The Weakest Link
Why BP's rivals should be doing much more to stop the Gulf oil spill.
Remember The Weakest Link, that imported English television game show from a few years ago? The host would dismiss the unfortunate slob who failed to guess the answer to some obscure trivia question with a withering sneer: "You are the weakest link."
The Weakest Link was a zero-sum game: The demise of one contestant enhanced the status and earnings of the survivors. This is generally how business works too. The failure of a rival is an opportunity to gain market share. After Circuit City went down, Best Buy thrived. When Toyota's Prius was recalled, consumers didn't stop buying cars. They just bought more Fords. Upon glimpsing a rival floundering, executives think first about how they should take advantage of it, and last about whether they should toss a life preserver.
But three recent examples show that this is not always the best strategy in business. In each, the failure to band together to help the weakest link has damaged the entire industry.
By now, you would think that every oil executive worth his weight in petrodollars would recognize the ability of a single spill to set back the entire industry by decades. The 1969 Santa Barbara oil spill, after all, has queered the prospects of prospecting off the California coast for 41 years—and counting. Given this, you would have expected the global oil industry to rush in with equipment and expertise to clean up the Gulf spill. Sure, British Petroleum first downplayed the size of the spill, which started on April 20, and then said Transocean, which owned the rig, was responsible for cleaning up the mess. Yes, Shell did offer up its training facility in Roberts, La., to BP as a command center, and Exxon did help transport booms. But the broader industry generally remained mum, more concerned about liability and competitive issues than about stopping the biggest PR disaster for the oil industry in 20 years. The CEOs should have formed a human boom to stop the slick. Instead, the industry outsourced the cleanup to BP, a company with a dodgy safety record that appears to be taking a public relations lesson from Goldman Sachs.
This seemingly blasé attitude has been enormously damaging to the entire petroleum industry. With "Drill, baby, drill!" replaced by "Spill, baby, spill," the window for offshore drilling has been slammed, nailed, and caulked shut. On May 3, California Gov. Arnold Schwarzenegger, a recent convert to the offshore drilling cause, changed his mind and came out against it. A Rasmussen poll found support for offshore drilling fell from 72 percent in March to 58 percent in early May.
Now consider another disaster zone: Wall Street. One of my big takeaways from the mile-high pile of business books on the financial crisis is that Wall Street refused to heed the repeated urgings of Federal Reserve and Treasury officials to save the industry's weakest links—first Bear Stearns and then Lehman Bros. Helping out wounded rivals is anathema in the zero-sum zone of Wall Street. But CEOs failed to see how an epic government-bailout-requiring failure would harm all of the surviving players. The investigations, commissions, and proposed reform efforts—aimed at ensuring there can be no repeat of Bear and Lehman—have included some draconian suggestions. The proposals to ban derivatives trading and proprietary trading are the equivalent of an offshore drilling ban, placing off-limits an area where big profits can easily be made.
The Mediterranean countries have their own toxic ooze from Greece. In theory, the Eurozone was supposed to achieve greater stability by using a single monetary policy and currency. But here, again, the failure of the weakest link proved to be a danger—not a boon—to the healthier ones. When Greece started running into trouble, German bankers, Belgian accountants, and Dutch budget experts should have flooded in and done everything necessary to halt the contagion. But the Europeans (and the Greeks) delayed, hemmed, and hawed. And so the failure of Greece, about 3 percent of the Eurozone's economy, is dragging down the value of the euro and forcing its neighbors to fund a cleanup operation.
Daniel Gross is the Moneybox columnist for Slate and the business columnist for Newsweek. You can e-mail him at email@example.com and follow him on Twitter. His latest book, Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation, has just been published in paperback.