I am participating in a round table discussion today with several directors of corporations and environmental managers and vice presidents to discuss environmental, health and safety issues. Last night we all had dinner and discussed the report prepared by the panel of eleven experts led by James Baker of the investigation of the explosion at the BP refinery in Texas City, Texas.
The report found that prior to the Texas City tragedy, BP emphasized personal safety but not process safety, and that the problem existed at all five of the firm's US refineries.
 Former US Secretary of State James A Baker led the panel |
"BP mistakenly interpreted improving personal injury rates as an indication of acceptable process safety performance at its US refineries," said the report.
"The panel found instances of a lack of operating discipline, toleration of serious deviations from safe operating practices, and apparent complacency toward serious safety risks at each refinery."
The discussion of the report led to the question of what are the responsibilities of a corporate director of a major corporation, particularly those that sit on environmental, health, and safety committees. As one of the two lawyers in the room, I raised the issue of the directors fiduciary duty of care to the company. Delaware case law holds that to fulfill the duty of care, a director must make a good faith effort to be informed and to exercise appropriate judgment. In re Caremark International Inc. Derivative Litigation, 698 A.2d 959 (Del. Ch. 1996).
In the context of the Baker Report, the director must exercise enough due diligence to understand the safety issues and to be sure that adequate information is being supplied to him or her to carry out the duty of care. In other words, there must be sufficient gathering, boiling, down of information and presentation of that information so it is readily understandable to the director. The key is appropriate information flow and adequate metrics being provided to the director.
The discussion moved on to what metrics are appropriate. The BP Report concluded that personal safety, the typical how many injuries, fatalities, and accidents have occurred is not a good measure of true safety. The Report states that it is process safety, the rigorous review of safety practices, equipment, and other aspects of the processes in place to ensure a safe workplace. Someone may not have been hurt for example, but several near misses may have occurred.
At Texas City, this apparently had happened. When the explosion occurred, it just so happened that an ignition source was present when there was an overflow of hydrocarbons from a particular process unit.
The rigor of a process to address environmental, health, and safety issues was also discussed. We talked about the rigorous activities of the audit committee to be sure financial information is reported accurately and that fraud is not occurring. The discussion was that something more akin to that is perhaps appropriate to safety and environmental matters.
One participant thought we were being "nattering nabobs of negativism" in calling for directors to address risk, when directors ought to be identifying future opportunities. BP had been looking for new alternative and renewable energy sources. How can a director look for opportunities and think big thoughts, if they are worried about process safety?
The response, certainly mine, was that directors have dual roles in this context. To be sure the company is identifying and managing risk, while at the same time working to identify business opportunities. For example, in the climate change area, BP directors were right in exploring solar and wind energy and focusing on sustainability. However, they should also have been addressing the boring issue of process safety. It is both the sexy and the unsexy issues that directors should address.
A lively discussion was certainly had. The night ended with one outside or independent director saying that as a parent one must be involved and engaged in their child's life. He believed that if you take on the role of a director you must get engaged in the business of the corporation. You have to understand and work to address the issue of whether the employees of the company have a safe place to work.
I'm looking forward to today's discussion with great anticipation. In my work as an environmental lawyer advising companies and directors on the duties of directors to address environmental laws, environmental compliance, and environmental disclosure, I've seen issues arise with respect to companies that have excellent environmental management systems, but lack a policy and procedure of developing the reports that are delivered to the board of directors. The process is informal or ad hoc at best. I'm awaiting more discussion with the directors as to what they expect of the companies on whose boards they serve. It should be a fascinating discussion.
