Insurance of Techno-Organizational Ventures and ProceduralEthics: Lessons from the Deepwater Horizon Explosion

Alexandros-Andreas Kyrtsis

� Springer Science+Business Media B.V. 2012

Abstract Hazardous operational consequences of uneth-

ical behavior in high-risk projects can be traced back to

inadequate relationships between businesses and the

insurance industry. The communication of blame, as a

consequence of major industrial accidents like the explo-

sion of the Deepwater Horizon drilling rig in the Gulf of

Mexico in April 2010, and the relevance of this commu-

nication of blame for subsequent insurance litigation, show

that the awareness of the relationship between unethical

behavior resulting in irresponsible procedural action and

deficient loss-prevention practices is a significant compo-

nent of risk consciousness. The awareness of ethical ori-

gins of project risks could alter the methods of design

and monitoring of insurance contracts for risky techno-

organizational ventures.

Keywords Deepwater oil drilling � Insurance innovation �Insurance underwriting � Procedural ethics �Techno-organizational risks

Introduction

Insurance underwriting for techno-organizational projects is

mostly discussed in connection with indemnification after

catastrophic incidents. However, terms and conditions of

insurance underwriting can under certain circumstances

significantly influence the internal processes in organiza-

tions or in consortia undertaking projects which require

sophisticated management of operational risks. This does

not imply that insurance underwriters and other staff com-

missioned to monitor contracts should be regarded as

responsible for ethical conditions which could facilitate

operational efficiency and the avoidance of industrial acci-

dents. However, given the highly significant institutional

role of insurers for business ventures, it would be relevant to

reflect on their possible catalytic role, or at least on the

potential impact of insurance underwriting on the ethical

conditions under which project risks are taken and managed.

This insurance aspect surfaced in the discussion around

deepwater oil drilling.1 Unfortunately, these concerns about

inappropriate managerial action and the lack of substantial

relationships between firms and insurers were made visible

after a devastating accident and in the process of shifting

blame among involved organizations. It seems that it is

difficult to acquire information on omissions by powerful

organizational actors, unless the process of regret for

inappropriate action or negligence with devastating effects

on people or with costly implications for corporations and

insurers sets off. From a methodological point of view, this

can mean that it can be preferable to study relationships

between the potential positive impact of insurance under-

writing and policy-monitoring practices on risk mitigating

organizational ethics through the communicative outfall of

failure stories. In moments of failure conflicts between

various interest, organizations, organizational units and groups

of staff produce valuable information. As Coser (1956) has

A.-A. Kyrtsis (&)

Department of Political Science and Public Administration,

University of Athens, 6, Themistokleous Str., 10678 Athens,

Greece

e-mail: akyrtsis@pspa.uoa.gr

1 The Fukushima nuclear crisis after the March 2011 earthquake in

Japan has attracted the attention of the public, but it was deepwater oil

drilling that overwhelmed discussions until then because of the

accident in the Gulf of Mexico in April 2010. However, in the

Fukushima case, the impact of insurance on managerial practices was

not made a central issue in the blame process as it was the case with

the Deepwater Horizon explosion.

123

J Bus Ethics

DOI 10.1007/s10551-012-1222-9

argued, conflicts can be functional in revealing views which

otherwise would have been kept hidden under the veil of a

sense of normality. This is mostly the case when conflicts

are embedded in those processes of public utterances,

which we call scandals. All scandals refer to misrepre-

sentation and concealment (Thompson 2000, pp. 23–25).

Something is hidden, or suppressed from consciousness,

and when it is revealed, for whatever reasons, a mecha-

nism of blame sets off. The blame structure and the dis-

tribution of liabilities point to the ethical potentials, which

are in this situation regarded as unexploited. In this sense

scandals related to failures of risk management can

uncover latent processes which might lead to new forms

of deliberation and procedural ethics can in this context

emerge as part of the search for the redefinition of

modalities of action.

The discussion of questions around the insurance of

deepwater drilling can be revealing in this respect. There is

no doubt that deepwater drilling, a hot issue for investors in

the oil industry, exposes the involved companies to high

techno-organizational risks. The intricacies of complex

engineering problems, the organizational requirements, and

the natural conditions under which the operations are car-

ried out in locations of deep sea wells raise the probability

of catastrophic events.2 In almost all cases of the existing

drilling rigs, smaller incidents or near catastrophes showed

that the fears expressed were not merely theoretical. A

major incident was never regarded as improbable by

insiders in the involved organizations. Difficulties of coor-

dination and the frequent need for crisis management in the

consortia carrying out the projects, often working under

extreme time pressure, are amplifying the risk of opera-

tional and technical failure. The explosion on the evening of

April 20, 2010 on the semi-submersible floating drilling rig

(dynamically positioned above the Macondo oil well lying

5,000 feet under the surface of the Gulf of Mexico, 40 miles

off the coast of Louisiana) which caused 11 deaths, many

injuries, an ecological disaster, and severe economic dam-

age with social consequences (Robertson 2010) was not an

event beyond the imagination. Not only such severe

industrial accidents in various technology intensive indus-

tries with far reaching environmental, health, societal,

financial, economic, even political consequences, but also

minor incidents since the 1970s have increasingly drawn

attention to techno-organizational aspects of enterprise risk

management and loss prevention (Reason 1997; Hoffman

and Ventresca 2002; Sunstein 2002; Van Loon 2002; Hutter

and Power 2005; Power 2003, 2007; Perrow 2007; Sparrow

2008). Less attention has been drawn to ethical orientations

in the involved organizations and among members of pro-

fessional groups that can be decisive drivers towards

effective risk and safety management (Muir Wood 2004;

Harris 2008; Macpherson 2008; d’ Anjou 2010; Ross and

Athanassoulis 2010). It is this aspect, taken up by relatively

few authors, which will be discussed here, in connection

with insurance. Inadequate or inappropriate ethical stances,

adopted by the technical or managerial staff, often imply

unacceptable exposure of people, but also of businesses, to

severe risks. The stories around the Deepwater Horizon

explosion give plenty of evidence for this. But what we also

learn from the case of the Deepwater Horizon is that dif-

fused orientations to ethical principles are not sufficient for

the management of critical operations. Operational effi-

ciency requires ethical discourses that are not restricted to

the scrutiny of goals; the procedures leading to the fair

accomplishment of goals and their ethical grounding also

matter. Furthermore, what has been revealed by the blame

structure and blame communication after the Deepwater

Horizon explosion is that in the minds of key players there

was a connection between insurance and what we will call

here procedural ethics. This shows also a connection

between ethical potentials and innovative potentials which

could question dominant practices in the insurance industry,

and thus create a different culture of insurance underwrit-

ing, which would put emphasis on contractual pressures

towards improved organizational ethics.

Procedural Ethics and Organizational Practices

Insurers, like regulators, can exert significant influence on

organizational practices (Edelman and Suchman 1997).

More specifically, they can influence the procedural ethics,

i.e., the ethical orientations that drive people in organiza-

tions to feel responsible for the way tasks are realized. This

kind of responsible conduct emerges from the concern of

identifiable actors for the potential exposure of other beings

to harm caused by an action or decision (Jonas 1984,

p. 391). Sentiments per se do not suffice; they must be

transformed into the duty to undertake the appropriate

action to avoid harm. In other words, procedural responsi-

bility stems from being preoccupied about something and

mapping this preoccupation onto a manageable system of

tasks. Responsible action in techno-organizational contexts

cannot be succeeded without enabling the visibility of

networks of actors, and thus without establishing channels

of communication, on the basis of which the relevant

information can be transmitted to the right place and at the

right time, and then transformed into targeted action (Regev

et al. 2006). This becomes critical when what counts is

reflecting on ‘‘how’’ things should be done, and not on only

2 See Pavlak 2004 on the configuration of risks and the need for

flexible troubleshooting in complex techno-organizational projects

realized with diverse intra- and inter-organizational networks of

stakeholders.

