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BY GREGORY DL MORRIS, who has covered the chemical and financial industry issues for the past 20 years

Even as owners, brokers, and underwriters reiterate that the investigations into the disaster at BP's Macondo well in the Gulf of Mexico are just getting started, they are all wondering what the apparent cascade of problems leading up to the April 20 blowout and fire says about enterprise risk management.

The risk manager, long a passionate advocate for enterprise risk management (ERM) acknowledged that many operators and contractors have well-written plans in binders on shelves, and well-intentioned people on staff. Yet from coal mines in West Virginia to oil rigs in the Gulf of Mexico, disasters still happen, lives are lost and communities torn apart.

"This is very much an ERM story, and ERM is about culture. Many companies say they have it but they are just like Charlie the Tuna from the old television ads. Real ERM is where it is applied," the risk manager said. "Can the guy on the rig really shut the thing down if he sees a dangerous condition? ERM has a reputation for alpha beta gamma delta, but you can have all the pieces and still not put the puzzle together."

Other risk managers said that the spectacle of company executives testifying before Congress and petulantly blaming one ach other was not a shining moment for accountability. Whatever facts the investigations uncover, it is clear that there was a distant and removed relationship among the putative partners on the rig.

One law professor in Houston said that Anadarko, with a 25 percent stake in the well, and Mitsui, with a 10 percent stake, were getting faxes and e-mail messages informing them of activities on the rig. "Can they refuse any liability and claim that they did not know what was going on?" the professor asked.

Even as ERM comes under scrutiny, one practitioner said it is important to remember what ERM is and is not. "ERM is not designed or intended to protect us fully from problems," said Larry L. Baker, managing partner of enterprise risk at CFR in Tulsa, a large independent broker in Oklahoma. "ERM is designed to protect the current value of a company, and to enhance its value in the future."

Baker said that ERM "tends to start at the top with strategic risks, and then stall or even stop. The question for executives is: are they getting the information they need in a meaningful format and can decisions based on that information get back to the people on the ground."

This disaster "is not an indictment of ERM," said Jim Pierce, chairman of the energy practice at Marsh. "If anything, this is an opportunity for companies to double up on risk management, and a challenge for the C-suite to step up and realize that risk management is not a special program but an integral part of what they do every day."

October 1, 2010

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