BP, Wall Street, and the Rest of Us

Posted on June 18, 2010

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The ongoing environmental tragedy in the Gulf has reinforced the popular notion that there’s an “us versus them” situation when it comes to big business. Similarly, throughout the financial crisis and subsequent recession, news story after news story has discussed the “Wall Street versus Main Street” issue. Three recent articles present a more nuanced view.

On Wednesday of this week, BP announced that the company would suspend dividend payments to shareholders. From the perspective of a citizen, there’s some degree of emotional satisfaction in hearing the news; after all, why should shareholders reap profits while oil continues to pour into the Gulf, fouling wetlands and beaches, putting fisherman out of work, etc. But, like most things in life, it’s not that simple. As Ron Lieber writes in an article in the New York Times,

If you own BP shares and rely on the dividends for your retirement income, you now matter less than shrimp boat owners and tourism workers in the Gulf of Mexico.

Who owns BP shares? Well, first there are BP employees (most of whom, obviously, have absolutely nothing to do with what is happening in the Gulf). According to the NYT article, participants in BP’s 401(k) plan have lost more than $1 billion as a result of the stock’s decline since the spill. Other major holders (according to Yahoo Finance) include:

  • Investors in mutual funds managed by Vanguard, T. Rowe Price, and Fidelity
  • The Bill and Melinda Gates Foundation which, as of March 31 of this year, owned shares valued at the time at $407 million. At today’s share price, the Foundation’s 7.1 million shares are worth $224.8 million. That means there’s almost $200 million less to support the Foundation’s programs and projects
     

But what about the more general notion that big business – Wall Street in particular – is somehow at odds with the little guy? Another piece in the Times goes beyond the rhetoric by focusing on one city – Louisville, Kentucky – and showing how the two streets are quite closely connected:

Louisville is not alone. Across the country, the loose rhetoric pitting Wall Street against Main Street is contradicted, in brick, steel and glass, by buildings like the Merrill Lynch Tower on East Main Street in Richmond, Va., or the Bank of America Plaza on Main Street in Dallas — hard evidence that in the modern American financial system, Main Street scarcely exists in isolation from New York.

A similar point can be made in respect to BP. A Wall Street Journal article examines how protests and boycotts targeted at BP may not have the effect that organizers of such efforts would like:

Protests and boycotts of the BP brand generated by the Gulf spill aren’t likely to have a big immediate impact on BP PLC, but could threaten the thousands of entrepreneurs who have staked their livelihoods on the company’s name.

BP management should certainly be held accountable to the extent that the oil well blowout resulted from inadequate controls, poor safety measures or flawed policies or procedures. So too should financial firms be held accountable in cases involving fraud or otherwise misleading investors. But it does nobody any good to bring down entire companies in order to extract some sort of punishment. Consider what happened to Arthur Andersen in the wake of the Enron scandal. In the end, a firm with a long history of doing good work that employed over 80,000 people was dismantled as the result of poor judgments made by a handful of individuals.

No matter how much anger we may feel personally, as a society we need to step back and understand that actions that may seem to make sense today could have unexpected and undesirable consequences down the road.