Risky Companies should Pay before they Get Paid

June 16th, 2010. By janem

How’s this idea: any company with a checkered past, and/or even the slightest possibility of a risk to the public, either from a drug such as Paxil that causes birth defects, a product such as asbestos or from an environmental hazard such as that caused by BP and Exxon, has to pay into some kind of trust before its top dogs and shareholders get paid.

Take BP, for instance–and who isn’t? Although BP shareholders are suing CEO Tony Hayward and board members alleging they underestimated the risk of an accident, and even though the spill reduced BP’s market value by 45 percent, and even after the spill—albeit in the early days– Hayward planned to pay more than $10 billion to shareholders this year.

Transocean, the company that owned and operated the oil rig that sunk into the Gulf of Mexico, quietly announced just five days after appearing before Congress to testify about its responsibility that it would shell out $1 billion in dividends to shareholders.

Transocean had insured the rig for $560 million and received $401 million from the insurance policy. Apparently the company made a few hundred million from the spill. Companies like Transocean shouldn’t be allowed to strike up these “backroom deals” with BP and its insurer. And not if Mr Obama and Congress have their way.

Either way, BP is stuck between a rock and a hard place: many UK investors are depending upon the payment as their income, but how much income is that? Obama said that BP had “moral and legal obligations” to Gulf Coast residents that may supercede its obligations to shareholders.

Prime Minister Stephen Harper would be wise to echo Obama’s words regarding a $58 million bank loan the Quebec government is considering for Jeffrey Mine Inc., that plans to exploit a massive new underground asbestos deposit. This company, like BP, has the potential of creating a massive amount of harm to countless people so it should be required to pay before the fact.

Of course it’s nearly impossible to estimate how much a company should pay but the respective governments could take a look at history: how much did Exxon pay for the cleanup and multiply that tenfold; how much did Libby mine pay to mesothelioma victims, how much did GlaxoSmithKline, the maker of Paxil, a drug that causes birth defects, make in profits last year …then tag on all their expected future profits…  BP and pharmaceutical companies have deep pockets. If it can’t afford to shell out that kind of money upfront, it shouldn’t be operating. As for Jeffrey Mine, the Quebec government should also be held accountable if it signs the loan.

This was posted on Wednesday, June 16th, 2010 at 3:26 pm and is filed under Emerging Issues . Feel free to respond, or trackback. Read our comments policy.