up a 200,000 barrel spill.

But shortly after approval was granted, these promises were broken. The Exxon Valdez was single-hulled, the pilot got off shortly after entering Prince William Sound, there were no escort tugs and there was no capacity to clean up a spill one-tenth the size of the Exxon Valdez spill. This behavior put in jeopardy one of the last pristine environments in the world, Prince William Sound...

Exxon had reduced the number of mates on the Exxon Valdez from four to three to save about $100,000 per year...

Exxon has taken a position that it endeavored to make whole the persons harmed by the spill. That's not true.

After first paying claims, Exxon soon executed an about-face and did everything it could to avoid its liability to those harmed. It unleashed corporate coffers, paying millions in legal defense fees to bring every obstructive motion possible, to hide behind every protective law, while refusing to enter into settlement negotiations with fishermen and other victims.

This policy of delay and refusal to pay for the harm continues today as Exxon makes motions to appeal. Rather than pay just claims (which would be split among as many as 30,000 claimants), Exxon clings to its money and uses it to make a 14 percent internal rate of return. As the jury saw, many of the beaches remain oiled, and Exxon has refused any additional efforts since 1992 to clean things up.

Their loyalties are to profit, not the public. Want another example? Okay, this is one of my most telling and clear cut examples, often cited by me.

Because assembly-line machinery was already tooled when engineers found this defect, top Ford officials decided to manufacture the car anyway—exploding gas tank and all—even though Ford owned the patent on a much safer gas tank...

By conservative estimates Pinto crashes have caused 500 burn deaths to people who would not have been seriously injured if the car had not burst into flames...

Ford waited eight years [to fix the problem-DGR] because its internal "cost-benefit analysis," which places a dollar value on human life, said it wasn't profitable to make the changes sooner.

500 people, possibly more, died for Ford's bottom line profit calculations. And for no other good god damned reason.

That's why we have political, not corporate, governance. That's why the todays corporate fascistic gop is so wrong, and why those free market lovers are so wrong. Because corporations aren't accountable to the public, they're accountable to the board of directors and maybe the shareholders.

How many examples does it require to drive the stake through that argument, anyway? Bhopal? Three Mile Island? Exxon Valdez? Enron? Each with its’ own unique circumstances, unique death and/or destruction, that had real and negative impacts on society and nations. But each connected by the thread of corporate self interest.

And that’s the key, the corporate self interest, the profit bottom line that drives each and every one of these disasters, while the greater society within which they operate, within which their costs are subsidized, their expenses paid, pays the final price.

Does Exxon Mobile pay for the education of their workforce in the U.S.? Do they pay for the Interstate Freeway Network that allows them to deliver their product? Pay for the Navy Escorts during the Tanker War in the Gulf? With the pittance in taxes they actually pay?

Privitize Social Security, that's a good one, make the Social Compact that much weaker, more beholden to Corporations to our detriment.

Mind you, corporations have their place, as does profit, and freer markets. But not without oversight and control that considers the greater PUBLIC GOOD first. If we could trust these people to hold societal values, dirtbags like kenny boy lay, but we can't trust them as they continue to demonstrate. So government must exist to ensure that they behave and operate responsibly. And that doesn't exist today, and won't, until bushco, norquist, the whole gopper thug machine, is purged from our once great nation.

And that's the job of the American People and their DEMOCRATIC representatives, who might need reminding on occassion.

Duckman GR :: 8:46 AM :: Comments (10) :: Digg It!