A.-A. Kyrtsis

123

on ‘‘what’’ is to be done (Frey et al. 2004; Le Menestrel

et al. 2002; Le Menestrel 2002). The tensions arising around

the problem of shaping social and personal identities make

people being interested not only in what they do but also in

how they should proceed. Professional identities and orga-

nizational roles are very much built around this operational

aspect of action. These narratives of identities of people

undertaking concrete tasks can be crucial for the cohesion

of social networks and the effectiveness of social interac-

tions among members of organizations (White 2008,

pp. 20–62, 115). Exchanging opinions on how to proceed,

and explicitly taking the responsibility for the consequences

of these opinions, raises the overall intelligence of social

networks. In other words, we have a network effect of

intelligence, which arises from the ethical alertness within

networks of operationally oriented actors. Ethical conduct

in this sense emerges from the reflection of actors on pro-

cedural matters to avoid operational breakdown with con-

sequences both for the internal and the external economies

of organizations.

Procedural ethics in this sense should not be equated with

procedural justice, either in its perfect or in its imperfect

form, as defined by Rawls (1971, pp. 84–87; see also Solum

2004). Procedural ethics is about the duty to participate in

productive disputes and about the duty to prevent the

obstruction of this participation, and not about being subject

to the procedural conditions leading to outcomes of disputes.

Procedural ethics can be better associated with the

achievement of fairness in networks of social interaction

among managers and operating staff. Neither do we accept

that proceduralism detracts from substantial arguments, as is

often argued in socio-legal studies (Collins 2003). Hugh

Collins notes that the procedural aspects of justice are at

odds with the substantial aspects. In the case of procedural

ethics as defined here, the crux is that what makes it valu-

able, is the focus on the procedures which adapt to substance

and thus pave, through reflectivity, the way to matching

procedure to substance, and not the other way round. This

approach also differs from the formalistic definition of

procedural ethics as a system of codes holding actors captive

to political-legal regimes, or to bureaucratic rules of litiga-

tion which traces moral positions back to rigid procedures

against better judgment (for a critical approach see Capps

2007, p. 28). This latter formalistic approach is incompatible

with the ethics of procedural innovation and the control of

risks. The relevance of the concept of procedural ethics, as

used here, is that it points to forms of procedural conduct

which emerge from the reference to substantial arguments.

In any case, procedural ethics, which originates from ethical

social networks of mutual esteem among reflective actors,

has more to do with Max Weber’s ‘‘Verantwortungsethik’’

(responsibility-related ethics) than with ‘‘Gesinnungsethik’’

(conviction-related ethics) (Weber 1988).

The concept of procedural justice has been variously used

in organizational studies, predominantly in connection with

matters of human resources and leadership (e.g., Folger and

Bies 1989; Konovsky 2000; Vermeulen 2005; Li et al. 2007;

Ngodo 2008; Zapata-Phelan et al. 2009). But what we are

referring to here is not procedural correctness in organiza-

tions as an equivalent to procedural rules in judiciary pro-

cesses. Procedural ethics is a relational concept and draws on

the idea of vigorous settlements of organizational disputes

referring to the procedural aspects of operations, whereby

the roles and the expression of reflexivity are not the result of

the uncritical or unavoidable acceptance of an uneven dis-

tribution of power and authority, as set on stage in courts of

justice. Procedural ethics is also related to rationales of

decisions on functional matters, which in the most cases

require decisions on the course of reduction of complexity

(Luhmann 2005, pp. 83–100). In engineering companies, as

in most knowledge-intensive organizations, it is not sensible

to rely for such decisions exclusively on top-down pro-

cesses. Regarding the role of insurers, which concerns us

here, if they are to play a positive institutional role in the

mitigation of risks that complex techno-organizational

ventures are facing, this role should be related rather to the

cultivation of procedural ethics, than to the application of

principles of procedural justice.

Procedural ethics is about taking the responsibility to

exploit in the best possible way intellectual resources and

practical ideas, to get the procedures right, so that they can fit

to the reflexive resolution of substantial problems regarding

the minimization of operating failures with hazardous con-

sequences. It is about the importance of exercising the right

of expressing informed opinions on procedural matters with

operational consequences, and about believing in the func-

tional importance of not suppressing such opinions. This

kind of ethical alertness is especially important in moments

of operational crises. Management, and especially the

management of techno-organizational projects in physically

and organizationally turbulent environments, results to a

great extent in crisis management (i.e., management under

time pressure and with problems of sorting out priorities and

informational messes, as well as with problems of figuring

out and accomplishing the right configuration of resources).

Under such circumstances, the responsible operators must

demonstrate the readiness and the courage to produce the

novel solutions required to solve problems and avoid catas-

trophes. Efficient governance of organizational complexes

facing congenital strains requires bearers of knowledge and

information to come forward and take risks in organizational

politics. Whistleblowing should not be regarded as the

obvious preferable choice. Operationally effective argu-

ments—productive arguments instead of mere blame—can

be less counterproductive. For this, not only cognitive

and communicative competence is needed but also the

Insurance of Techno-Organizational Ventures

123

appropriate ethical stance. Moral silence can be here a

problem, resulting in failure to express opinions which can

be crucial for the necessary adjustment of practices (Bird

1996).

Engineers and managers working in deepwater drilling

projects, as in many other complex engineering projects,

like big tunnel construction, have to make various judg-

ments, many of those with insufficient information. The

harder the decisions are, the more they expose themselves

to the eyes of peers, subordinates, and superiors. They have

to weigh risks and often think in unprecedented ways. The

ethically idle do not feel obliged to take the responsibility

for unprecedented operational ideas. Distinguishing

between foolishness and novelty in critical conditions is

always a problem, and opting for conventionalism in

organizations is the easier choice (March 2010, p. 95). This

is, in terms of procedural ethics, an ethical problem that

might have operational consequences. The ethical potential

required by those who want to take the responsibility of

novel solutions is incompatible with going by the book and

strictly following organizational rituals. Orientation to

rules set is of course indispensable, but struggling with the

problems of the responsible adaptation of the use of rules to

the contradictions most situations imply, is also a necessary

condition of ethical conduct in operational environments.

The latter is not compatible with operational aloofness.

As the Wall Street Journal wrote, BP managers ‘‘oversee-

ing final well tests [at the Macondo oil well in the Gulf of

Mexico] apparently had scant experience in deep-water

drilling’’ (Casselman and Gold 2010). This is not neces-

sarily an unprecedented and tragic deficiency. The problem

was rather that they were not willing to manage the

knowledge, the skills, the resources, and most significantly,

the ethical potentials available in the social networks of

technical and managerial staff in the organizations of the

consortium of companies to which this project had been

commissioned. Exposure to high techno-organizational

risks originated in human error by commission, and not in

human error by omission. Even for what managers and

operators omitted in the Macondo drilling project, there

was often an intension to divert attention, or a conscious

acceptance of intellectual sluggishness as a consequence of

a conventional way of seeing priorities. Consequently,

vigilance in matters of procedural ethics was rapidly

degenerating. As Dekker (2007) points out, there is a dif-

ference between an honest and a ‘‘not honest’’ mistake, and

this is critical for a safety-culture that can flourish on

openness and information sharing. Most of the managers

who exposed the Macondo deepwater drilling project to

high risks, with devastating consequences, were not actu-

ally committing honest mistakes. They knew that they were

bypassing critical information, but they could persuade

themselves that this was dictated by processes of justifying

the means for business ends. In order to succeed this, they

had to loosen their ethics and disesteem people who were

commissioned to express expert opinions, or to invent

novel solutions to thorny problems. It seems that it was a

diversion of cognitive orientation due to depleted moral

orientations that created many of the problems. It was not

lack of knowledge and warning signals, or was it the

existence of explicit bad intensions that raised the risk

exposure that subsequently led to the Deepwater Horizon

explosion. Implicit shifts of risk perception due to social

network dynamics reordered the priorities. And when the

social risk of being made accountable for false judgment

was in sight, hierarchies were shaped through the distri-

bution of esteem or disesteem. This was a double dises-

teem. Not only were critical pieces of knowledge

disregarded but also many members of staff had to realize

that they were put in the position of not being able to be

bold enough to express their views. The problem of pro-

cedural ethics evolved into a problem both of vertical and

of horizontal communication. Offence of collaborators

resulted in concealment. As we will see, many of the

decisions were grounded in the indifference to offence

towards the personalities and identities of organizational

stakeholders. This has proven not to be an extremely wise

and of course not an ethical managerial attitude. In com-

plex techno-organizational settings, where various skills

and knowledge-potential have to be successfully combined,

disesteeming the ones who have to express opinions or

make critical decisions can be devastating.

