MODULE 48: Environmental Disasters, from the Exxon Valdez
to BP
Core Module Issues:
• What steps should a company take to prevent environmental disasters
in the first place?
• if a disaster has already happened, how should a company respond to
it?
Module Teaching Notes
The summer when I wrote a large chunk of this book (2010) featured endless video on virtually all
cable news networks of the BP oil spill. For weeks on end, the cameras showed a nonstop gusher
of oil on the bottom of the Gulf of Mexico.
As is usually the case, a chain of bad decisions led to the ultimate disaster. If any one of a number
of decisions had gone differently, no oil spill, and no loss of life in the explosion that created the
spill in the first place.
At this point in time (January, 2011), BP has committed billions to various cleanup efforts, and
they can afford it.
It may be that you want to supplement the BP story with one of local interest, or one which you
think raises this issue crisply.
I have added some comparisons to the Exxon Valdez leak in the 80s, which until the BP Gulf spill
was probably the most widely-known environmental disaster on US soil. (Or, ah, water, as the
case may be.)
In this module, the scenario features two parts. There is a “before a disaster” segment, and an
“after a disaster segment.”
Students will be asked about ways in which companies should take reasonable precautions before harm
occurs, and reasonable steps that should be taken in response to problems that end up happening for
whatever reason.
It will be interesting to see how much students know about the BP spill. You will presumably be using this
edition of the text in 2011, 12, or 13. Will a year, or two, or three, more or less erase the BP spill from the
public’s consciousness? My students know little about the Valdez, but that was over 20 years ago, and
many of them were infants when that story broke.
Discussion Points for Scenario Questions
1. If you were the CEO, would you decide to reinforce the dam, change how you dispose of
waste so the company could eliminate the storage pond, or neither?
A. DO SOMETHING – WHICH OPTION (OR BOTH)? WHY?
B. DO NOTHING – ISN’T THAT PLAYING WITH FIRE?
2. Now assume that each option is twice as expensive as originally presented. Reinforcement
will now reduce the shareholders’ return from 7 percent to 5 percent, and eliminating the storage
pond will reduce their return from 7 percent to 3 percent. Now would you pursue reinforcing the
dam, eliminating the storage pond, or neither?
A. DO SOMETHING – WHICH OPTION (OR BOTH)? WHY? WHEN WOULD
IT GET TOO EXPENSIVE?
B. DO NOTHING – AGAIN, ISN’T THAT PLAYING WITH FIRE?
3. Now assume that each option is half as expensive as originally presented. Reinforcement will
now reduce the shareholders’ return from 7 percent to 6.5 percent, and eliminating the storage
pond will reduce their return from 7 percent to 6 percent. Now would you pursue reinforcing the
dam, eliminating the storage pond, or neither?
A. DO SOMETHING – WHICH OPTION (OR BOTH)?
4. Spend the $20 million. The proposals, and the amounts needed to fully fund them, are listed
below. You may choose to partially fund any or all of the choices. In the blanks, write in how
much of the available money you would spend on each project.
$ Millions Spent Project Amount Needed
__________ Cleanup—make the lake swimmable ($10 million)
__________ Cleanup—fully restore ecosystems ($5 million)
__________ Compensate lakefront homeowners ($10 million)
for lost property value
__________ Compensate lakefront businesses ($10 million)
for lost profits
__________ Compensate businesses near the lake ($5 million)
for lost profits
[THIS QUESTION IS NOT ITSELF FOR DISCUSSION – IT IS A SET-UP FOR
THE NEXT QUESTION.]
5. Of the choices above, which was your top priority? Why? Which was your lowest priority?
Why?