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In the 2011 novel by Robert Harris, ‘The Fear Index’, a fictional hedge fund, set up around a new super-computer, exploits information it gleans from an aircraft distress call to short the airline ahead of the subsequent plane crash, making huge profits. More prosaically (and factually) the Volatility Index (VIX) is a popular measure of the stock market’s expectation of volatility based on S&P 500 index options. Market volatility is correlated with emotion catalysing transactions in company shares. Indeed, the CNN Fear and Greed Index specifically identifies these very 2 emotions as being the main drivers of dramatic share prices variations.
The 2010 BP Deepwater Horizon disaster, a Gulf of Mexico drilling rig blowout and explosion which led to 11 deaths and catastrophic environmental harm is an all too real example of an incident – fear – dramatic share selling – massive corporate impact trajectory. BP’s stock fell by 51% in 40 days on the New York Stock Exchange, going from $60.57 on 20 April 2010 (when the incident occurred), to $29.20 on 9 June – equivalent to ~$100 bn – greater than the entire GDP of oil rich Kuwait in that year. In the years since, BP spent more than $65 billion of cleanup costs, charges and penalties. Finally, as “one pound in every seven” of investment and pension fund income in the UK is derived from BP, an entire nation stand to lose out financially for decades.
As inferred by the plot line from the novel, markets react most keenly to news which is either fear (e.g. potential/near miss oil refinery incident) or greed (e.g. potential hydrocarbon reserve discovery) inducing. Accordingly, it would not be particularly surprising if International PLCs in high risk high reward (HRHR) sectors such as Oil and Gas were reticent when communicating about the former, while perhaps oversharing the latter.
However, potential, or near-miss, incidents have a significant upside if they are appropriately curated. Herbert Heinrich, a pioneer in the field of workplace health and safety, proposed a relationship between the number of accidents resulting in serious injury, minor injuries or no injuries (near-misses) in his 1931 book Industrial Accident Prevention: A Scientific Approach. Based on a study of more than 75,000 accident reports from the insurance company’s files as well as records held by individual industry sites. From this data he proposed a relationship of one major injury accident to 30 minor injury accidents, to 300 no-injury accidents. He drew the conclusion that, by reducing the number of minor accidents and near misses, industrial companies would see a correlating fall in the number of major accidents.
However near-misses are not always reported for several reasons, including:
Another factor which has the power to drive the emotional triggers of HRHR PLCs shareholders is the number of degrees of separation between them and company actors or agents making safety related decisions. I would argue that the greater this number, the less those shareholders will be able to impact these decisions and, perhaps paradoxically, the more emotionally labile they may become when they make transaction decisions. In BP, in the context of the Deepwater Horizon tragedy, I estimate this number to be 13:
BP Shareholder to Safety Agent
Contrast this with INEOS, a $60bn turnover High Hazard Processing company, which operates around 100 sites. Jim Ratcliffe, founder and majority shareholder, states in his recent book The Alchemists: “We hold some 20 board meetings, one for each subsidiary, each month, that both Andy (Currie – INEOS Director and Shareholder) and I attend. The first item on the agenda is always safety. Not just personal, but process safety too. It is mandatory for each board in INEOS to report key safety metrics each month. The detail is such that Andy and myself are aware of the safety performance of each and every business down to details, which means any overdue maintenance inspection, any loss of containment, any recordable injury, any HiPo (high potential) incident, any major alarm activation.”
Based on this, I would surmise that the equivalent list for INEOS would be:
INEOS Shareholder to Safety Agent
As long as High Hazard Processing companies exist, Process Safety incidents (and the fear associated with them) will continue to have a leveraging effect on their perceived value. Maximised transparency and learning from Near Misses combined with reduced the number of ‘shareholder to safety agent’ degrees of separation can help transform fear and avoidance into recognition and prosperity.
