Oil Spill and the Blame Game: The Innovators

The BP oil spill in the Gulf of Mexico shows the need for a new spirit of cooperation between corporations and the government when it comes to regulation.
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As the

BP

(BP) - Get Report

oil spill

continues to pour oil into the Gulf of Mexico, fingers are pointing in every direction.

The Obama administration, under fire for failing to contain the flow, is pinning responsibility for the mess and the expected gargantuan cleanup costs on.

Although BP CEO Tony Hayward ostensibly has taken responsibility for the giant undersea leak, he has also said that the nasty mess "wasn't our accident," blaming

Transocean

(RIG) - Get Report

for running the rig that exploded and released the spill.

Perhaps Transocean will find someone else to blame. But none of this can be much comfort to communities perched on the shores of the Gulf, especially New Orleans, still struggling to recover from Hurricane Katrina and now facing what may become the worst environmental catastrophe in American history.

Things aren't likely to improve anytime soon. According to news reports, it will be two or three months before BP can dig a new relief well to take pressure off the leak and allow it to be recapped. In the meantime, BP, the federal government and local fishermen will struggle to keep the oil at sea, but it's unrealistic to believe that they'll be able to protect the Gulf shoreline for another three months. Dead fish and sea turtles are already washing up on Louisiana beaches. The situation can only get worse before it gets better, if it ever does.

Citizens of Alaska could tell Gulf residents what to expect. The

Associated Press

reported this week that an estimated 20,000 gallons of crude oil from the Exxon (now

Exxon Mobil

(XOM) - Get Report

) Valdez spill of 1989 still linger on Alaskan beaches 21 years later.

The Exxon Valdez Oil Spill Trustee Council estimates that 250,000 sea birds were killed, along with hundreds of mammals and billions of salmon and eggs. Some of those species never recovered. That doesn't count the human toll, either. Lost jobs and other economic fallout resulted in increased alcoholism, domestic violence and suicide in towns closest to the Valdez spill. And the Valdez was only a ship filled with oil. Some experts estimate that the exploded well in the Gulf may be spewing 200,000 gallons of oil a day.

BP has been accused of downplaying the seriousness of the threat of the Gulf spill when the rig first exploded, and the company faces grim financial prospects as its stock continues to slide.

What makes the situation particularly tragic is that it never had to happen. Hayward claims that the failure of the rig's blowout preventer, a device that should have shut the well off when the rig exploded, was "unprecedented in our industry."

However, he also acknowledges that the blowout preventer "isn't designed to not fail." At least one other safety device is. According to

The Wall Street Journal

, Norway and Brazil, two other major oil-producing nations, require offshore drilling rigs to be equipped with automatic shutoff valves that might have prevented this catastrophe. The U.K., where BP is domiciled, doesn't require those valves, and neither does the regulation-shy U.S.

BP and Transocean seem to have followed the prevailing philosophy when it comes to regulation: If a safety mechanism isn't required, don't spend money on it. Hungry to generate ever-expanding profits for their investors, they apparently decided to not "waste" money on shutoff valves that regulations did not force them to install. However pricey those automatic shutoff valves might be, though, they have to be considerably less costly than this disaster.

We still can't guess how much damage the oil will do. If it makes its way into the general aquifer, drinking water could be contaminated for miles. Just this week, Boston was paralyzed for five days when damage to a single pipe contaminated its water supply. If the entire southern U.S. suffers similar harm for weeks or months, the cost of recovery will be incalculable in terms of financial losses, environmental damage and sheer human misery. It would have been cheaper, safer and smarter to install an automatic shutoff valve on the rig whether the law required it or not.

Investment bankers may be secretly cheering the oil industry's woes, but their delight should be short-lived. As

Goldman Sachs

(GS) - Get Report

faces a federal fraud investigation and the Senate debates various financial reform proposals, the disaster in the Gulf revives ugly memories of the 2008 Wall Street collapse. There, too, it seems that investment bankers took ill-advised risks to attain maximum profits for already wealthy investors. When those risks played out, the human toll beyond the banks was heavy indeed.

Some politicians argue that proposed financial reforms involve "too much regulation." They may be right, but not for the right reasons. What's needed is not more regulation, but a different approach to regulation on the part of governments and businesses alike. Our court system relies on an adversarial model where opponents battle it out in front of juries and lawyers get to posture like the gladiators of old. Unfortunately, most of the lawmakers who write the rules are lawyers, and most corporations have teams of aggressive lawyers waiting to fight the rules as soon as they're written. Regulation becomes a contentious game of "catch me if you can," and the public suffers when things go awry.

Companies frequently argue that lawmakers don't understand their industries as well as they do, and they're undoubtedly right. That means they're especially well-equipped to explain how laws and regulations governing their industries can best protect the public, but only if they're willing to stop emphasizing short-term profits over the general welfare.

Some lawmakers could stand to be less hostile to industry, but they can hardly be blamed for mistrusting corporations that have a history of shading the truth to maximize their profit margins. Instead of fighting over whether "more" or "less" regulation is needed, both sides need to calm down, sit down together, and develop better regulations that let companies make reasonable returns while protecting the rest of us from disasters like this one.

Lauren Bloom is a Washington, D.C. attorney and the CEO of Elegant Solutions Consulting, a consulting firm dedicated to helping professionals, business and association management executives build trust with their clients, customers and members by "walking the ethics talk" in their daily practices. She is the author of the "The Art of the Apology -- How to Apologize Effectively to Practically Anyone."