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Caux Round Table Statement
July 15, 2010
BP and the Gulf of Mexico A Way Forward to Restore Modern
Capitalism?
The Caux Round Table (CRT) today described the BP crisis in the
Gulf of Mexico as
fundamentally a governance failure and called on corporations to
take the lead in preventing
such failures by embracing a more responsible and moral form of
capitalism.
CRT Chair Dr Noel Purcell stated that the failure of BP to
prevent and, subsequently, to be able
to control the massive oil leak from their well in the bed of
the Gulf of Mexico, demonstrates
the need for more enlightened and improved corporate management
of risks.
The environmental and social harms precipitated by the Gulf of
Mexico crisis parallels the
economic and social harms triggered by poor risk management on
the part of banking firms in
the lead up to the Global Financial Crisis of 2008. In both
cases, risk management wascompromised as senior corporate officers
and boards of directors failed to closely monitor and
control the widening of risk parameters as the limits of
technology, on the one hand, and of
financial leverage on the other, were pushed to extremes.
Recognizing that management of risks and stakeholder impacts
determines the quality of a
companys responsibility and resilience, the Caux Round Table has
pioneered development of a
new approach to management of such obligations.
The approach recognizes that risk is inherent, not just to
business, but to the human condition,
which always seeks to apply intelligence and creativity to use
of our resources. It recognizes
that the need of business and humanity is to manage risk and not
to foolishly seek itselimination. An equilibrium embracing a range
of acceptable risks is the goal of the approach.
This is especially needed in free market environments where the
propensity of modern
business is to accelerate risk taking through invention of new
technologies and new methods of
financial intermediation.
Finding the right level of risk invokes application of sound
judgment and so needs to be placed
with persons of wisdom and good character, who possess a sense
for history and understand
the frailties of human nature and the role of the common
good.
Capitalism is the best means to positively channel humanitys
access to needed resources,
both natural and financial, especially in the form of successful
enterprise. But equally,irresponsible capitalism ultimately causes
material harm economically, socially and
environmentally said Dr. Noel Purcell, CRT Chair.
As experienced by the banks and now by BP, poorly handled risk
management that results in
material social harm, directly leads to the re-issuance of
societys license to operate on new and
more restrictive terms. Most often, these new restrictions are
placed in the law and in
regulatory supervision of key business decisions. Just recently,
the United States Congress
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adopted new laws limiting the entrepreneurial freedoms of
financial firms. And the Obama
Administration has required BP to contribute US$20 billion to a
fund for payment of damages
caused by the oil gushing into the waters of the Gulf of
Mexico.
Therefore, to maximize the scope of their licenses from society,
responsible private firms need
enhanced techniques to enable their boards of directors to
exercise fiduciary attention over awide range of risk
possibilities. Society trusts more those firms that act ethically
and
responsibility, permitting them greater flexibility to seek
profitable business opportunities.
It is the responsibility of boards of directors to watch the
pots that might boil over and scald all
about them. Management of risk is too important to be left to
staff professionals. Poorly
managed risk threatens the fundamental financial value of the
enterprise and so preserving
enterprise value through proper stewardship of risk is a
fundamental board responsibility, Dr.
Purcell said.
The CRT risk assessment process, titled Arcturus, also
recognizes the enormity of such
responsibility in large modern multi-national corporations
engaged in complex, far-flungoperations. It enables boards of
directors, in timely fashion, to gain accurate assessments of a
companys risk profile.
The Arcturus process is simple but subtle. It permits boards and
senior managers to monitor
future developments of concern to stakeholders. It builds on the
proven lessons of quality
management, which after all, was a most successful enhancement
of risk management issues.
The Arcturus process engages the experience and the judgments of
directors, senior managers
and line professionals. It surfaces concerns that a companys
quality of performance is at risk
and helps prevent it being compromised by short-sighted views of
risk.
For more information on Arcturus, contact Stephen B. Young, CRT
Global Executive Director at:
[email protected]
+1 651 223 2852
and by mail at
The Caux Round Table
Six West Fifth St, Suite 300M
Saint Paul, MN 55102 USA
