In a scathing report by the National Transportation Safety Board (“NTSB”), Canadian company Enbridge Inc. was rebuked for its pipeline rupture on July 25, 2010, and subsequent environmental damage. The pipeline ruptured due to corrosion fatigue cracks that grew and coalesced from multiple stress cracks.
The oil flow continued for 17 hours, according to the report. The oil saturated the wetlands in Michigan. Clean up continues with costs exceeding $767 million. The total release was estimated to be 843,444 gallons.
Enbridge CEO, Patrick Daniel, said on the news on that evening that Enbridge complied with all regulations.
If this is the case, then the regulations were defective or not enforced. They were, and the NTSB is addressing this.
Some of the highlights of the NTSB’s report, so far as Enbridge is concerned, include:
– Enbridge’s integrity management program was inadequate.
– Enbridge failed to train staff and failed to ensure staff had adequate knowledge, skills and abilities to address pipeline leaks.
– Enbridge’s staff placed inadequate reliance on indications of a leak, including zero pressure.
– Enbridge had a culture that accepted not adhering to procedures, including requiring a pipeline shutdown after 10 minutes of uncertain operational status. [This is perhaps the most damning conclusion from the report.]
– Enbridge’s review of its public awareness program was ineffective.
– Enbridge’s emergency response demonstrated a lack of training in the use of effective containment methods.
– Enbridge’s facility response plan did not identify and ensure resources were available to the pipeline release in this accident.
– Enbridge’s failure in respect of the above items were organizational failures that resulted in the accident and increased its severity.
What can we learn from Enbridge, from a governance, research and risk perspective?
– The Board Chair, Mr. David Arledge, has served on the Enbridge board for 10 years.
– The Chair of the Corporate Social Responsibility Committee, whose mandate includes oversight of Enbridge’s risk management guidelines applicable to the environment and health and safety, Mr. James Blanchard, has served on the Enbridge board for 12 years.
– Mr. George Petty, also a member of the CSR committee, has served on the Enbridge board for 11 years.
– Other countries are moving towards tenure limits for directors of 9 years, because of the effect that prolonged tenure could have on director independence.
– Mr. Dan Tutcher, also a member of the CSR committee, was formerly an employee of a subsidiary of Enbridge.
– The final CSR committee member, Ms. Maureen Kempston Darkes, has served on the Enbridge board for almost 2 years.
– A majority of CSR committee members (three of four members) would be regarded as “busy” directors (generally 3 or more boards).
– Enbridge would be regarded as a “busy” board, with a majority of directors (11 of 13 directors) holding multiple board seats (generally 3 or more), including the CEO, Patrick Daniels.
– Enbridge’s CEO, Patrick Daniels, appears to be serving on seven other private and public boards. More than half of S&P 500 companies limit outside directorships for their CEO, a policy not widely in effect a few years ago, according to Stanford researchers.
– Companies with busy boards tend to have worst long-term performance and oversight, according to the research.
– Enbridge is a large board (13 directors). Larger boards tend to provide worst oversight (when company size is held constant), according to the research.
– For the Enbridge directors serving on the CSR committee who have not worked at Enbridge, environment and health and safety (or related competencies such as sustainability) are not listed as areas of expertise within their website bios, or in in regards to committee membership, it would appear. Other natural resource companies and boards in Canada are addressing director competencies specifically. For example, “Sustainable Business Practices” and “Corporate Social Responsibility” are forming main areas of expertise or are on a skills and experience matrix.
Good boards, after the BP spill, pressed management to demonstrate how BP could not happen to them, and correct any deficiencies whatsoever, such as several of the above-mentioned items as applicable (training, resources, fatigue of equipment, crisis response, etc). Good boards insist on stress testing, crisis planning, and a comprehensive and robust risk management system. And, most importantly, there is no tolerance whatsoever for deviating from a culture of integrity, health and safety.
I taught a case last week to my corporate governance class based on Hydro One’s Enterprise Risk Management program. The role of the board and CEO is critical – if not essential – to risk culture and effectiveness. Hydro One specifically mentioned in a video I showed to my students how the company factors in transmission line aging and fatigue within a comprehensive risk management system. Workshops and stress testing occurs, within a comprehensive reporting and assurance system, right up to the board of directors.
