Wednesday, October 11, 2017
I recently watched the movie “Deepwater Horizon” and it was shocking! It was about the 2010 oil spill in the Gulf of Mexico caused by an explosion on a BP-controlled oil rig. Eleven people died in the incident and 3.19 million barrels of oil were released into the water. It is widely considered the largest marine oil spill in the history of the petroleum industry. BP has since paid $23 billion in fines and settlements. The movie painted BP managers in a very poor light, suggesting they were obsessed with profitability at the expense of safety.
As investors, we like highly profitable companies and management teams that are focused on improving efficiency. A reasonable question is whether the pursuit of profits and efficiency may result in larger problems down the road, including major safety issues. It’s our experience that the best companies are good corporate stewards as well. They tend to treat their customers, employees and the communities in which they operate well.
Air Products is a good example. It’s a company we recommended a few years ago because we believed new management could drive meaningful improvements to profitability. Their facilities, where they produce industrial gases such as oxygen, nitrogen, and hydrogen, also face safety risks such as toxic release or explosion.
In 2014, the then relatively new CEO, Seifi Ghasemi, set the following goal:
“Air Products will be the safest and the most profitable industrial gas company in the world, providing excellent service to our customers.”
It’s not every day that you see a company highlight safety alongside profitability in its key objectives. The company has delivered on both metrics. Operating margin has improved more than five percentage points to 21% over the last three years. During the same time period, safety metrics have shown steady improvement as well and the company has improved operational processes and driven positive cultural change.
Keeping employees safe is simply the right thing to do. But, in addition to that, creating a safe work place is good business. No company can guarantee complete safety – accidents will happen – but safety and profitability can go hand in hand. We will continue to seek companies that prioritize both.
Related Link: All-Stars of the Business World (2015 Annual Address)