Corporate and Political Hypocracy

What started as a corporate mess has quickly become a political quagmire for BP. The result has been not just a financial disaster but a reputational one as well. It is too early to be able to write the history of this disaster with the suitable amount of perspective, after all there is still going to be much to unfold over the coming months.

However, what we can see have been actions and reactions of a major corporate struggling to manage such a series of events in the glare of twenty four hour global media all hungry for comments, errors and slip ups. Mr Hayward has been criticised for some ill advised comments but frankly anything can be taken out of context and twisted to imply whatever the media outlet wants it to be. This I know from my own experience.

The problem for BP has not necessarily been the amount of their action or inaction, but their inability to finally ‘cap’ the problem in every sense. Thus as the tragedy continues the issue metamorphoses from a corporate and environmental issue into a political one. BP has clearly stated and repeated its determination to stand by its promises of repair and rectification and that there will be no going back on this. The comments therefore that not enough has been done seems astonishing when you see what actually is being done and with no obvious alternatives being suggested. It is not as if there is anyone else that has either the technical ability or experience in the US government to add to the engineering oil expertise already being applied. You can’t send in the marines here to solve the problem - butch bravado and bravura does nothing to stop a burst pipe a mile under the sea.

Sad to say BP has now been thrown into the torrid vortex of American politics which is building up into a concentration of ferocity which will culminate in the October elections. BP has become the President’s goat to beat for blame.

Tony Hayward then has been right to stand there and take the flack - much of which has become very personally directed - and has been acting responsibly and committed, quite correctly, BP to act properly to eventually resolve the issue.

Compare this then with the corporate hypocrisy of Bhopal and the Union Carbide disaster which in turn became an environmental atrocity against the local population. Only last week were there two local managers sent to prison - after 25 years! At that time estimates of between 2,259 and 15,000 were killed by the leak of the deadly methyl isocyanate gas and a possible 8,000 further lives in the years thereafter. The ground still apparently is poisoned and people are still suffering from the effects of that pollution. Where is the corporate responsibility here?

Where was the CEO, where was the clean up, and where was corporate responsibility? Or was it because it was ‘over there’ in India so it didn’t matter - after the camera crews had left. Before the US becomes too obviously critical of foreign firms not acting responsibly, perhaps it would be better to look closer to home to reveal some unpleasant truths. Apparently an Indian arrest warrant for the CEO Mr Warren Anderson is still pending as the US authorities seem ‘reluctant’ to proceed. This was ‘resolved’ by a payment of $470m for the disaster to the land, the people and the environment - is that corporate responsibility?

BP may be no saint and has had a poor track record after the Texan refinery fatalities and
explosion in 2005, as well as the Alaskan oil pipeline leaks, but here is an example of where good and responsible management should be demonstrated and applauded. Although crude oil is an awful substance to deal with, it is at least a naturally occurring substance and not a man made toxin like the methyl isocyanate gas.

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Time to use an old film title...’Return of the Zombies’. To this you can now add two words - companies and countries. The concept of a zombie operation is that it is so indebted that its sole purpose and capability is now only to pay off its debt. The unfortunate Greeks find themselves in this position in that all the nation is currently able to do is just service their existing debts and, without growth, will increasingly find it impossible to start reducing it. Hence the need for radical economic surgery and inevitably, in my view, debt restructuring - no one will dare use the term default but would far rather come up with some softer descriptions - either way there will very likely have to be write downs by their creditors and especially the banks.

However, closer to home the situation may well be more pressing. Companies which geared up, either by their own design or more likely by ‘imaginative’ finance deals, find themselves laden with a level of debt which seems immovable. Some of these have come by the design of certain Private Equity houses, and others by irresponsible high street banks pretending to be private equity houses - stand up HBOS. There are those Private Equity firms on the side of light who finance the restructuring and rebirth of many companies: there is however also the dark side of the ‘barbarians at the gates’ for whom corporate rape and pillage is a way of life.

