Saturday, May 29, 2010

BP & The Peter Principle

The Peter Principle, advanced by Dr. Laurence J. Peter in 1968 asserts : "In a hierarchy every employee tends to rise to his level of incompetence ... in time every post tends to be occupied by an employee who is incompetent to carry out its duties ... Work is accomplished by those employees who have not yet reached their level of incompetence."

People on the right keep asserting that is the explanation for government ineptitude. But Dr. Peter didn’t dream up this theory of incompetence as a descriptor of government. He meant it to be applied to all organizations, especially large organizations. So, when we look for explanations for the BP oil mess, we are certain to find official incompetence as the most likely explanation. As I noted earlier, the reason our government has been unable to “step up to the plate” is that our government really has no expertise that could be applied here—not so much incompetence as no competence.

During a fifty year working career, I had the dubious pleasure of working for large organizations and small organizations in the private and public sectors both. My conclusion was that the larger the organization, public or private, the more likely is the possibility of official incompetence at the upper reaches. Now in government, official incompetence at the top is almost guaranteed, more so if the appointing officials happen to be republican, because republicans are basically antagonistic to the aims of government. For example, the most incompetent government I encountered during my working experience was Ronald Reagan’s. The reason? St. Ronald appointed people to high positions who were actively antagonistic to the official missions of the agencies to which they were appointed. For example, he appointed someone to run the Title X Family Planning Program who was opposed to family planning. Similarly, he appointed people to run agencies like EPA who were negatively disposed to those agencies. Most of his top level appointees were either antagonistic or just ignorant of the agencies they were to run. One cabinet secretary of Health and Human Services was best known for falling asleep in large staff meetings in his conference room. If I were to appoint someone from PETA to run Purdue Chickens, or I appointed someone from Greenpeace to run Exxon Oil, we might expect different results from those organizations.

But, even leaving aside the issue of a person’s disposition to the mission, eventually we seem to appoint incompetent people at the top of large organizations. They seemingly drift upwards, carried by currents of “old-boyism” and other cozy relationships that exist in these large organizations, whether they are public or private.

And in the private sector, we must add to the mix the profit motive. The profit motive is neither inherently good, nor inherently bad. However, like one’s impending death, it does concentrate the mind. We can see the negative aspects of the profit motive when we examine places like Massey Mining, and energy companies like BP, Exxon, or the Union Carbide company responsible for perhaps the worst industrial disaster in modern times, occurring in Bhopal, India, where thousands of people died due to the release of a gas, Methyl Isocyanate in an accident that was, according to reports, an “accident waiting to happen”. Most of the disasters that have occurred were preventable, except that the drive to achieve high profits often overrides the willingness to employ technology to prevent such disasters.

In the case of BP, company officials refused to consider the possibility that the event that occurred was even possible. Again, profit motives clashed with the need to undertake precautions that would be expensive. This is where profit motivation, coupled with the Peter Principle join forces in potentially risky businesses to produce those “perfect storms” we hear about often. Those storms are mostly all preventable. But how?

We need several things to operate to prevent preventable disasters in situations where profit and incompetence can overrule common sense.

First, in any industrial field in which clear risks are present, risks that could endanger the public welfare, we need outside overseers to act as monitors. We call them regulators generally.

Second, the regulators have to be given actual authority to intervene when they observe risks escalating to dangerous levels.

Third, the private, profit oriented companies operating in these high risk ventures should be able to legally challenge the regulators, i.e., a venue is needed to argue the pros and cons.

Fourthly, the share-holders need to hold the boards of directors and the top management accountable when such preventable accidents happen. The people at the top need to be replaced.

Lastly, we need to eliminate the revolving doors that operate between the regulators and the regulated. We have now an abundance of evidence that the Minerals Managements Service allowed people to come into the agency from the companies being regulated. Those revolving doors need to be shut firmly, and we need to create alternative career paths for people coming into the regulating agencies from our universities (if we have separate careers for people who create and people who act as critics, why not for regulated industries?) In the aerospace company I worked for at one stage of my career, the company routinely hired what we called derisively “tombstone admirals”, i.e., guys who had retired from the service and had been promoted to rear admiral on their retirement. Why did the company hire them? Not because they were competent in aerospace engineering. Rather, they were good public relations with the military agencies with which the company did business. These were mostly all Peter Principle actors.

But all of this requires a balancing act and continued mental agility within the regulating agencies, and within the companies being regulated. Mental agility is not high on the list of characteristics by which American companies hire and fire senior executives. Maybe they need to rethink their approach to management. And maybe they might discover that the profit motive works as well with competence at the top, maybe even better, as with the current crop of incompetent executives.
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