The notion of esteem is nodal for this approach to a

relational theory of ethics (Luhmann 1978; Dallmann

1998; Brennan and Pettit 2000; Cox 2006; White 2008).

According to this approach, ethics as the discursive source

of moral conditions is not a matter of abstract principles,

since no code of ethics can automatically apply to all

possible circumstances. Ethics is related to rules of thumb

adopted by people who have a sense of situations and are

guided by this perception to avoid offending or insulting

others. This is compatible with Luhmann’s theses: people

find ethics relevant whenever they feel that they should

demand to be respected. It is the relation between demand

and supply of esteem that creates the potential for the

moralization of conditions.3 Indifference to this demand

can lead to conflicts or disruptions of communication

3 The problem of esteem has been discussed by Brennan and Pettit

(2000). As Brennan and Pettit assert, the limitations in the supply of

esteem create configurations of forces of esteem and disesteem which

give rise to normative frameworks on which further depend on

collective action predicaments. They define a principle of social

organization which they call ‘‘hidden economy of esteem.’’ We can

extend the argument by connecting the problem of esteem with the

problem of outspokenness of actors. Outspokenness can be associated

with positive economies of esteem which rely on the expansion of the

supply of esteem.

A.-A. Kyrtsis

123

among actors. This does not mean that the creation of

ethical meaning is possible without reference to principles

available in the cultural environment of social networks or

organizations (Luhmann 1978, pp. 41, 43–44; see also

Goldman 2008). In organizational settings, ethical orien-

tation cannot be achieved without a redefinition and

interpretation of rules, which then have to combine esteem

with functional criteria. Consequently, esteem as the basis

of morality is not an attributed quality but a contested

achievement (Luhmann 1978, pp. 46–47). It is the totality

of the factually practiced conditions of mutual esteem or

disesteem embedded in discourses of practical reflexivity

which create the moral make up of an organization (Luh-

mann 1978, p. 51). Risk management in techno-organiza-

tional ventures relies on the dynamics of such social and

organizational involvement in networks of esteem (Deroian

2007). It requires also the scaling down of negative

economies of esteem. In negative economies of esteem

(contrary to positive economies of esteem, as defined by

Brennan and Pettit 2000), agents try to conceal their

actions, because they believe that this will help them to

avoid disesteem. They do not want to be made visible; they

try to survive in organizations by making themselves (at

least partially or selectively) invisible. It is difficult to

imagine how morality in organizational contexts can be

achieved without positive economies of esteem promoting

the social and intellectual visibility of members of staff.

This visibility of the intellectual capital of organizations,

although not a sufficient condition, is a necessary condition

of operational efficiency in knowledge-based organizations

undertaking high-risk techno-organizational ventures. It is

a necessary condition of responsible action.

In this sense, what preceded the devastating explosion

was a devastation of ethical potentials of procedural ratio-

nality. As we will see, too many people were disesteemed in

the BP deepwater drilling project at the Gulf of Mexico, and

consequently too many voices were silenced. It has been

revealed that there have been plenty of misrepresentations

and concealments. Under these conditions, the attitude of

many managers was apparently that the less external

observers, the better for pursuing undisturbed their chosen

style of action and decision making. The most characteristic

case for this was the fact that companies entrusted to conduct

critical technical tests, like Schlumberger, were forced,

according to official reports, to leave prematurely not to

inhibit reckless action.4 This was a precursor of the

acceleration of the accumulation of negative events; it

showed also the attitude that might have prevented any

substantial screening, or of information sharing which might

have been needed in the framework of alternative practices.

This and many other similar events show that even more

technocratic approaches, like probabilistic risk analysis

(Stamatelatos 2002) or precursor analysis (Cooke et al.

2011) can easily break down under conditions of conceal-

ment of critical data. Even these techniques, which were in

many occasions successfully tested, require a minimum in

procedural ethics. Management auditors are well aware of

these problems, and insurers, who have to face moral hazard

or to realize the risks of projects, are as well. But is seems

that the possibility of integrating practices to cope with these

problems in insurance products and services, depends on a

rather long and uncertain path towards cognitive and cultural

reorientations in the insurance industry, and on the sub-

sequent adoption of insurance innovations.

The Institutional Role of Insurers, Procedural Ethics,

and Risk Management

Enabling procedural ethics is by no means an obvious

institutional role of insurers. Companies of this industry are

for the most part associated with potential indemnification if

a disaster would have already happened, and not primarily

with loss prevention.5 Monitoring of operations by insurers,

with concrete implications for managerial practices, appears

to a very limited extent in real life. For instance, although

almost all the major insurance and reinsurance companies

support project insurance for industrial and construction

4 There is a document issue by the Committee on Energy and

Commerce of the US House of Representatives, according to which

Schlumberger wirelined that cased hole crew arrived on Transocean’s

Deepwater Horizon on April 19, 2010. BP had contracted Schlumberger

to be available to perform a cement bond log and set a bridge plug and/or

cement retainer, should BP request those services. At 7.00 am in the

morning of April 20, BP informed Schlumberger that they did not need

Footnote 4 continued

the test to be carried out. After this BP staff scheduled the Schlum-

berger team to depart from the rig. At approximately 11.15 am,

Schlumberger crew departs Transocean Deepwater Horizon on reg-

ularly scheduled BP helicopter flight. Approximately 10 h later

Deepwater Horizon explodes for reasons which for many engineers

can be traced back to lack of test concerning the behavior of the

cement stabilizing the well. Document retrieved on October 3,

2010 from http://energycommerce.house.gov/documents/20100614/

Schlumberger.MC.252.Timeline.pdf.5 However, there are exceptions. Insurers engage in loss prevention

practices in various contexts, such as fire insurance, etc. In some cases

this implies monitoring corporate governance practices, like in the case

of directors’ and officers’ liability insurance (Baker and Griffith 2007).

Managers have counterincentives despite the cost in the event of a

negative occurrence, since their presumed and projected personal

autonomy and their hierarchical status are considered as the main aspect

of the esteem they enjoy from their peers. As Baker and Griffith (2007,

p. 18) point out, it is extremely rare to find a case in which ‘‘a publicly

traded corporation changed a business practice in response to a

governance concern from a D&O insurer,’’ although ‘‘insurers do price

on the basis of risk.’’ This means that insurance policies can have a

decisive impact on risk consciousness and on risk management practices.

The fact that something has to be insured is a cautionary reminder that

can fine-tune operational decisions and operational practices.

Insurance of Techno-Organizational Ventures

123

projects, considering project parameters from the engi-

neering and managerial perspective does not go beyond

recommendations, and rarely can disregard of these by the

insured amend the terms or imply sanctions which could be

derived from provisions of the insurance contract. Even in

cases where loss prevention is integrated in agreements, a

pre-contractual one–off assessment of both tangible and

intangible features of organizations and project plans is the

typical procedure (Brown and Savage 1996). Post-contrac-

tual interaction between the insurers and the insured is

restricted to recommendations and has limited impact on

sanctions, unless through this interaction a deviation from

initial conditions is revealed, which could be interpreted, if

not as a deliberate breach of contract, as a result of negli-

gence. Technically, negligence could be countered with tort

law. But any explicit threat to mobilize tort law, though

useful in cases where litigation can be regarded as

unavoidable, is not the optimal means to establish produc-

tive relationships of trust between insurers and insured, and

disruption of trust is not the best way to influence the

organizational ethics of the insured.

