The news that BP would be suspending its dividend to fund its oil spill liabilities came as a relief to stockholders, who sent the stock up 7 percent after the announcement. Partly this was because the suspension of dividends increases the company’s chances of survival, or of arriving at liquidation with some value left, but partly it was because the decision shows that there is, in fact, someone home at BP.
Paying a dividend becomes a habit for a company like BP, but corporate executives are not paid to rubber-stamp the same actions quarter after quarter. They’re paid to manage the company, which means making decisions to adapt to new circumstances. For BP to continue to pay the dividend now would be to show that it is oblivious to the crisis it faces. It would mean no one is charge and the company is carrying on only on momentum. It would be like a household that continues to pay the cable bill even though it is facing foreclosure.
Unfortunately, large corporations often fall short of the level of intelligence of the average household. I am sure Citigroup and Bank of America wish they could take back the dividends they paid in 2005 and 2006. They knew they were in trouble at that point, but kept paying dividends with the thought that if they acted like everything was normal, they could cover up their problems — and of course, that strategy worked for only a short time. And for BP, it was a near thing. It came within days of rubber-stamping one more dividend payment which, if it had been paid, would surely have been its last ever.
I have already explained why liquidation, as early as the courts will permit, is the best course of action for BP stockholders. For the United States, the best course of action is to undertake the research and investments that will create a stable energy footing for the country, so that it can approach energy-related decisions in an even-handed way. The decision to authorize deep-water oil wells before the technology existed to operate them safely was not exactly forced on the Bush administration, but the United States’ desperate trade imbalance, the result of the largest energy imports of any nation ever, weighed heavily on that decision.
This morning, it is hard to escape the irony of a fleet of petroleum-powered boats sent out to the Gulf of Mexico to do what they can to clean up the spilled oil. The story of oil chasing more oil owns us at this point. We need to discover something new that will give us a greater ability to respond.
