According to reports, U.S. investigators examining the causes of last year's Deepwater Horizon disaster haven't exonerated BP
Speculative traders may not care as long as BP doesn't bear the full brunt of blame. The oil company's shares have rallied about 5% today, at my last check. But long-term shareholders should take the news as a reminder that management teams who exhibit little or no acknowledgment of potential risks endanger their investors' holdings.
Disasters dance marathons = depressing
The government's report flags flawed management at BP, which it says tried to save time and money in the short term without properly weighing possible risks of those strategies.
A glance at BP's two-year stock chart illustrates its stunted stock returns since the deadly Deepwater Horizon disaster and the subsequent oil gusher in the Gulf of Mexico. But today's bullish headlines about BP's diluted blame seem to gloss over the company's frankly hapless response to the oil it allowed to gush into the Gulf of Mexico.
BP isn't the only company that's become an object lesson in the perils of myopic management. Prior to the financial crisis, Citigroup's
Drilling down for preparedness
Fortunately, some corporate managers and boards have summoned the courage to address potential risk, instead of pretending it can't happen to them. In honor of the recent 9/11 anniversary, Wharton studied "Risk Management in the Era of the Unthinkable." The dreadful 9/11 terrorist attacks proved that paradigm-changing events can happen, and that preparing for them is responsible, not paranoid or pessimistic.
Wharton's Michael Useem, Howard Kunreuther, and Erwann Michel-Kerjan have been surveying leaders of S&P 500 firms. After 50 interviews thus far, they have found that boards of directors have become more directly involved in risk management for big crises, and that many firms are now running disaster drills of all types.
These "disaster drills" aren't just related to physical events like attacks or natural disasters, but also to other major value- or business-destroying crises. For example, one major bank they interviewed makes its senior executives practice what they would do in the event of another financial entity's failure.
Managers don't need to run drills to prepare for every corporate danger. Sometimes, resisting Wall Street's pressure to prize short-term results above all else can work just as well. Costco's
Be safe, not sorry
An ounce of prevention is worth a ton of cure. The report on BP's, Halliburton's, and Transocean's roles in the Deepwater Horizon disaster and its aftermath shouldn't be dismissed or celebrated. Its findings should remind shareholders to push hard for high-quality managers who resist short-term thinking, limit risk, and keep strong, well-considered plans in place in case of crisis.
Risk management is good management. Before you pull the trigger and buy a stock, remember to contemplate the quality of the company's leadership. Safety isn't underrated, in life or in your portfolio.
Check back at Fool.com every Wednesday and Friday for Alyce Lomax's columns on environmental, social, and governance issues.Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of Transocean, Citigroup, Costco, and Wal-Mart. Motley Fool newsletter services have recommended buying shares of Wal-Mart and Costco, as well as creating a diagonal call position in Wal-Mart. Try any of our Foolish newsletter services free for 30 days. 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.