This is a problem that regulators also have. As observed

by the authors of the report on the Deepwater Horizon

explosion, prepared for the President of the United States,

regulators have great difficulty in understanding the spe-

cifics of techno-organizational ventures and in restricting

industry pressure towards the relaxation of measures of loss

prevention (US National Commission on the BP Deepwater

Horizon Oil Spill and Offshore Drilling 2011).6 Further-

more, regulation, as has been variously discussed, more

often than not undermines trust between firms and authori-

ties, and thus cannot facilitate the development of moral

potentials which can lead to improved organizational con-

ditions of risk management (King 2010). What we mostly

see are not common committees where solutions are

invented and compromises crafted, but rather mutual accu-

sations which end up in sanctions initiated by the state and,

on the other side, in innovations towards evading regulations

by various industries, or even worse corruption. It seems that

the tendencies toward segregation between the world of

regulators and the world of the regulated can undermine

ongoing trust relations, and further reduce the effectiveness

of informal mechanisms of cooperation (Cook and Gerbasi

2009, p. 226). What seems to be lacking is the ethical ground

of common understanding between businesses taking risks

and state or private organizations dedicated to oversight

towards the minimization of risks. This perspective leads to

the view that it is less relevant than mostly believed to put

emphasis exclusively on conventionally approached legal or

regulatory issues. This is not an argument for abandoning the

idea of regulation, or abandoning contractual provisions

implying sanctions in cases of inter-firm relationships;

rather it is an argument for responsive parallel mechanisms

which could be enhanced by the institutional role of certain

features of insurance contracts. The presumption is that

ethical potentials that can lead to sound operational risk

management, often difficult to facilitate with regulation,

could alternatively be facilitated through the influence that

insurers may exert on the insured. More specifically, the

question is whether the quality of operations resulting in

mitigation of operational risks can be positively influenced,

not only by the features of insurance contracts but also by the

informal network relationships within and between busi-

nesses and insurers that the implementation of the contracts

may imply. These network relationships could facilitate

cooperation and reduce opportunism resulting in reckless

conduct (Macaulay 1963; Aviram 2003).

Any further search for an alternative role of insurance

relationships on the ground of procedural ethics would

require a closer look at the problem of compliance which is

related to the litigational aspects of both regulation and

insurance. Although insurance can be imposed by law on

certain activities,7 it is not compliance bound to sanctions

that should capture our attention. It seems that it is not the

attribution of guilt or sanctions, but rather the sponsoring of

esteem to organizational actors (and reducing the sense of

the risk of not getting esteem both by peers and superiors)

that enables the exploitation of skills and human potentials

towards operational efficiency and risk mitigation (Sayer

2008; Gotsis and Kortezi 2010). The problem is not how

one could improve risk management conditions in complex

techno-organizational ventures through external influences

implying sanctions, but rather through the mobilization of

ethical potentials, the exploitation of which could lead to a

higher quality of the procedural dimensions of techno-

organizational operations. Exploiting the moral potentials

in organizations or creating a common understanding

between those who invent the rationale of regulations and

those who are expected to comply can be more effective.8

6 Similar conclusions have been presented by the committee of the UK

House of Commons that investigated the Deepwater Horizon explosion

(House of Commons Energy and Climate Change Committee 2011).

7 Insurance can be related in a similar way as regulation with the

legal and more generally with the normative environment of

organizations (Edelman and Suchman 1997).8 This discursive and further cultural effect does not apply solely to

insurance but to regulators as well (Ericson et al. 2003, p. 139). As the

contribution in a book on organizations and risk management edited

by Czarniawska (2010) shows effective organizational risk manage-

ment relies to a great extent on cultural and ethical codes which allow

productive improvisation, and not on ritualistic compliance with

prescriptions. In this sense, informal but institutionalized aspects can

be more important than formal aspects of organizations and of

regulation, respectively. Insurance coverage, in accordance to this

view would be more effective if grounded on interplay of formal and

in informal aspects of contractual pressures.

A.-A. Kyrtsis

123

Insurers do not exploit skills available in their organiza-

tions and much less do they expand their capabilities in the

field of organizational screening, monitoring, and facili-

tating of procedures. The difficulty in coping with back-

ground risk is often a strong reason to avoid this. Coupling

effects and unintended consequences can create back-

ground risk. According to Heimer (1989, p. 3), reactive

risks emerge once behavior is adjusted to the perception of

previously taken decisions with implications for the

involved actors. But as Heimer (1989, p. 3) further points

out, actors seek to transform reactive risks into fixed risks.

Therefore, for both the insurer and the insured, reactive

risks pose not only decision problems but also strategic

problems. But what is most significant regarding the

institutional impact of managing reactive risk is that the

manipulation of contracts implies monitoring and renego-

tiation (Heimer 1989, p. 195) which both sides tend to

avoid. The securitization of insurance policies as a way to

manage financial risks, in other words managing insurers’

risks with financial technologies, is another reason for

counterincentives for the development of policies with

focus on organizational processes (Schlesinger 2000;

Cummins and Trainar 2009; Munich Re 2010).

Also the shaping of insurers’ mindsets, which are influ-

enced by mainstream theoretical approaches, narrows the

cognitive ground of orientation towards an institutional role

of insurers as enablers of relational aspects of contracts

based on the exploitation of procedural ethics. Most of the

arguments shaping insurance practices are related to moral

hazard and opportunism. The theory of insurance revolves

around the problem of moral hazard which might influence

the insured and threaten the insurer’s portfolio (more fre-

quently discussed by economists) and around the problem

of the opportunism of the insurers denying or delaying

payment of claims (more frequently discussed by lawyers

interested in cases of bad faith) (Schwartz 2008; Feinman

2009). The dominant approaches on insurance as an

instance creating incentives for moral hazard influencing

corporate actors originate in mainstream economics.

Economists following the post-Modigliani–Miller stream of

thought on the valuation of firms have not solely zoomed in

on issues of conventional financial hedging, but on insur-

ance and its impact on business and organizational practices

as well (Sprcic et al. 2008). Not unexpectedly, most of these

publications, by concentrating on potential moral hazard,

tend to adopt a pessimistic view concerning the impact

of insurance on managerial practices.9 However, several

economists stress the importance of screening and moni-

toring of organizational processes by the insurer as a

countermeasure to underinvestment in loss prevention. This

latter group is thus paving the way to a more thorough

discussion of the probable positive influence of insurance

on managerial practices.10 These more open approaches

remain, nevertheless, captured in perspectives defined by

variables related to the imperfections of insurance markets

and thus do not take into consideration internal corporate

dynamics. One of the consequences of this is the adoption of

a black-box view by both the insured and the insurer, as if

the internal social and organizational dynamics of compa-

nies on both sides did not matter. Exceptions can be found

in the case of managerial (director’s and officer’s) liability

insurance theory (Baker and Griffiths 2007).11 But even

there, issues of monitoring are predominantly oriented to

financial and not organizational audit, and this is in spite of

references to issues of corporate governance. The potential

of expanding D&O insurance theory into organizational

theory must be regarded as evident. Noel O’Sullivan (1997)

for instance, points out that especially for larger enterprises,

D&O insurers assume critical governance roles, and thus

provide an external source of monitoring for the firm’s

managers that cannot be easily enacted by managers or

boards internal to the organization. Apparently insurers

monitor the directors and the officers for which policies

have been issued. This is one of the known cases where

insurers try to have a direct impact on corporate governance

and managerial efficiency. They have strong incentives to

do so, and it is expected of them by the purchasers of such

policies who belong to the top management or represent

shareholders. The question here is whether actuarial prac-

tices could switch from constraining norms into enabling

norms, and thus towards trust facilitating the exploitation of

moral potentials. Heimer (1989) or Ericson and Doyle

9 According to the main thesis in this literature, the insured can have

strong incentives to be negligent, to say the least, although this can

vary depending on a number of conditions (Baker and Griffith 2007).

For a sociological account, see Heimer (1989). Ericson and Doyle

(2003) draw attention to the transformation of moral communities

into instrumental communities in which the prevalent cognitive and

Footnote 9 continued

emotional framing stand in the way of cultivating a high-standard risk

management culture.10 The main bulk of this work is driven by financial economics and

highlights liquidity and transaction-cost issues. According to this line of

argumentation, risk-averse approaches to long-term debt, combined

with a need for short-term liquidity, reduces the demand for insurance

significantly unless insurance is viewed as a form of finance reducing

the transaction costs of bankruptcy due to various causes related to risk

exposure (Michel-Kerjan and Kousky 2010; Mayers and Smith 1982;

Greenwald and Stiglitz 1990, 1993). In some approaches the divergence

of interests between corporate shareholders and bondholders appear as

the determining factor not only of demand but also of impact. Also

aspects of the screening and monitoring of the insured appear in this

context as the result of the interplay of expression of interests between

bondholders and shareholders (Holderness 1990; Mayers and Smith

1982, 1987; MacMinn and Garven 2000; Brown 2003).11 Baker and Griffith (2007) provide reasons for directors’ and

officers’ liability insurers (D&O insurers) to serve as corporate

governance monitors.

