Governance Beyond the Boardroom in Oil Industry

Deepwater Horizon Oil Spill

Yesterday's scathing report by the presidential commission into the April 2010 Deepwater Horizon oil spill paints a picture of a disfunctional corporate culture at BP and across the oil industry. The report is very useful in explaining what exactly went wrong in the build up to the explosion. But the most interesting aspects for this blog's readers lie in the 'Overarching Management Failures by Industry' section [p. 122]:

"The most significant failure at Macondo—and the clear root cause of the blowout—was a failure of industry management. Most, if not all, of the failures at Macondo can be traced back to underlying failures of management and communication. Better management of decisionmaking processes within BP and other companies, better communication within and between BP and its contractors, and effective training of key engineering and rig personnel would have prevented the Macondo incident. BP and other operators must have effective systems in place for integrating the various corporate cultures, internal procedures, and decisionmaking protocols of the many different contractors involved in drilling a deepwater well." 

As this case demonstrates clearly, some of the greatest risks in the oil industry are faced along way from the boardroom. Without a robust governance culture that proactively addresses the integration of various corporate cultures, internal procedures, and decisionmaking protocols" of the various contractors", the report concludes that:

"the root causes are systemic and, absent significant reform in both industry practices and government policies, might well recur."

This isn't the current governance culture of the industry. Rather, it is summed up by BP engineer Brett Cocales in an email a few days before the explosion [quoted p. 116]:

“But, who cares, it’s done, end of story, [we] will probably be fine and we’ll get a good cement job.”