Reputation counts

9th March 2012


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  • Energy ,
  • Corporate governance ,
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  • Management ,
  • Water

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IEMA

As BP pays out billions in compensation to those affected by the Gulf of Mexico oil slick, Paul Suff reminds businesses that the damage to reputations from such incidents can be more harmful than their financial costs

The £4.9 billion out-of-court settlement between BP and the businesses and individuals aff ected by the 2010 Deepwater Horizon oil spill makes a sizeable hole in the £12.6 billion trust set up by the company to cover damages caused by the disaster.

BP reported last year that it had already paid out £8.8 billion in response to the explosion on the rig that claimed the lives of 11 workers and pumped more than four million barrels of oil into the Gulf of Mexico, contaminating 491 miles of coastline. The settlement between BP and local victims of the spill is not the end of the possible financial repercussions, however.

The US government is pursuing environmental damage claims, and the company and its co-defendants could face fines of up to £11 billion if found guilty of gross negligence, which amounts to a maximum fine of £2,700 a barrel.

That’s a hefty price to pay. As was the £18.3 million fine issued by the Brazilian government last year to fellow oil giant, US firm Chevron, after it caused the country’s largest oil spill for more than a decade.

The problem for these companies, and others involved in high-profile environmentally and socially damaging incidents, is that it’s not only about money. BP’s profits are again buoyant – £15.1 billion in 2011, compared with a loss of £3.1 billion in the year of the accident – but its tarnished corporate reputation will take much longer to repair, particularly in the US.

It’s not insurmountable. In the late 1990s, Nike was accused of exploiting workers in Southeast Asia who made the firm’s clothes and footwear. Since then, the sports goods business has worked hard to restore its global image, through independent inspections of factories and improvements to working conditions.

BP’s response, which as well as compensating people affected by the spill includes funding independent research into the ongoing environmental impacts, will similarly go some way to repairing its battered position.

Reputation is the ultimate indication of corporate sustainability. Lose it and a company’s operations are likely to be consumed by competitors and, like Union Carbide, its name consigned to history.

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