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Lessons for Finance Executives in the BP Oil Spill
Posted by John Kogan (CEO/CFO), May 12, 2010, 08:58 AM (view user's blog)
The BP oil spill is going to end some executive careers - take note...This is gonna hurt. BP has already lost tens of billions in market cap, they are going to lose tens of billions in cleanup, damages and legal fees, and that's not the worst of it. The lawyers and plaintiffs are circling and there is talk of forthcoming suits for corporate negligence resulting in lost earnings and market value. Yes, this has quickly moved from an environmental disaster to a business disaster, and for some BP employees, those most directly involved and their executive leadership, jobs will be lost and careers and wealth destroyed.
Finance leaders talk a lot about "risk". We talk about personal and corporate responsibility, corporate liability, and "managing" risk. Notice how quickly and easily this operating issue has become a business issue and how the damage is spreading from the environment to the company to the people. This is an abject lesson on the perils of working as an executive at any company today - public or private - and how the risks of your company are really your personal risk as well.
It is impossible to stay on top of everything in your department much less everything at a sprawling company. But this issue should be a warning to us all that we need pay more attention to risk at every level of our organizations. That insurance only goes so far and having it (even in all of its myriad forms) should not make you complacent. That everything stems from those doing the work: whether they are our employees or those of a contractor. That tomorrow could be your BP, or your "oops, our systems just released our customer's social security numbers", or "our car's brakes are failing".
Today you should set some time aside to think about what you can do as a financial leader to drive the processes and procedures through your company which will minimize risk to all. Think also about how people drive everything of value (or destruction of value) at your company and about how the tone is, always, set at the top. Make sure you and your fellow executives are setting the right tone, leading by example, and putting in place the institutions that will serve your company well for years.
Oh yes, one more thing: stay off the front page of the Journal unless your PR firm puts you there.
- Risk Management
- 654 reads






Comments
Excellent posting!
Operations risk is often over looked as it is hard to quantify. However, it seems like operations risks are the ones that can do the most damage and are the most binary. In a world where "black swans" are becoming more frequent, we need to think about risks on a daily basis. Especially since in many if not most companies the finance professionals wind up being the default operations risk managers.
Excellent Topic
I agree that this is a very thought provoking topic. To me it comes down to transparency and trust in an organization. There is no way to manage risk if there is not good communication up the chain about what the risks might be and then open discussion about ways to mitigate the risk. All that openness takes trust. Those who are aware of the risks that exist are often not comfortable pointing them out. Or if they do point them out to their boss, that person does not take the steps necessary to move the identified risk up within the organization. They fear loss of their job or status for being the messenger. Unless organizations are willing to look openly and honestly at operational risk, all the financial analysis and mitigation efforts that might be in place will do no good as the issues that need to be addressed will never be brought to light.
Good Post
Great topic, but is the liability on the executive level or was a risk liability probability study done and in it was found that the risk of an oil spill was extremely low? I do not think any information on the pre-risk factor has been released from BP.
Still how BP is handling the issue is a great learning experience and it does make one consider how you would deal with this very complex issue.