Insurance of Techno-Organizational Ventures

123

(2003a, b, 2004), who adopt a subtler approach, stress the

importance of insurance for the institutionalization of

organizational risk objects.12 Unfortunately, they do not

expand the discussion into organizational issues regarding

the quality of operations and their dependence on ethical

behavior enabling procedural rationality.13 But they discuss

aspects related to the shift in the framing of mindsets.

Insurance creates both representational framing and nor-

mative pressures that transform, in the minds of actors,

high-risk objects into low-risk objects.14

The question is not how such representations can lead to

the design of measures in abstract terms, and then imposed

upon organizations, but rather whether we can induce pro-

cesses which facilitate the emergence of an institutional

ground of common interest for the mitigation of techno-

organizational risks embracing complexly organized tech-

nology-intensive businesses and insurers. The required

institutional shifts can emerge from the settlement of

manifest conflicts, through novel forms of the institution-

alization of compromises. Without a certain degree of

manifestation of conflicts, resulting from crises, it is

extremely difficult to discover the potentials for alternative

practices and their worth for practical solutions that would

combine contractual provisions with improved conditions

of procedural ethics. In this sense, the investigation of

techno-organizational crises can be utterly valuable for

spotting latent sources of change potentially leading to the

exploitation of procedural ethics for risk management. In

the case discussed here, namely the Deepwater Horizon

explosion, the way awareness of the causes of disaster has

been communicated points to a connection between pro-

cedural ethics and insurance, which was regarded as irrel-

evant as long as no problem was within horizon, but which

became a central feature of the disputes over liabilities.

Techno-organizational Failure

If the story of the Deepwater Horizon explosion is not pre-

sented from the perspective of a regulatory failure—as has

been tried by many academic, political, economic, and legal

commentators—but from the perspective of an ethical

failure, for which lack of appropriate relationships between

businesses and insurers played a contributing role, the nar-

rative should focus on the less obvious facets. It makes sense

to search for traces of mechanisms that hindered the exploi-

tation of skills related to procedural ethics due to the lack or to

inappropriate insurance coverage. Threads to these traces

reveal less visible aspects of the institutional role of the

insurance industry. It is worth a reminder that the empirical

question is whether a different operational culture, facilitated

by appropriate insurance policies, could have contributed to

the avoidance of the Deepwater Horizon explosion.

According to the New York Times, Joseph Bryant, a man

with long experience in running BP’s operations, was cate-

gorical when asked to express his opinion about the Macondo

well-drilling project, which required both high-standard

expertise and novel solutions: ‘‘…it’s a combination of

intentions, equipment and judgment that keeps accidents out

of the workplace … If you are going to ask people to inno-

vate, you’d better make sure that they know that any risks

they take are manageable’’ (Lyall 2010). But what if they

know, and they do not come forward, or they do come for-

ward and others do not listen? Judgment as the prerequisite of

the manageability of complex techno-organizational risks

depends on the communication of intellectual and practical

contributions to decisions, and this requires the sponsoring of

esteem to the ones who can raise their voice in intra-orga-

nizational communication (Hallgren and Maaninen-Olsson

2005; Doorn 2010). In the Gulf of Mexico many informed

observers had been witnesses of risky practices, many had

noticed violations of industry standards, or, and this is cru-

cial, they were aware of the urgent need to improve industry

standards because teams encountered unprecedented con-

ditions in deepwater drilling. Yet most opinions in this

direction did not come across. And when cost considerations

were dictating decisions, risk aversion was regarded as out of

place. To use Vaughan’s (1996) expression, the amoral

calculator was set in operation. The concept of the amoral

calculator refers to the aspects of organizational misconduct

originating from calculated managerial risk-taking, implied

predominantly by reckoning cost-benefit implications.

Going into too many technical details will not necessarily

contribute to lucidity. However, we cannot avoid picking up

a few stories that might help to illustrate the argument. For

instance, when the drilling processes reached about 18,000

feet under the sea floor, BP decided to install a long one-

piece riser connecting the cap of the well at sea floor level

with the production platform which would replace the dril-

ling rig. As experts have proposed, the safest way would

have been to have a modular, and not a one-piece device that

would prevent a direct flow of gas to the surface. The

awareness of risks was there, but the additional costs of

about $7-10 million could not be budgeted. This critical

device was the blowout preventer (BOP), a device placed at

12 Risk objects as defined by Power (2007, p. 25) are ‘‘… essentially

ideas about harm with implicit causality and may become the focus of

‘socio-technical’ networks understood as ‘seamless webs’ of elements

and actors engaged in strategies for institutionalizing or de-institu-

tionalizing particular objects of knowledge.’’13 On the concept of procedural rationality: see Frey et al. (2004) and

Le Menestrel et al. (2002).14 As Heimer (1989, p. 195) points out, this can be achieved on the

basis of trust within communities of faith between policy holders and

insurers: ‘‘By forcing the policyholder to share losses and by making

the rate contingent on participating in loss-prevention programs, for

example, the insurer offers an incentive to keep loss down’’.

A.-A. Kyrtsis

123

the bottom of the riser (the pipeline which brings oil and gas

from the well to the platform at the surface of the ocean).

BOPs were, according to executives involved in the project,

supposed never to fail (US House of Representatives 2010;

Broder 2010). But contrary to assurances by non-operative

managers, engineers knew that it was not wise to have the

Deepwater Horizon’s BOP with just one blind shear ram (the

function of which was to block the sudden upwards flow of

gases) when other rigs were already beginning to use two of

them to guard against just this possibility in case of technical

failure (Barstow et al. 2010). This was vital at the moment

gas and oil started prematurely to flow upwards due to

technical failure, and because it found an ignition source it

created the catastrophic explosion (Casselman and Gold

2010). In another case, the willingness to speed up the pro-

ject led to violation of standards concerning the cementing

of the well. The decision was made to go over to the next

phase without checking the stability of the construction. As

it was reported, at this stage, a few days before the explosion,

engineers working on site expressed the view that this well

was a nightmare (Neu Zurcher Zeitung 2010). It would have

been very strange if what was made aware to the press was

not pronounced within the organization. Apparently, such

views were circulating among the staff of the involved

companies. But they were presumably not as effective as one

might expect. For instance, in an April 18 report to BP,

Halliburton warned that if BP did not use more centering

devices, the well would very probably have a severe gas flow

problem (Casselman and Gold 2010). Still, it was decided to

reduce the number of the devices that Halliburton recom-

mended, with the result that 6 instead of 21 were installed, to

accelerate the pace of the work (McNulty 2010).

Those who are not insiders to the oil industry tend to

believe that BP could internalize most of the functions

related to the drilling and to the operations of production

platforms. This was more the case in previous years when

subcontracting or outsourcing was less a need because of a

different operational and business model of this oil giant.

But since the late 1990s the company has been revolution-

ized in its organizational model. These changes led to a

planned shift away from small projects and engineering

capabilities and towards externalizing skills and capabilities

through the management of projects relying extensively on

subcontracting and outsourcing. Assigning managers to

tough profit targets rather than to improving capabilities in

the management of operationally and technologically tough

projects gradually created a culture that resembled more that

of financial organizations. The portfolio aspects—the

financial profile of ventures and projects—were attracting

much more attention than the techno-organizational spe-

cifics. This detachment of accounting representations from

techno-organizational representations facilitated also the

rotation of managers among projects, a practice that

separated project leadership from techno-organizational

responsibilities—with consequences stretching beyond

short-term planning (Lyall 2010; Urbina 2010a). In order to

realize this project, BP, the main owner of the Macondo

well, leased the Deepwater Horizon drilling rig owned by

the Swiss-based company Transocean. The partner second

in importance in this venture was Texas-based Halliburton,

the world’s second largest provider of oil field services, who

were mainly responsible for cementing the well. Finally

Cameron, also a Texas-based company, was the constructor

of the BOP, the safety device placed on top of the hole of the

well at seafloor level, which failed to activate on the day of

the explosion. Many other companies have been involved,

like Schlumberger, a Houston- and Paris-based leading

provider of services for well site operations, but these other

companies, in spite of their decisive role, had to execute

specific tasks for which they were commissioned on a short-

term basis and thus cannot be regarded as part of the con-

sortium. But they were part of the project and even if they

were demonstrating the best of intentions and an impeccable

performance, their mere presence in the project contributed

to complexities of co-ordination.

