BP Juggles Government, Shareholder Concerns - TheStreet

BP Juggles Government, Shareholder Concerns

BP, in what's gotten lost amid the disaster, must also do right by shareholders.
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BOSTON (TheStreet) -- As the government publicly pressures BP (BP) - Get Report to do right by its citizens in the wake of the worst oil spill in U.S. history, the energy company faces a question of corporate governance: Can BP do right by its shareholders at the same time?

"The president of the United States strong-armed the company into doing what's best for the country, but the fact is, companies are supposed to still act in the best interest of the shareholders," says Matt Kelly, editor of

Compliance Week

, an information service that covers corporate-governance issues. "There's going to be a duality."

Largely due to pressure from the U.S. government, BP earlier this month suspended its dividend payments and set up a $20 billion escrow fund to address cleanup costs and claims. On the surface, they looked like moves to appease the government at the risk of peeving the shareholders. But BP's stock actually rallied on the news, in part, because it was the first big, definitive action the company had taken since the April 20 oil-rig explosion, even though there's no guarantee $20 billion will cover the damages. Definition, in action and explanation, is something the company has lacked during the whole situation, especially with regard to safety. And a defined course of action is a key corporate-governance issue for any company.

Take BP's latest 20-F filing to the Securities and Exchange Commission, on March 5, six weeks before disaster struck. "Safety" is the first topic covered in the "Corporate Responsibility" section of the report. And the company is fairly specific in reporting past spills: "There were 234 oil spills of one barrel or more reported in 2009, a significant reduction on the 335 spills that occurred in 2008," the report reads. "The reported volume of oil spilled in 2009 was approximately 1,191 million litres, a reduction of 65% compared with 2008."

But other than stating that the company has a "six-point" safety plan, the report doesn't detail BP's plan of attack in the event of a major catastrophe. And American shareholders like details, says Eleanor Bloxham, founder and chief executive officer of

The Corporate Governance Alliance

, a Westerville, Ohio, consultancy that advises corporate executives on governance issues.

"The U.S. people are more specific in their orientation and less conceptual," Bloxham says. "

BP is going to have to be much more concrete than they have been in the past and show much more of a sense of urgency and an outline in their plan."

Bloxham adds that shareholders may be comforted by the recent U.S. appearances of BP Chairman Carl-Henric

"We Care About the Small People"

Svanberg, in spite of his inept public apologies. "It was important that he stepped forward," she says. "Prior to that, there was a sense that the board wasn't as involved as it should be, and it's very useful for shareholders to see that there's the board in addition to the CEO, and that the board has taken an interest and not leave it all to the management."

Meanwhile, a

campaign

is afoot to encourage the government to put BP's U.S. operations into receivership until the spill is cleaned up, a move that clearly wouldn't give priority to shareholders. To that end, Compliance Week's Kelly suggests that it might make sense to split the company in two, temporarily -- one to focus on the cleanup and one on the core business.

"The cleanup company would have to be beholden to the citizens of the U.S., and that could be put into government receivership," Kelly says. "Logically and legally, there's no reason you couldn't do it that way."

Bloxham says that "it's not a bad idea for them to think about splitting responsibilities along those lines and to make sure they're moving well on both fronts."

But others argue that a split wouldn't help.

"Insofar as BP shareholders have an interest in reducing payouts, this is guarded against by our liability system, so I don't see the benefit of splitting the company up or (as others have suggested) placing it under government control," says Jonathan Adler, a legal commentator who teaches environmental, administrative and constitutional law at Case Western Reserve University in Cleveland.

-- Reported by Carmen Nobel in Boston.

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