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When is it Worth the Risk?

July 24, 2013, 12:00 AM
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Business involves taking risks, and many of these are financial risks but in many aspects of business there can be risks to people. Sometimes it's even severe physical injury and even death -- though not usually for the management or people making decisions about the business.

For me this became clear when, at a relatively young age. I was CEO of a coal company and I got word that we'd lost a man in the Imperial Smokeless Coal Company mine. And I was shocked -- I suppose I was pretty naïve to have not anticipated this. Someone came into my office they said look, we lose one man per thousand every year. We had 4,000 people working there and so it looked like that meant a death every three months. I simply couldn't be comfortable with that so I got out of that business. Perhaps I should have stayed and tried to make things safer but at that young age I didn't see any way to do that.

Corporations exploit commercial opportunities in full knowledge that there will be what, to me, is an unacceptable risk to society. And our regulations allow this to continue. The Swedes, for example, have simply eliminated underground mining because of the risks. I know because they were our customers when I ran the mine. They needed coal but we were willing to take the risk to make a profit. The upshot is that we have chosen to continue with a level of risk in commercial activities far beyond the capacity that money can reimburse or solve. The question then is how can government create reliable constraints on corporate functioning that risks human life and livelihood?

According to the AFL-CIO, 4,690 workers died on the job in 2010. An average of 13 workers per day. And that number doesn't include the approximately 50,000 who died from diseases caused by working. This year, 59 workers died in January alone according to OSHA. Not all of these involve excess corporate risk or negligence but they are a result of doing business.

At what seems like an increasing rate, we see huge accidents or catastrophes at corporate plants or worksites. Most recently it was at the fertilizer plant in West, Texas. As it stands now, it resulted in 14 dead and well over a hundred injured. Whether this was risk or negligence we don't yet have a verdict. We do know there were massive amounts of ammonium nitrate on hand -- and that the companied had not reported this to the required government agencies.

There is no way to assess value of human life -- and yet we do assess value. Suits will be filed and settlements will be made. Fines may even be levied. This has become part of the cost of doing business for corporations.

Now, this fertilizer operation is a relatively small operation and it remains to be seen who is blamed and just how the company handles this tragedy. But look at BP. Just a few short years ago -- also in Texas -- we saw one of the country's worst environmental disasters. It took life, ruined swaths of coastline and crippled people's businesses. People sued, the government got involved but in the end BP paid fines and settlements and moved on with barely a pause. $23 billion is the cost of doing business for them. Just another fee that lets them operate at the edge of good sense regardless of who it affects.

It seems these fines and settlements become like licensing fees. The very large corporations have enough money to pay for them without affecting their bottom line. It's worth the risk. There are plainly things that we do not want corporations to do but any punishments for misdeeds or negligence have no teeth.

If you look recently at the circumstances of the pharmaceutical companies in America an extraordinary pattern emerges that in company after company, year after year, it's clear that they engaged in marketing and sales practices that were misleading. Or, they sold drugs that were known to have potential dangers. Once they're caught they pay out billions of dollars and then they do it again.

When a behavior becomes a pattern for a corporation then it's part of the business culture. They've built in those costs and those p.r. campaigns because they expect them to come up.

This means that whatever the ultimate governmental remedy is it isn't enough. We aren't telling them don't do these things. We're telling them this is how much it costs for you to do these things. We are allowing large entities to buy the opportunity to run risks with consequences to the citizenry.

By the time of the Gulf Coast disaster we already knew BP was a company that was willing to take safety risks. Just five years before there were explosions at the BP refinery in Texas City which resulted in fifteen deaths and scores of injuries. They had been fined. They had been investigated. Their board was told to make safety a priority. Clearly they didn't -- at least not to the extent that they should have. How many chances do they get? As many as their money can buy.

What it tells you is that the current system does not have a reliable framework to limit the impact of corporations when it comes to human safety or our environment or any other social values. Fines and damages are really just the cost of doing business. So you have to ask yourself, if criminal penalties fail to affect corporate conduct how do we make corporations accountable? Do we continue on issuing meaningless fines or do we find another way of having corporations behave in a manner that is consonant with human welfare?

And here is the place where I believe that involved owners are the only solution for doing this, and in some cases it may mean that they would decide to get out of that line of business. That may well be. But without the human involvement we are perpetuating a process that is almost programmed to create problems. Maybe the bottom line will be affected but we -- both as owners and as a society -- need to decided if making high returns is worth sacrificing human lives and the environment. As it stands now, we need oil, we need jobs, we need technology but we've put ourselves into a very difficult position and the only way out of it is to have involved, informed, motivated owners.

Image courtesy of Shutterstock

 

When is it Worth the Risk?

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