Reflexively negotiated and then set rules on how one

should work and on how one should manage projects can

be crucial. Rules are relevant neither simply for disciplin-

ing personnel nor for ritualistic reasons. They can render

organizations more efficient whenever they contribute to

the visibility of the configurations of actions and resources.

Uttering rationales by creatively reflecting on standards of

good practice and by drawing on the ‘‘know-what’’ and on

the ‘‘know-how’’ of identifiable and accountable individ-

uals can be of decisive significance in this respect. This

does not exclude deviations from standards. But if devia-

tions occur under such conditions of explicit reference to

good practices, they are not adopted light-heartedly (Power

2007). Struggling with a normative framework remains a

key aspect of practical reflexivity. In this sense, procedural

ethics produces results through the orientation of actors to

hypothetical contracts, which, even if they cannot be per-

fectly implemented, produce the relevant guidelines.15 The

15 For a similar view associated with risk management see Power

2007. From a philosophical perspective procedural ethics can be

regarded as a form of restricted utilitarianism. In restricted utilitari-

anism (Smart 1967, pp. 171–172), actions are not tested and judged by

their consequences, but by the rule they fall under; rules and not actions

are judged on the consequences. The moral relevance of the rule can be

decided by considering the consequences of adopting the rule (Smart

1967, p. 172). As Smart (1967, p. 172) further stresses, the only cases

we are justified in being driven back to extreme utilitarianism is when

there are two different conflicting rules for an action, or there is no rule.

Procedural ethics is a variation of restricted utilitarianism, in the sense

that through it the general rule is set that actors should commit

themselves to reflecting not only on what they do or should do but also

commit themselves to reflecting on how they should do it.

Insurance of Techno-Organizational Ventures

123

imperative is that actors should be reflective practitioners

(in the sense of Schon 1983) who match anticipated con-

sequences of action with the procedures which must be

followed to succeed in the planned or expected outcomes.

As already stressed, imagining what has to be done,

without imagining how this should be done, implies that

the danger of counterproductive ethical deficiencies looms

large. Apparently, as Muir Wood (2004) has observed, in

various complex techno-organizational projects the incen-

tive structure for procedural courage is wrong due to eth-

ical deficiencies. It seems that the majority of people are

not behaving responsibly primarily not because of pecu-

niary incentives, but rather because of the need to preserve

their identities as a result of the judgment of peers and

immediate superiors (Levin 2003). People with strong

professional identities seek to reproduce their professional

pride by doing the right thing according to certain appre-

hensions of professional standards. This can be obstructed

by amoral calculators or by mindscape-related (or episte-

mic, as many would say) inflexibilities. But it can also be

obstructed by disesteeming people who find it very risky to

express in an outright manner their professional opinions,

or who are under pressure to distort these opinions.

In this respect, views which can be found in the report

issued by BP on the Deepwater Horizon explosion is

revealing for attempts to disconnect rules from responsi-

bilities of identifiable actions through ‘‘objectification’’:

‘‘The team [that prepared the Investigation Report] did not

identify any single action or inaction that caused the

accident. Rather, a complex and interlinked series of

mechanical failures, human judgments, engineering design,

operational implementation and team interfaces came

together to allow the initiation and escalation of the acci-

dent. Multiple companies, work teams and circumstances

were involved over time’’ (BP 2010, p. 11). Asserting that

it is in the nature of techno-organizational processes to

make everyone irresponsible erases the meaning of lead-

ership and its role for reflexive rule-setting and for shaping

the organizational antecedents of decisions with devastat-

ing ethical consequences (for similar arguments see: Sims

and Brinkman 2002; also Thamhain 2004). A different

approach to this report by BP would be to regard the views

expressed as deriving from top-management perspectives.

Top managers often have difficulties in connecting macro-

with micro-management and thus associate risks with the

specifics of the procedural aspects of operations. Their risk

perception is driven by professional identities and interests

which differ from identities and interests of those directly

responsible for specific operations and projects. Further, as

the life cycle of top executive posts is much shorter than

the life cycle of careers in operational jobs, they do not

tend to hold themselves responsible for long- or medium-

term organizational consequences of their decisions, but

only for the short-term consequences. This significantly

influences their risk consciousness and the manner in which

they communicate their perception of risks.

Risk consciousness and consequent risk communication

are factors which influence ethical codes and subsequent

moral conduct (Ericson and Doyle 2003a, b, p. 3). Ericson

and Doyle (2003a, b, p. 16) stress, with reference to Mary

Douglas, that this can be strongly related to the expression

of interests. Procedural ethics comes from the interests, and

from the risk consciousness filtered from interests, of

experts, reflective practitioners, and skilled operators who

are not solely exploiting global knowledge, but who also

have developed local and tacit forms of knowledge with

operational relevance for the organization. Contrary to this,

top managers’ intellectual resources draw for the most part

from generalized knowledge exploited in the framework

of black-box representations of organizational realities.

Immorality is thus to a great extent related not only to the

content of plans and to the strategic conduct driving actions

but also to representations related to interests which frame

minds. From the point of view of procedural ethics, top

management’s potential unethical conduct can go hand

in hand with the avoidance of defining risk objects in

connection to visible topologies of organizational social

networks in which identifiable actors take concrete

responsibilities. It results from a certain lack of willingness

to see in concrete processes and mechanisms the most

probable causes of both success and failure. In terms of

human resources management, the roots of a plethora of

counter-productive actions and of hazardous incidents can

be found in processes of disesteeming of those who seek to

make their operational responsibilities and their procedural

rationales visible.

Failure, Conflict, and Scandal

The fact that there was a latent discontent for ethical

deficiencies became apparent when most of the involved

had to express regret for the consequences of their conduct.

Regret and blame were parallel expressions originating

both in sentiments and in strategic considerations. The

mechanisms of blame drove the involved actors into a

readiness to display their perception of the origins of

hazardous deeds. But they regretted not having controlled

others who were held responsible for misconduct. Allega-

tions intensified within a few days after the explosion,

when the appearance of harmony among the partners was

gone. As long as everything was running according to plan,

the operations at the Macondo well were visible to the

external observer from the perspective of business and

technological normality—one could also add from the

perspective of regulatory compliance. Not everything was

A.-A. Kyrtsis

123

considered as running smoothly, but grievances and

objections by engineers were viewed from external

observers as a technical subject matter, which should pre-

occupy engineering experts. Concerns were not necessarily

traced back to managerial or regulatory failures. There

were also no indications from public reports showing that

insurers were in any sense alarmed. And of course there

was no discussion about a failure of the insurance industry.

However, after the incident occurred, what was going on at

the Macondo well started becoming visible from a different

perspective.

The fact that so many people were affected by the oil

spill, and the political dimensions brought into the dis-

cussion because of the role and questionable effectiveness

of responsible authorities, ranging from regulators to the

US Coast Guard and the US Federal Government, created

an atmosphere of scandal. Techno-organizational prob-

lems, which initially interested a rather closed circle

comprising predominantly experts and investors in the oil

industry, became part of a public issue. Through the widely

publicized process of hearings in the investigation com-

mittees, technical details overwhelmed common talk.

Words like ‘‘drilling rig’’ and ‘‘blowout preventer’’ sud-

denly appeared in the vocabulary of the wider public.

