BP clean up: A contest between citizenship interests and shareholders

This from yesterday's Wall Street Journal:

In a letter sent Sunday to U.S. Coast Guard Rear Admiral James Watson, BP said it expects to have the capacity to capture between 40,000 and 53,000 barrels of oil a day by the end of June. That compares with 15,000 barrels a day now, out of a flow of 20,000 to 40,000 barrels scientists estimate are coming from the well.

BP, which said further enhancements will increase the collection capacity to as high as 80,000 barrels a day by mid-July, submitted its latest plan after Mr. Watson, the federal government’s second-in-command for the spill response, told the company Friday its previous plan was insufficient and gave BP a 48-hour deadline to come up with a revised approach.

Mr. Watson said in a statement Monday that “BP is now stepping up its efforts to contain the leaking oil,” noting that the new plan’s call for collecting 50,000 barrels of oil by the end of June is two weeks earlier than the previous timeline.

But the Journal isn’t telling the truth. BP is not capable of writing a letter or “saying” anything, “submitting” anything, or “stepping up its efforts.”

You see, BP is not a person.

Like any other corporation, BP is a collection of contracts. The collection includes employment contracts — with people who are paid to be executives, with others who are expert in how to plug holes a mile below the surface of the Gulf, and with lots of workers. There are contracts with BP’s creditors, who expect to be paid on time. There are contracts with numerous suppliers, with other companies like Halliburton, with the owners of tankers. And there are contracts with the U.S. government, which has leased part of the Gulf to BP for drilling.

At the center of this web of contracts are BP’s shareholders, who legally own BP. That means they own BP’s assets — oil reserves under land or ocean bed that BP as a corporation is entitled to, its physical capital (rigs, tankers, and so on), and its financial assets, which amount to tens of billions of dollars.

BP’s shareholders (including pensioners who have shares of pension funds, small investors who own shares in mutual funds, and major investors, all over the world) are interested in only one thing — maximizing the value of their shares. Over the last month and a half, these shareholders have got clobbered. Some have sold out to other investors who believe BP’s share values will rise. Others are holding on in the hope that they will.

It’s impossible for BP to commit to doing anything because BP is not a human being capable of making commitments. BP’s executives (like Tony Hayward) work for BP’s shareholders. They can be replaced by BP’s shareholders if BP’s shareholder aren’t satisfied with their performance. Or, more likely, BP’s shareholders can sell out to major investors who will then replace BP’s executives if they don’t like the job they’re doing.

It doesn’t matter if Tony Hayward is called to the White House. It doesn’t matter that President Obama says he’d like to fire him. Hayward’s first responsibility is to BP’s shareholders.

Some Americans are also be BP shareholders, but their interests as U.S. citizens aren’t represented in their roles as shareholders. Their citizenship interests are represented by our government, headed by the President.

As citizens, we want the hole in the Gulf plugged up as fast as possible, we want the spill contained, and we want everything cleaned up and damages paid — no matter how much it costs BP’s shareholders. But if we’re BP shareholders, we want to minimize all such expenditures — including our long-term liabilities.

Get it? There’s no conflict between Britain and the United States. The conflict is between two kinds of interests — shareholder interests and citizen interests.

And unless or until citizenship interests predominate in the Gulf — unless or until BP’s shareholders are forced by law to part with their assets to ensure the safety of the American public — shareholder interests will come first. That’s why it’s so important for the Administration (and, if necessary, Congress) to take steps to put BP America under temporary receivership, establish an escrow fund of at least $10 billion that BP must pay into, and whatever else is necessary to trump shareholder interests.

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