History suggests BP will struggle to come back from the Gulf oil spill.
The news that beleaguered BP (LSE: BP) has copped a £6bn lawsuit over an alleged leak from its Texas City refinery earlier this year, right in the middle of the Gulf of Mexico disaster, illustrates an unfortunate commercial lesson from history. These things go on for ever, draining the company of funds, resources, energy, personnel and reputation. You will remember that BP's problems with Texas City already go back years and so, probably, will its difficulties from Deepwater Horizon.
And right on cue, Brand Finance magazine estimates that BP "has been leaking $72m (£45.1m) worth of brand value every day since its Deepwater Horizon rig exploded...." By late June, the BP brand's value was judged to be valued at just £3bn, massively down from £7.6bn before the well blew.
History also tells us that a disaster that costs lives, causes large-scale inconvenience or, more recently, environmental damage fits this bill. In the last few decades, the commercial fall-out has got worse as we've become more litigious. This appears to be particularly true if the technology involved is new or largely untried, and if negligence can be proved.
Tay Bridge
There are any number of examples but let's start with the Tay rail bridge collapse of December 28, 1879 in a force 10 gale, with the loss of some 75 passengers. (The exact number is not known.)
Like drilling deep-sea oil wells, the bridge's design of braced lattice-work of girders mounted on iron struts was not exactly new because engineer Thomas Bouch had done it before. However, as the longest bridge in the world, it was certainly on the limits of design.
In the subsequent enquiry, Bouch was vilified and in fact died before its findings were released. His design for the Forth bridge was scrapped and Edinburgh and Northern Railway survived but had to fight to recover its reputation.
Titanic
In every disaster there's a scapegoat, as Tony Hayward knows, and after the Titanic went down on April 15, 1912, it was White Star Line chairman J. Bruce Ismay.
Highly capable and not at all the man we saw in the movie, he'd actually saved White Star, then owned by Junius Pierpont Morgan, from almost certain failure. But somebody had to go and it was him.
Boston Molasses Disaster
When a storage tank in the yard of Purity Distilling burst in Boston on January 15, 1919, it released a tidal wave of molasses that killed 21 and injured 150. It also triggered one of Boston's first class-action suits against United States Industrial Alcohol, owner of Purity Distilling.
The result was US$600,000 in out-of-court settlements -- a massive amount at the time -- after three years of hearings. Soon afterwards, USIA was quietly merged into a bigger firm. The yard's now a baseball field.
Bhopal
Still the world's worst industrial catastrophe, the leakage of fatal gases from Union Carbide India's pesticide plant on the night of December 2, 1984, left thousands dead and over half a million injured. (Precise estimates vary widely.) It also triggered a wave of court cases in India and America that is still running.
Nearly 26 years later, Warren Anderson, chief executive at the time, can't go back to India without running the risk of arrest. In June, seven members of the executive and board of Union Carbide India were sentenced to two years imprisonment for causing "death by negligence".
As for parent company Union Carbide, it's now owned by Dow Jones, but minus its Indian subsidiary which is now under the Eveready name. It took 15 years to produce a compensation settlement of US$470m.
Exxon Valdez
When Exxon's tanker hit Bligh Reef in Alaska's Prince William Sound on March 24, 1989, and spilt up to 750,000 barrels of crude into the sea, damaging local economies and precipitating a wildlife catastrophe, it set the precedent for BP's present troubles in Deepwater Horizon. Although the company quickly blamed the captain for being a drunkard, the enquiry found the crew was short-handed and that the sonar wasn't working.
Initially fined $5bn, equivalent to a year's profit, Exxon appealed and ever since its lawyers have been almost permanently buried in files. Litigation was concluded only two years ago.
The firm spent $2bn trying to clean up the disaster and another $1bn in settling criminal and civil claims. And it doesn't call any of its tankers Exxon any more; they go under the name of SeaRiver.
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