Publicity also made visible the hidden discursive impact of

insurance and of the intense battles between companies

regarding liability with severe financial implications

(Urbina 2010b).16 An intriguing aspect of the atmosphere

of scandal that followed the Deepwater Horizon explosion

is that what many observers considered as misrepresented

and concealed was the role of the operations managers and

of the technical staff. Misrepresenting and concealing the

significance of these roles is an inherent aspect of power

relationships in the organizations. But when it comes to

operational failures, blame processes provoke reactions

which then reveal the hidden aspects of the techno-orga-

nizational life of the enterprises and the dynamics between

operative staff or engineers, on the one hand, and non-

operative managers on the other. Inter-organizational

relationships are also crucial in this respect. Opportunism

in business, as already pointed out, can be dictated by

apprehensions of financial rationality. But in this case,

because of the rapidly developing conflict and the com-

plexity of the subject matter, it was by no means possible to

work out sophisticated financial strategies. It must be noted

that it was very quickly after the incident that statements

and opinions were publicized. Most of the immediate

reactions appeared to be related to problems of public

image for the involved organizations, rather than to elab-

orate calculations—and this was obvious especially in the

hearings in US Congress committees. Further, and this was

apparent from the content and the wording, the anxiety of

being held responsible for managerial failure was released

in a rather erratic manner. This can be seen from the fact

that the arguments were not formal and calculated as if

they would have been if formulated by legal advisers, but

were too close to fragmentary references to operational

details. There was a touch of indignation, and a climate of

emotionality, which does not usually belong to the world of

CEOs and CFOs. There was something moralizing in the

air, a blame structure based on allegations addressed at

people who were held responsible for not knowing how to

do their jobs.

The main conflict that erupted was between BP and

Transocean. Companies of the insurance industry were key

players in this. In order to understand this, we must have a

quick look at the insurance coverage of the four main

partners. BP was almost completely self-insured through its

own company, Jupiter Insurance. Jupiter was, according to

BP’s own statements, not reinsured. But even if it was, the

level of coverage implied with near certainty that BP would

have to pay for much of the damage from its own accounts,

unless the company could shift responsibilities to its part-

ners (Crooks 2010; Jones and Pfeifer 2010; Mackowsky

et al. 2010). Insurance coverage of the partners was thus

crucial also for this reason. Transocean was directly

insured, with Lloyd’s of London being its primary insurer

covering mainly damage and loss related to the Deepwater

Horizon. Halliburton had $600 million general liability

coverage. Cameron, the manufacturer of the BOP, had

according to various press reports, third-party liability

coverage of approximately the same level as Halliburton.

Additional coverage issues involving liabilities were rela-

ted to business disruption or interruption (for instance,

Deepwater Horizon which cost about $400 million to build

was leased by BP for $500,000 per day). This configuration

was crucial on the morning of April 21, 2010, the day

following the incident. All partners of the consortium

realized that it was unlikely to fully escape responsibility

for the oil spill caused by the leaking well after the

explosion. But their mere involvement in the project, which

ended up in disaster, would not create the sole ground for

liabilities. The distribution of liabilities would also depend

on evidence about the degree of violation of techno-orga-

nizational standards. The latter would mean that identifi-

able groups and members of staff of the participating

organizations were not doing their job. This can, however,

mean different things: was it a problem of compliance to

rules, or was it a problem of professional ethics of people

who had to reflectively match procedures with the sub-

stantial dimensions of organizational targets?

16 Pressure was also created from expected rise of liability insurance

premiums forecasted by rating agencies like Moody’s and investment

bankers like Morgan Stanley (Kollewe 2010).

Insurance of Techno-Organizational Ventures

123

Avoidance of operational effort and of sound exploita-

tion of engineering competences, but misrepresentation and

concealment as well, started being regarded as crucial in

this respect. Especially for the litigation involving insurers,

the attribution of technical and organizational responsibil-

ities was of decisive importance (Muir-Wood 2010). For

instance, concerning Halliburton’s responsibilities, the

quality of the cementing of the well was crucial. According

to studies by the US Government Minerals Management

Service, cementing was found to be the main cause of

blowouts during drilling projects or later during production

processes (Izon et al. 2007). BP blamed this partner for

deficient work (Casselman and Gold 2010). Halliburton

had to prove that the cementing was up to standard, and

that the application of the standards, both in terms of

materials used and in terms of processes of construction,

were apt for the special conditions at the Macondo well. If

any deviations could be observed, the company would have

been under pressure to prove that this happened because of

techno-organizational interference and physical conditions

lying beyond its power. In this line of defense Halliburton

tried to shift engineering responsibilities to BP. The argu-

ments in this respect were managerial, not technical. Ref-

erences to command structures and to command power, as

well as to responsibilities implied by hierarchical aspects of

coordination brought also an ethical dimension into the

discussion. But BP was not ready to accept all responsi-

bility and this was made apparent also in disputes with

other companies of the consortium, as in the case of

Transocean (Pfeifer and McNulty 2011). Transocean

executives, in turn, blamed faulty decision-making by BP

and hit back, arguing that BP attempted to conceal the

critical factor that set the stage for the Macondo incident,

namely fatally flawed well design and project management

due to a series of cost-saving decisions that severely

increased risk. This was a conflict which placed BP on the

side of a project management company impregnated by the

mentality of the ‘amoral calculator’ and Transocean on the

side of an engineering company dedicated to technological

professionalism. BP also took recourse to the subject

matter of a report they had produced 9 months before the

incident, referring to technical deficiencies at the drilling

rig (Brown 2010a). This report validated the divide just

mentioned and shows that engineering competences were

not only outsourced but externally managed as well;

however it also raised the question: What kind of concrete

measures had BP implemented in the nine months that

elapsed? The issue was taken up by a company being

partner to BP not a very long time ago. Transocean, the

owner of Deepwater Horizon, replied with allegations for

misrepresentation and concealment. They accused BP of

withholding valuable documents which might have pre-

sented different facets of realities of the project (Pfeifer and

McNulty 2010). But Transocean executives also blamed

Halliburton for sloppy well cementing. Halliburton claimed

they were only following BP’s orders and specifications

(Pfeifer et al. 2010; Unruh 2010). Such issues extend to the

whole of the consortium and created a diverse landscape of

arguments and blame.17 The arguments shifted increas-

ingly towards substantive issues and ended up in saying

that the organizations that had to bear responsibility did not

respect the skills and expertise of their staff. Only few

arguments refer to defective materials, unless they had to

be prepared on site, which makes them dependent again

upon project dynamics. This was the case with the alle-

gations of BP (and perhaps of Transocean) against Cam-

eron, but this was not easy to sustain. Transocean had

owned the BOP for 10 years and had never raised any

doubts about its reliability.

The insurance issues behind the allegations were in

many cases made apparent through direct references. One

of these was the conversion of the conflict between BP and

Transocean into a conflict between BP and Lloyd’s of

London (Pagnamenta 2010). As Bloomberg and Reuters

reported on 24 and 25 May 2010 respectively, BP wanted

to make use of the coverage of other partners’ insurance,

like Transocean. Lloyd’s of London, Transocean’s insurer,

asked a US federal court to block a claim by oil company

BP seeking damages against its Deepwater Horizon partner

on the grounds that Transocean’s contract with the petro-

leum company only makes it liable for damage caused

from the rig and not from the well, owned mainly by BP

(Brubaker Calkins and Cronin Fisk 2010). The severity of

liabilities has further created insurance related conflicts

among the owners of the well. BP (owning 65%) has also

tried to bill its co-owners of the Macondo well and

respectively of the venture, Anadarko Petroleum which

owns 25% and a Mitsui 10%. But only BP, as the principal

partner, and thus principal operator, made the critical

decisions on how to drill the well. It is very interesting in

this respect that because of the claims hitting the co-own-

ers, but who were not co-operators, the partners wanted to

be made free of operational responsibility. The words of

Jim Hackett, Anadarko’s CEO, are characteristic: ‘‘we are

shocked by the publicly available information that has been

disclosed in recent investigations and during this week’s

testimony,’’ he said. ‘‘The mounting evidence clearly

demonstrates that this tragedy was preventable and the

direct result of BP’s reckless decisions and actions.’’ And

17 In hindsight, the issue of the distribution of liabilities was also

connected to issues regarding risk disequilibria. As Ed Crooks reports

in the Financial Times (1 February 2011), ‘‘Ceres [the investor

network that works on environmental and social issues] argues that

the whole oil industry has an interest in raising the standards of the

weakest, because the consequences of an accident can damage

companies that have not made any mistakes.’’