Currently for companies like Crest Nicholson their restructuring has left them unable to make effective and timely decisions as 90% of the shares are now controlled by the lenders. “Although we can grow in current facilities, it takes a long time to get decisions approved” said Stephen Stone, CEO of Crest Nicholson. In such a position a company’s ability to save itself is very restricted and with the cost of refinancing rising (along with the required arrangement or amendment fees) the result is bound to be an increase in the number of insolvencies. This too will put further pressure on the lenders and especially for those banks trying to rebuild their balance sheets.

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And finally... the naming of England has always been a slight concern to me. The Scots
obviously come from Scotland, the Irish from Ireland and the Germans from Germany, so where did the Engs come from? They sound like something from Tolkein. Now if it is a derivation of the Angles then maybe we should be Angland or more appropriately Angerland - now that fits, especially after an unpleasant Budget.

And now for some silly stories about the World cup that have come to my attention...

A South African jewellery company was in talks with a Spanish and a British club to sell what the firm claims is the world's most expensive football, a 2.2 kg diamond-encrusted football.

"I am negotiating with the owners of two European clubs. They want to take it back to Europe," Yair Shimansky, chief executive of Shimansky Jewellers, told Reuters by phone.
He did not want to divulge the names of the competing clubs ahead of concluding the deal sometime next week but confirmed they came from Spain and Britain.

The ball was unveiled on Thursday in Cape Town, ahead of the World Cup opening game between South Africa and Mexico in Johannesburg on Friday. Shimansky said the jewels - 6,620 white and 2,640 black round brilliant cut diamonds - were all sourced in South Africa, a major diamond producing country.

The ball, containing 3,500 carats and estimated to cost 20 million Rand (£1.8 million), was the exact size and dimension of the Adidas ball players from 32 competing teams in the finals would play with.

"We did it with the World Cup in mind. It was a two-and-a-half year project," Shimansky said.

I thought they spent all their money on players?

And another... ’Elephant blocks U.S. squad on trunk road.’

The United States training session ahead of Saturday's World Cup Group ‘C’ opener with England was briefly delayed after an elephant blocked the route of the team bus.
A U.S. team spokesman said the squad had to wait around five minutes while the elephant ate food from a tree on the road leading from the team's hotel.

It was the second time on Friday that the U.S. team bus was blocked by an elephant on the road, the spokesman said.

One of our better tactics perhaps?

And one more... The African vuvuzela trumpets, hugely popular with World Cup fans in South Africa, are no longer welcome during Dutch training sessions as their continuous din drowns out Netherlands’ coach Bert van Marwijk.

The Netherlands had an open training session on Wednesday, obligatory under FIFA rules, which was attended by 3,000 mainly Dutch and South African fans, many sounding their vuvuzela plastic horns.

"It was annoying and I could not make myself audible," van Marwijk told a news conference on Friday. "That way training has no use if I can't address my players."

The vuvuzelas have become a heavily discussed issue since they featured for the first time for a worldwide audience during last year's Confederations Cup.

"I heard them for the first time during the Confederations Cup though I have to say I got used to the sound of it after a while," van Marwijk added.

"At this moment we don't know if there will be any more open training sessions but if we train with a crowd then (it will be) without the horns."

Spoilsports.

Have a good week.

Justin A. Urquhart Stewart
Director
Seven Investment Management Limited

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This article represents a personal and light-hearted view from Director, Justin Urquhart Stewart of Seven Investment Management Limited, and is based on current financial news and events around the world. Its content should not be used for investment purposes and you should contact an independent financial adviser before making any investment or financial decision. Seven Investment Management Limited is authorised and regulated by the Financial Services Authority. Member of the London Stock Exchange. Head office: 23 Austin Friars, London EC2N 2QP. Telephone 020 7760 8777. Registered in England and Wales number 4092911. Registered office: 3 More London Riverside, London SE1 2AQ.