Markets drove BP's cost-cutting culture

Following is a letter sent to the Editor of the Financial Times:

Sir,

I have to take issue with Mr. Simon Zadek, a rare occurrence, (¨Markets drove BP's cost-cutting culture¨ Financial Times January 19, 2007) in his defence of BP. Blaming the market is what I would expect the company to fall back on.

It is true that the market demands performance from its companies, however, that should not be read as short-term profit at all costs.

The market expects the best performance within a long-term context, which is why the market marks the price down when reserves are falling and when insufficient funds are invested in exploration and development, investments that hit short-term profits.

Markets expect the best performance but also expect their Directors to ensure that the company operates within all legal, ethical and environmental regulations and norms. That is one of the reasons Directors are there.

Lord Browne built a leading company over many years and, through omission or through carelessness, he dropped the ball.

That is why he is going early, as he should!

Onésimo Alvarez-Moro

See letter:
From Mr Simon Zadek.

Sir, James Baker's damning report on BP's shortfalls should and will undoubtedly lead to painful and costly judgments by lawyers, investors and courts of public opinion. But Mr Baker could make a far more powerful contribution if he reflected more on the ultimate rather than the immediate causes of BP's failures.

BP's aggressive cost-cutting culture has been driven by the extraordinary pressure that financial markets place on businesses to do anything and everything to boost short-term profitability. This is too often at the expense of not only social and environmental but also longer-term financial performance. The real culprits are the behaviour, norms and demands of Wall Street and the City of London.

See full Letter (paid subscription required).