Tag: BP Oil Spill

BP Oil Spill Results In Predicable Political and Media Response…and Predictable Consequences

The media and government is taking the predictable “finger pointing” route in connection with the BP oil spill.  Screaming someone is surely to blame attracts attention to the publications and politicians screaming the loudest. Fingers point to BP and Obama.

BP accepts responsibility and has allocated $20 billion for the cleanup.  Citizens and politicians say Obama isn’t acting fast enough. Obama apologizes to no one, blames the MMS (Minerals Management Service) and appoints  Michael Bromwich as its new head.

What if this ecological disaster is actually no one’s fault. There is that strong  possibility. Recognize  that in spite of everyone’s best efforts, sometimes things fail.   Consider this excerpt from an article by Carl Hoffman explaining what most likely happened:

“No oil company wants to have a blowout and these companies spend vast sums of money and expertise to ensure that they never happen. But happen they do. If this was a blowout, it’s the first deep-water one in the Gulf of Mexico that I can think of. And for that to happen requires the perfect storm of scenarios.”

I totally support an independent investigation to confirm what really happened. There are two possible outcomes of such an investigation. First, all practical steps were taken to prevent this event and it still happened. Second, preventive measures were known and not implemented.

In the first case, we learn and get better. In the second case, there would be a violation of fiduciary responsibility and appropriate measures taken.

Related to investigations,  I am wondering what information on preventive measures was provided at the Board of Director’s level at BP.  This is a public company and Boards have very clear responsibility for asking the tough questions and getting answers.  At the government level, appointing a new head of the MMS now is interesting. Obama failed  to act following   two scathing reports on the MMS  by the Inspector General in recent years  (See full article by the  The Washington Post ) What if the MMS was operating as intended?  Would the BP Oil Spill have been prevented?

I am a major advocate of a system of accountability in business and government. The media is accountable for accurate reporting. Citizens are accountable for holding  government responsible for upholding the values of our constitution.  All of us are owed accurate information as to what happened and what steps are being taken now to minimize the risk.  The problem with the finger pointing culture is that the truth can be obscured or even ignored. That would be the ultimate disaster.

Steve Pohlit

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About: Steve Pohlit CPA,MBA has been the CFO and COO of  major domestic and international companies.  Steve has extensive business ownership experience having purchased and started off line and on line businesses.  Steve offers his  business building experience to companies and entrepreneurs with business coaching and business consulting.  His  focus is on building business  profits and net asset value at above average rates.   All articles published by Steve unless specifically restricted may be freely published with this resource information.

BP Oil Spill Business Losses:How Claims Will Be Calculated

There are an increasing number of headlines speculating about the extent of damage and related litigation stemming from the  BP oil spill.

There are three parts to a claim for business losses.  There is the physical loss say in the case of a fire and then lost profits due to business interruption. In addition, there are punitive damage awards. This is where a business is awarded compensation over and above actual losses.   These are called punitive damages and are typically for pain and suffering. Normally in the case of a accidental fire or damage from weather (natural cause)  there would be no basis for punitive damages. The BP oil spill falls into the category of an event that likely has the basis for punitive damage awards.

Consider a seafood restaurant on a coast line that has been family owned for generations. It has a great reputation and has been consistently profitable.  Within weeks of the BP oil spill on the news sales began dropping, continued to drop  get worse. For example, say the restaurant has been doing $2.0 million in sales and earning $200,000 profit before tax. Sales and profit  growth rate has averaged 8% per year for the last five years..

Where there is physical damage and business is interrupted, there is the predicable loss of profits from business that would have continued had the business not been damaged. However, when the supply chain is interrupted because people no longer have confidence in the food or where the fish supply is greatly reduced resulting in much higher prices, that is a different story.

Assume sales drop to where it is not possible to remain in business. There are a multitude of issues. It is unlikely the restaurant can be sold as a restaurant since the market has lost confidence in the quality and availability of the product. What about alternative use for the property. Eventually there is always an alternative use. However, the business or buyer having an alternative use in mind is likely looking to acquire the property at a distressed price.

Bottom line… any outcome other than the sale of the business as a viable going concern with a predictable cash flow based on verifiable results is going to be a distressed sale.  Losses in this situation will be future earnings plus diminished value of the property plus punitive damages for pain and suffering.

What would I recommend to a client whose business is destroyed or severely damaged by he BP Oil Spill?

1. Hire the best lawyer possible with a contingency fee arrangement. The best lawyer is one who has experience with business interruption loss experience and a track record of winning awards beyond physical losses. I would research lawyers who have won similar cases. The BP oil spill is not the first one.

2. Be sure to have a business expert as part of your professional resource team. This may seem self serving. It is not. You need a business professional to work with your attorney on a practical strategy that will hold up in court. The stronger your position the more likely for a quick equitable solution outside of court.  In settlement you want a balance of business and legal advice.

I welcome and encourage all comments from attorneys, business valuation experts and those whose businesses are potentially affected by the BP oil spill.

Steve Pohlit

Business Consulting, Executive Coach
Turnaround/Crisis Management
Temporary CEO, CFO, Controller Services
International Business Resources

Social Media Services
New Digital Media, Inc.

Twitter

Facebook

Linked in

MySpace

727-587-7871

Email

About: Steve Pohlit is a CPA,MBA and has been the CFO of several major domestic and international companies.   He is  an expert business coach and consultant focused on building business  profits and net asset value at above average rates.   All articles published by Steve unless specifically restricted may be freely published with this resource information.