A.-A. Kyrtsis

123

in another statement by the same company we can read the

following: ‘‘BP is responsible to its co-owners for damages

caused by its gross negligence or willful misconduct.’’.

Anadarko’s CEO’s words in another passage of the same

statement can be regarded as a reference to the lack of

procedural ethics of those who disesteemed the operating

staff who could have told how things should be done:

‘‘failures in the drilling of this well are not a reflection of

the many tremendously skilled and committed individuals

in our industry’’ (Kraus 2010; see also Nevius 2010; Muir-

Wood 2010). The question is of course why this CEO did

not know anything about what was going on at the oper-

ational level and had to wait until the liability and insur-

ance issues became pressing. Moreover, it is crucial to ask

here the question of why insurers, and further their rein-

surers, did not bother about these issues of procedural

ethics which had devastating consequences also for their

portfolios.

Concluding Remarks

What are the lessons learnt from the Deepwater Horizon

explosion concerning the relationship between procedural

ethics and insurance of techno-organizational ventures?

The argument was that complex techno-organizational

ventures, set up in unstable physical environments and

under fluid inter-organizational conditions, if they are not

to be exposed to excessive risks, require, as a necessary and

of course not as a sufficient condition, a substantial culti-

vation of procedural ethics. The stories presented here

point to an ethical problem with functional implications for

organizations; they point also to an ethical challenge for

insurers. This challenge was not made visible in all aspects

of the insurance problems which emerged from the acci-

dent. There have been situations where the avoidance of

indemnification by insurers was based on legal arguments

regarding the character of ownership. Such was the case

with the conversion of the conflict between BP and

Transocean into a conflict between BP and Lloyd’s of

London. The reader may recall that Lloyd’s of London,

Transocean’s insurer, asked a US federal court to block a

claim by BP seeking damages against its Deepwater

Horizon partner on the grounds that Transocean’s contract

with the petroleum company only makes it liable for

damage caused from the rig, and not from the well, owned

mainly by BP. But in other cases, even courts of justice

were indirectly called upon to make decisions on the basis

of substantial arguments related to standards regarding

procedural ethics. Reference to negligence as an aspect of

tort-law driven litigation (as discussed by Posner and

Sunstein 2005; Ripstein 2001; Russell 2007) may have

played a role in this case. But there is also a communicative

aspect of this emphasis on procedural ethics. Image-mak-

ing through offensive or defensive signaling can be crucial

for shareholder value or for the competitiveness of a cor-

poration. It is thus not surprising that the communication of

blame was linked to issues of operational efficiency and

procedural ethics, which were set out in order to influence

public opinion. Arguments pointing to procedural ethics

were considered as highly instrumental in shifting

responsibilities to the ones who were to be held the main

responsible for the operations, and thus for the operational

failures. Insurance issues have also played a role in the

disputes provoked by the scandal following the accident.

The character of insurance contracts, the lack thereof, and

more generally the relationships between insurers and

insured, and the impact of the latter on procedural ethics,

seem to have played a significant role in the shaping of the

climate in which managerial and engineering practices

were made public. Those who wanted to shift liabilities

took recourse to numerous accounts, showing that people

involved in this particular techno-organizational venture in

the Gulf of Mexico had sent warning signals long before

the sequence of incidents which led to the explosion

occurred (Brown 2010b). They pointed out that these early

expressions of concern which varied in their intensity

between individuals, often depending on which organiza-

tions among the ones involved in the project, or which

organizational sub-units, they belonged to, had been mas-

sively concealed. Risk appetite induced by the business

objectives of the organizations appeared as a crucial factor

influencing the diversity in the intensity of the expression

of concerns and in the awareness of the potential impact on

operational decision-making. But after the accident had

occurred, even those who had failed to adopt appropriate

action were pointing to latent ethical potentials which

might have led to alternative scenarios of action in the

organizations they were cooperating with, but to which

they wanted now to shift responsibility.

This line of defense (or attack) was clearly and exces-

sively exposing the organizations involved to the recogni-

tion that the procedural character of their omissions was the

crucial issue. As we have seen, all partner companies of the

consortium realized that it was unlikely to fully escape

responsibility for the oil spill caused by the leaking well

after the explosion, and that the distribution of liabilities

would also depend on evidence in the degree of violation of

techno-organizational standards. As stated, especially for

the litigation involving insurers, the attribution of technical

and organizational responsibilities was of decisive impor-

tance. In this line of defense, Halliburton tried to shift

engineering responsibilities, which BP was not ready to

accept. BP wanted to be released of managerial responsi-

bilities, which might have subsequently forced acceptance

of liabilities. It tried to shift a great part of these

Insurance of Techno-Organizational Ventures

123

responsibilities to the owner of the drilling rig, Transocean.

Transocean executives, in turn, blamed faulty decision-

making by BP and hit back, arguing that BP attempted

to conceal the critical factor that set the stage for the

Macondo incident, namely fatally flawed well design and

project management due to a series of cost-saving deci-

sions that severely increased risk. They sought through this

line of argumentation to compete by trying to show that

because they were disesteemed by the leading partners of

the consortium, they should not be held responsible; the

ones who were disesteeming were supposed to be the real

culprits.

This must be regarded as a very treacherous line of

defense, since the argument can be easily reversed. One

could alternatively assert that firms and their managers

have been disesteemed because of lack of ethical alertness.

Procedural ethics is not compatible with the idea of the

Nuremberg argument, namely that one can be excused for a

failure because of forced, or blackmailed, acceptance of

command. The unsound argument, which would go against

any sense of professional ethics, would be that they had to,

because they were paid to act in the one or the other way.

In other words, because they were compensated, they had

to be procedurally unethical. Contrary to various simplified

views about how capitalism works, this is not indispens-

able. The case of Schlumberger we have referred to is the

proof for this. They were paid to do the tests, and when

both sides suspected that there would have been a conflict

of interest, they were forced to leave, and did not in

hindsight conceal this from the authorities, when asked.

If insurers allow the ones who defend their case on the

basis of forced unethical behavior to be driven arbitrarily

into operational misconduct, then they will have to justify

negligence which might lead to disasters, and subsequently

to claims. This would be a perfect inversion of the logic of

loss prevention. The costs of this for the insurers are well

visible, unless their intention is to opt for uninsurability in

all cases where hierarchical social and organizational net-

works imply problems of coordination entailing the risk of

disesteeming individuals and whole organizational units.

The words of the CEO of one of BP’s partner companies,

exposed in a previous section of this article, could be a

cautionary reminder for insurers who will have to care

about procedural ethics as part of loss prevention with

contractual sanctions integrated in underwriting and mon-

itoring practices, unless they want to see all complex

techno-organizational ventures outside of the insurance

markets because of uninsurability. It is worth repeating

these words: ‘‘We are shocked by the publicly available

information that has been disclosed in recent investigations

and during this week’s testimony … The mounting evi-

dence clearly demonstrates that this tragedy was prevent-

able and the direct result of BP’s reckless decisions and

actions … BP is responsible to its co-owners for damages

caused by its gross negligence or willful misconduct …failures in the drilling of this well are not a reflection of the

many tremendously skilled and committed individuals in

our industry’’ (Kraus 2010; Nevius 2010; Muir-Wood

2010).

These utterances are a real challenge for insurers

reflecting on innovations aiming at radically new forms of

relationships between the insurers and the insured compa-

nies exposed to high project risks. Many insurers would

perhaps prefer not to build a relationship with firms whose

CEOs would make such statements after a severe accident,

either because they did not care to know or because they

knew and did not act. Both misconducts are breaches of

procedural ethics. If insurers want to keep companies

involved in complex techno-organizational ventures in the

insurance market (i.e., if they do not want to declare high-

risk projects as uninsurable), and this without excessively

costly implications, they will have to do something about

this. They will have to think about insurance innovations in

the direction of combining care for procedural ethics (as

the basis of loss prevention), with provisions and obliga-

tions extending over time, as part of formal insurance

contracts. How contracts should be designed, is an issue of

insurance-product and services management, in which

experts from various disciplines should be involved. The

aim of this article was to stress the ethical components of

potential processes of contract design and insurance

innovations.

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