Gulf oil spill: Big problems

They say the first step in reform is acceptance of what has gone wrong. In which case, Tony Hayward's admission yesterday that BP " did not have the tools you would want in your toolkit " in dealing with the biggest oil spill in American history represents if not a first step then at least an encouraging stumble. It also marks a change of tone from a chief executive who has so far shown only a tin ear. This is the boss who complained at the weekend that he "wanted [his] life back" – a remark of five-star insensitivity considering that it was an explosion on a BP-leased rig that began this crisis and killed 11 men. This is also the company that has spent most of the past five weeks playing down this disaster to a point that has stretched credulity: first massively understating how big the spill was, then overestimating how successful each cleanup would be. Yesterday the oil giant was claiming that it had taken a giant leap towards containing the spill: excellent news, if true – but it will not mark the end of the matter, not by a long way. First there are the probes that have been launched by Washington, and if they attach any blame to BP (even if shared with its various subcontractors) for this fiasco then Mr Hayward must step down. No ifs, no buts, and certainly no PR whitewash. But even the departure of a £4m-a-year boss would mark only a partial response to the scale of this catastrophe, which has cost lives and livelihoods, and caused huge environmental despoliation. What is at fault here is not just one man and his boardroom but an entire way of doing business. Ever since the formerly government-owned corporation went entirely private in 1987, and especially under the 12-year reign of John Browne from the mid-90s , BP has adopted a business manner that could politely be described as gung ho. Its American rival Exxon is fierce about keeping to high technical standards, Shell prides itself on its solid engineering – but BP has long been about outsourcing vital operations (the Deepwater Horizon rig that exploded was owned and operated by another firm), doing big deals (taking over Amoco, for instance) and trading. It is, in short, an oil company that acts like a particularly brash bank. The results have often been horrific. Not just Deepwater, but the explosion of the Texas City refinery in 2005 and the fractures in its Alaskan pipelines in 2006-07. This particular crisis is also comparable with the sub-prime meltdown, in that the laxity of American regulation led to disaster. Drilling in the Gulf of Mexico has never been monitored closely enough for safety, with the cash that oil companies were willing to pay for drilling rights always seeming to outweigh other considerations. We see the results today. Barack Obama has tried to use this crisis to gain more political and popular support for his clean energy bill – which is sensible, but only underlines how little progress America has made in this direction. Under George Bush the US made noises about weaning itself off oil supplied by Saudi Arabia – but its response was to go full tilt into using crops for biofuel, a disastrous move that sent world food prices skyrocketing. Mr Obama, bogged down by healthcare and fiscal stimulus and banking reform, has not carved out a clear or satisfactory new path. But there are also major questions to be asked about big British business and its approach to risk. Whether it is BP, Prudential and its bull-headed attempt to buy a giant Asian insurer (finally killed this week) or RBS and its possibly fatal takeover of Dutch rival ABN Amro, UK plc has coined a way of doing business that is about acting first and thinking later; doing the megadeal rather than attempting slower, more sustainable growth. It is an approach that has partly been shaped by America-envy (deals are always bigger and flashier on Wall Street) but also by a subservience to the City and its demands for quick growth and shareholder returns. It is an approach that has too much froth and too little substance.