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Socially Responsible Investor Coalition to BP: Your Annual Report Is Incomplete

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Less than a week before the one year anniversary of the BP Deepwater Horizon disaster, the oil giant will be holding its annual meeting. The MMA Praxis Mutual Funds, a "socially responsible" investor group that owns shares of BP, is advocating that shareholders abstain or vote against the company's annual report and directors who are members of BP's Safety, Ethics and Environmental Assurance Committee.

I caught up with Mark Regier director of stewardship investing at MMA Praxis Mutual funds, ahead of this meeting.

LL: One of the biggest complaints of the BP annual report was the lack of detail it provided on its safety and risk management function. What specifically do you want to see from the company?

MR: We all know that what is "measured" is "managed." We want to see BP provide investors not just a list of activities/programs (as long and costly as they may be), but a simply articulated objectives, a set of measurement metrics to gauge progress, and a clear sense of what this means—to the individuals, communities, environments affected, as well as the company and its shareholders. As our assessment of the annual report, the information in their documents is frequently used to impress but too often fails to functionally inform. So investors and other concerned parties are left without context to know what the data means or suggests about the company's future.

In terms of information, we are looking for more on:

1) Health and Safety

  • operating management systems
  • recommendations from The Deepwater Horizon Accident Investigation Report (BP's)
  • Joint ventures and contractor relationships
  • refining and marketing

2) Remediation of the Gulf

3) Transition to a Low Carbon Economy

4) Board Oversight

More detail is included in the Annual Report Assessment.

LL: Who would you want to see replace the chair of the board's safety committee?

MR: We do not see it as our role to pick or dictate board positions, but rather to express concern and highlight areas in need of serious attention from company management and the board. Given the string of incidents preceding Macondo, it not surprising that disappointment is being shown over the Board's management of "Safety, Ethics, and Environmental Assurance."

Compared to its peers, it is hard to demonstrate that the company is moving in the right direction in this regard. We hope that a change in course—particularly with other high-risk ventures already under way or being considered. I think we would like to see—and feel investors, communities, and the company itself deserve—a SEEAC (and entire board) comprised of individuals willing to speak their minds, ask tough questions, challenge assumptions and direction. More than ever, this is a time where you WANT your toughest critics inside and close at hand to ensure the lessons needed really are the lessons learned.

I'm not saying these people don't exist on the BP Board today, I'm just not certain what evidence we have that they do.

LL: Do you think BP has learned anything from the Gulf Oil Spill?

MR: I would hope that BP HAS learned a lot and am certain that they have. Our question is how do we as owners of the company understand the context for this "learning?" We know—and can read in numerous reports from BP—that they are DOING a LOT. But doing is not achieving.

Billions of dollars and hundreds of thousands of work hours have been invested in remediation, investigation, study and assessment. Certainly, processes and systems have been rethought and strengthened. But to what ends? Have perspectives—and the all-important "yard stick"—changed for some of BP's high-cost, high-risk development projects? We now know that a catastrophic failure on just one well in such a project can bring one of the world's largest corporations to its financial knees. How is this being integrated in BP's plans for transitioning to a carbon-constrained future.

LL: Has BP's actions been more PR related? Words more than action?

MR: I think BP has learned, quite well, the art of the self-effacing "mea culpa"—of identifying blemishes and problem areas, of "owning" problems and missteps in their own systems. And I don't think this is completely disingenuous. I'm can imagine that events in the Gulf last year scared many within BP and that they have been disheartened by the findings of their own investigation and the investigations of others.

Clearly they have attempted to respond on a massive scale—spending billions of (corporate/shareholder) dollars in the process. It is hard to tell at this point whether it is the spending/sense of activity or the actual doing, restoring, etc. that they hope will be "enough." It is this type of information that we are seeking as investors.

LL: "Excessive compensation" to former CEO Tony Hayward and production Andy Inglis will also be on the agenda of the meeting. What will you bring up at the meeting?

MR: Compensation is often a concern at a time of crisis like this. However, our coalition has been focusing its energy on issues of disclosure and oversight. Tanner, Assistant Director of Socially Responsible Investing at Christian Brothers Investment Services, will be asking questions down these lines at the AGM on the coalition's behalf.

LL: How accurate so you believe the BP report is in terms of fully presenting the events of the past year? What kind of message does that send to shareholders?

MR: I don't know that we believe the BP report is inaccurate so much as it is incomplete. Knowing $15 million was spent on unemployed oil rig workers, laid off by the ensuing deep-water drilling moratorium, may very well be correct.

However, it is significantly less meaningful if you don't know how the money was used/distributed, for what purposes, and to how many. We fear that the absence of clear objectives, metrics, assessment of progress and assurance of (ideally independent) oversight suggest that investors and the general public are only interested in the "story" and in the "sense" of a response rather than a clear-headed articulation of direction, forward movement and critical changes being implemented with expected outcomes.

LL: Do you think BP was "grossly negligent" leading up to the Deepwater Horizon accident?

MR: I think this is outside our ability to assess. We'll leave that to the experts and Justice Department. Clearly something went very, very wrong despite a system with many safeties and back-up systems. Our focus is on the company's sense of the "meaning" of these findings (internal and external) and how they will be modifying BP accordingly.

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A Senior Talent Producer at CNBC, and author of "Thriving in the New Economy:Lessons from Today's Top Business Minds."