Opinion: Containing a crisis

Oil spillBy Martin Lodge and Mike Power, Department of Government/Department of Accounting & Centre for Analysis of Risk and Regulation, London School of Economics and Political Science

26 January 2011

Memories of 'static kill', 'top kill', 'junk shot' and 'top hat' attempts to stem the oil-flow into the Gulf of Mexico may be receding, but the Deepwater Horizon oil spill raises several key challenges for risk regulation and management, not least as other jurisdictions embark on even more complex deepwater offshore drilling exercises.

The consequences of the three-month long attempt to contain the oil spill, apart from the tragic loss of life and the economic and ecological impact, will be felt for a long time. Yet, the implications of Deepwater Horizon go far beyond the oil industry and the world’s dependency on oil itself; they point to the manner in which events can give rise to contagion effects which cut across regulatory systems – something which was also evident in the recent financial crisis.

Conventional wisdom suggests that successful responses to such crises are marked by three key elements, however the Deepwater Horizon incident points to the inherent limitations of these orthodoxies.

First, the widely held view that risk communication is key in successfully dealing with such emergencies is challenged by the Deepwater Horizon experience. Studies of accidents in highly complex industries that deal with considerable uncertainty highlight the problems that emerge when errors are tolerated and deviations from agreed norms become accepted and amplified. History provides many instances where warning signals were ignored or overridden, and where professional judgement and communication was biased towards the view that things cannot fail.

Deepwater Horizon points to the inability of even the most well-trained corporate reputation management machine to successfully respond to political and media attacks. When things go wrong, industry, especially when it involves a chain of fragmented contractors and sub-contractors as in the case of Deepwater Horizon, will not unite and share expertise, but is likely to distance itself, hoping to avoid any blame and liability. Indeed, in a hostile political environment that demands certainty and quick responses, risk communication turns into an impossible job. As we all saw, when a highly complex technology goes wrong, it is not easy to fix.

The second widely held view, namely that redundancy matters, has also been challenged. Unsurprisingly, the immediate industry response has been to place a greater emphasis on learning systems and on enhanced, de-centralised resources to cope more quickly with the implications of a major accident. Promises have been made to provide more autonomous units within the industry to offer enhanced long-term planning and capacity to develop alternative plans for action.

Yet although redundancy has been a long-established recipe to provide for resilience, it comes at a considerable cost. At a time when governments, regulators and shareholders are demanding greater cost-efficiency, debates arise about how much redundancy is necessary and through which mechanisms.

The third widely held view that risk regulation matters has also unravelled. One of the first responses to Deepwater Horizon in the US was the renaming of the disgraced Minerals Management Service as the 'Bureau of Ocean Energy Management, Regulation and Enforcement'. Along with other organisational reforms, this sought to deal with, at least temporarily, the often-diagnosed problem of 'regulatory capture' via revolving doors, cozy relationships, gift-giving and the completion of safety-critical documentation by industry workers rather than inspectors. However, the wider unresolved question is how to combine demands for strict and error-intolerant oversight with continuous pressures for 'light touch' and 'industry-friendly' regulatory interaction.

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