Restoring the Honor System

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Greedy. Heartless. Shameful. Downright pathetic. These are just a few ways to describe Transocean's (NYSE: RIG  ) recent decision to richly reward its executives for the past year's supposedly sterling safety record. But at least the ensuing vocal public outrage may have spurred the company to rediscover its sense of honor.

We're nearing the one-year anniversary of the Deepwater Horizon disaster, which resulted in 11 deaths and a months-long spill that gushed hundreds of millions of gallons of oil into the Gulf of Mexico. Yet somehow, Deepwater Horizon rig owner Transocean disclosed in its proxy statement last week that it would celebrate the "best year in safety performance in our company's history" by doling out safety-related executive bonuses for 2010.

After public outcry left them thoroughly scorched, the executives in question now plan to do what they should have done in the first place: donate the safety-related portions of the bonuses to a memorial fund dedicated to the victims' families.

A scary definition of "safety"
After the Gulf disaster, no logical person would have called Transocean's performance in 2010 "safe." Transocean's lame initial response to ensuing outrage didn't help, either. A spokesman said:

We acknowledge that some of the wording in our 2010 proxy statement may have been insensitive in light of the incident that claimed the lives of 11 exceptional men last year and we deeply regret any pain that it may have caused. Nothing in the proxy was intended to minimize this tragedy or diminish the impact it has had on those who lost loved ones. Everyone at Transocean continues to mourn the loss of these friends and colleagues.

William Reilly, co-chair of the presidential commission that equally faulted Transocean, BP, and Halliburton (NYSE: HAL  ) for the spill, joined the condemnation of Transocean's safety bonuses, stating that the company "just doesn't get it."

Perhaps outrageously inappropriate responses to tragedy are par for the course in this industry. BP (NYSE: BP  ) , which operated the Deepwater Horizon rig, finally ousted CEO Tony Hayward after the crisis prompted a mind-bogglingly long list of ludicrously inappropriate gaffes to pour from his mouth like oil from the gusher. Who can forget Hayward whining about how he'd "like his life back"?

If one reflects on the blame game in which these companies indulged after the shameful accident, perhaps it's not completely shocking Transocean's first inclination was to deem itself faultless. Too many companies throughout the corporate world have long insisted on paying their executives hefty bonuses, however inept their performance.

Perhaps Transocean also believed that the public, including its own shareholders, might have short memories. After all, BP's already asked to start drilling in the Gulf again, not quite a year after its high-profile, reputation-destroying disaster.

More safety in honor
Back in the old days, a sea captain's code of honor would require that he go down with his ship should it sink. Today, such honorable, self-sacrificing exhibitions of personal accountability in leadership are few and far between.

In 2008, many managers at beleaguered financial firms profited from golden parachutes while their companies crumbled to ruin, or demanded bonuses and high pay even after the taxpayer bailout that saved many a banker's hide. AIG (NYSE: AIG  ) took a lot of heat for demanding "free market" bonuses, even though a truly free market would have allowed the company, executives included, to literally pay for their mistakes by going belly-up.

Thankfully, some chief executives still want to do right by their workers. In his new book Onward, Starbucks' (Nasdaq: SBUX  ) CEO Howard Schultz recounts the story of his father's injury, his subsequent pink slip, and his lack of health coverage. This incident resulted in Schultz's well-known insistence on providing health-care benefits for Starbucks' workers, regardless of the costs.

Rediscovering the honor system
Transocean's executives' acknowledgement that 2010 was not the company's safest year, and choosing to do something to help instead of focusing on their own bonuses, deserves commendation. Still, it's shameful that the effort came this late, and that Transocean had the audacity to dub 2010 a "safe" year to begin with.

I hope Transocean's recent difficulties provide valuable lessons to its peers. They'll get more respect from shareholders and potential customers by behaving honorably than by cashing fat paychecks. As for the rest of us, let's remember to keep more companies like Transocean accountable for unacceptable deeds. They'll never start behaving better unless we hold them to a higher standard.

Check back at every Wednesday and Friday for Alyce Lomax's columns on corporate governance.

Starbucks is a Motley Fool Stock Advisor recommendation. The Fool owns shares of Starbucks and Transocean. Try any of our Foolish newsletter services free for 30 days.

Alyce Lomax owns shares of Starbucks; we Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (6) | Recommend This Article (21)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 06, 2011, at 5:11 PM, CMFStan8331 wrote:

    RIG may be a good investment, buoyed by the rising price of oil, but the thought of investing in a company whose management is this clueless scares me to death.

  • Report this Comment On April 07, 2011, at 12:52 AM, chelfert wrote:

    Transocean's executives' acknowledgement deserves absolutely no commendation and unfortunately is not any indication of new-found honor. Rather, it is a self-serving attempt to knit back together whatever threadbare shred of integrity or credibility that remained after last year's disaster was rent asunder by their latest myopic idiocy.

  • Report this Comment On April 07, 2011, at 8:35 AM, thenewt wrote:

    RIG just came off my watchllist. I sure hope all the TMF analysts who wrote the articles which convinced me to put it there offer some fresh commentary on Transocean's management. I'd like to read an article which compares metrics for assessing management quality with the implications put forth by this statement.

  • Report this Comment On April 07, 2011, at 8:51 AM, catoismymotor wrote:

    The whole idea of giving out safety bonuses in light of what happened in the last tweleve months does appear clueless. Or maybe it is something else? Is it possible that the industry or the company has some perverted criteria that it must meet in order to have a sterling year of safety? Is anything short of killing half the world's sea life considered sterling year? I honestly have no clue about this, would like someone to help out with this question.

  • Report this Comment On April 08, 2011, at 2:40 PM, DJDynamicNC wrote:

    But this WAS a sterling year for safety at Transocean. The executives are completely insulated from the negative externalities associated with their industry, so they are completely safe from any negative results. It's hard to get safer than that!

    Heck, while we're at it we might as well give them some Earth Day awards, since they'll be sheltered from the damage their industry is doing to the planet, too.

    Ain't corporate oligarchy a grand way to run the planet? :)

  • Report this Comment On April 12, 2011, at 2:30 PM, TMFLomax wrote:

    Thanks for the thoughts everyone. Cato, I think "perverted criteria" probably just about hits the nail on the head in cases like this.

    Here is a good piece about this topic; it also gives a bunch of other reasons/historical examples of things Transocean's done that should make investors think twice about it as an investment:

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