Sunday, April 10, 2011

On the Other Hand

Our prior post on the award of safety performance bonuses at Transocean may have left you, and us, wondering about the ability of large corporations to walk the talk.  Well, better news today with an article from the Wall Street Journal* recounting the decision by Southwest Airlines to preemptively ground its 737s after a fuselage tear on one of the planes.  

As told in the article, the Southwest management appears to have rapidly responded to the event (over a weekend) with technical assessment including advice from Boeing.  The bottom line on the technical side was uncertainty regarding the cause of the failure and the implications for other similar 737s.  It was also clear that Southwest placed the burden on an affirmative showing that the planes were safe rather than requiring evidence that they weren’t.  With the issue “up in the air” the CEO acted quickly and decisively with the grounding order and the conduct of inspections as recommended by Boeing.  

The decision resulted in the cancellation of over 600 flights and no doubt inconvenienced many Southwest passengers, and will have a substantial cost impact to the airline.  The action by Southwest was described as “unusual” as it did not wait for a directive from the government or Boeing to remove planes from service. 

(Ed. note:  Southwest’s current approach is even more remarkable in light of how recently their practices were not exactly on the side of the angels.  In 2008, the FAA fined Southwest $7.5 million for knowingly flying planes that were overdue for mandatory structural inspections.)

*  T.W. Martin, A. Pasztor and P. Sanders, "Southwest's Solo Flight in Crisis," (Apr 8, 2011).

Thursday, April 7, 2011


“...notwithstanding the tragic loss of life in the Gulf of Mexico, we [Transocean] achieved an exemplary statistical safety record as measured by our total recordable incident rate (‘‘TRIR’’) and total potential severity rate (‘‘TPSR’’).  As measured by these standards, we recorded the best year in safety performance in our Company’s history, which is a reflection on our commitment to achieving an incident free environment, all the time, everywhere.”*

Good grief.  Did Transocean really say this?  Eleven people including nine Transocean employees died in the Deepwater Horizon oil rig explosion.  The quote is from Transocean’s 2010 Annual Report and Proxy recently filed with the SEC.  It provides another illuminating example where the structure and award of management incentives speak much greater volumes than corporate safety rubrics.  (For our report on compensation structures within nuclear power companies and the extent to which such compensation included incentives other than safety, look here and here.)  Or as the saying goes, “Follow the money”.

To fully comprehend how Transocean’s incentive program purports to encourage safety performance we are providing the following additional quotes from its Annual Report.

“Safety Performance.  Our business involves numerous operating hazards and we remain committed to protecting our employees, our property and the environment. Our ultimate goal is expressed in our Safety Vision of ‘‘an incident-free workplace—all the time, everywhere…..

"The [Compensation] Committee measures our safety performance through a combination of our total recordable incident rate (‘‘TRIR’’) and total potential severity rate (‘‘TPSR’’).

•    "TRIR is an industry standard measure of safety performance that is used to measure the frequency of a company’s recordable incidents and comprised 50% of the overall safety metric. TRIR is measured in number of recordable incidents per 200,000 employee hours worked.

•    "TPSR is a proprietary safety measure that we use to monitor the total potential severity of incidents and comprised 50% of the overall safety metric. Each incident is reviewed and assigned a number based on the impact that such incident could have had on our employees and contractors, and the total is then combined to determine the TPSR.

"The occurrence of a fatality may override the safety performance measure.

"….Based on the foregoing safety performance measures, the actual TRIR was 0.74 and the TPSR was 35.4 for 2010. These outcomes together resulted in a calculated payout percentage of 115% for the safety performance measure for 2010. However, due to the fatalities that occurred in 2010, the Committee exercised its discretionary authority to modify the TRIR payout component to zero, which resulted in a modified payout percentage of 67.4% for the safety performance measure." (p. 45)
The treatment of bonuses for Transocean execs was picked up in various media outlets and met with, shall we say, skepticism.  Transocean responded to the blowback with the following:

“We acknowledge that some of the wording in our 2010 proxy statement may have been insensitive in light of the incident that claimed the lives of eleven exceptional men last year and we deeply regret any pain that it may have caused...” **

Note that the apology is directed at the “wording” of the proxy, not to the actual award of bonus compensation for safety performance.  We are tempted here to make some reference to “density” but it is self-evident.

Perhaps realizing that something more would be appropriate, Transocean announced yesterday that members of the senior management team would be donating their bonuses to the Deepwater Horizon Memorial Fund.*** 

Oops, actually they will be donating just the “safety portion” of their bonuses to the fund.  All other bonus amounts and incentive awards are not affected and the Transocean incentive structure for safety performance remains unchanged for 2011.

***  Announcement by Transocean Ltd. Senior Management Team, Zug, Switzerland (Apr 5, 2011 MARKETWIRE via COMTEX).

Monday, April 4, 2011

Combustible Gas

As we observed in our prior blog post, the publication by the Union of Concerned Scientists of their new study of nuclear near misses would likely generate a combustible gas that could find some ignition sources, at least among like-minded nuclear critics.  Thus the March 22, 2011 article* in The Nation magazine was predictable, including the comments by Henry Meyers that the UCS study is evidence of a lack of “serious oversight for twenty years” by the NRC.  Evidence of this includes the reduction in NRC violations and fines in the late 1990s and the contention that then-Chairman Dr. Shirley Jackson caved to political pressure.  Disregarded are the facts that many nuclear plants underwent enormous performance improvement programs in that period and the consolidation of nuclear ownership under a small number of advanced nuclear enterprises.**  These nuclear operators had the significant management, technical  and financial resources to ensure operating excellence in their plants, resulting in much better regulatory compliance.

But it would be a mistake to dismiss lightly the direction that UCS and Christian Parenti of The Nation are taking the post-Fukushima discussion of nuclear safety.  Their thesis is that the current risky state of the nuclear industry in the U.S. (“a fleet of old nuclear plants and the 40,000 tons of nuclear waste they have created”) is due to the lack of strong safety culture, and that the NRC has been compromised through political pressure and the corrosive influence of an inadequate industry safety culture.  Thus,

“ is imperative to overhaul the inadequate, industry-dominated safety culture that has developed over the past twenty years.  This eroded safety culture is a source of serious danger—and it must be fixed.”

Approaching the current state of nuclear safety from this direction has the potential to open a Davis-Besse size hole in the carefully constructed safety record of the nuclear industry.  By its essence safety culture is perhaps the most far ranging indictment of safety; far more extensive than any specific technical issues that have historically been the target of nuclear critics.  It targets an unprotected flank of both the industry and the NRC; including the recent process where consensus and stakeholder involvement has been emphasized by the NRC to the point that the above quote will gain traction.  The product, a safety culture policy statement by the NRC, something that is not even enforceable, will be framed as a continuation of a lack of “serious oversight” and serve well the newly energized anti-nuclear community. 

*  C. Parenti, "After Three Mile Island: The Rise and Fall of Nuclear Safety Culture," The Nation (Mar 22, 2011).

**  Nuclear industry consolidation was predicted and described in a paper I co-authored with NYPA's Bob Schoenberger, "Capturing Stranded Value in Nuclear Plant Assets," The Electricity Journal 9 (June 1996): 59-65.