British Petroleum's Corporate Behavior Perhaps Parallels Employment Discrimination Study Findings

It's fascinating to watch British Petroleum go into overdrive as they spend more on public relations (including the manipulation of Google) than they have so far on reparations to people in the Gulf, let along spending as much on clean-up, etc.

Are we surprised? No. Not if we pay attention to the history of diversity and litigation for other big-time employers like Texaco. Several years back, the Texas Law Review published a research article by Michael Selmi, "The Price of Discrimination: The Nature of Class Action Employment Discrimination Litigation and Its Effects." From his study, several parallels could be drawn.

After building a database for his study using data from publicly traded companies on the NYSE, from 1991 to 2001,Selmi had this to say:

"For many years, it has been argued that the costs of employment discrimination lawsuits are devastating to corporations and should therefore be limited as as to reduce the harm the suits produce. Yet based on the data analyzed here, there is no indication that firms suffer a significant loss of shareholder value as a result of the filing of a lawsuit...firms often react quickly to reduce possible reputational damage that might arise from the lawsuits, and often do so effectively, and their swift actions may limit collateral damage from the suits."

It would seem imaginable that investors would not want to be associated with firms that discriminate, but Selmi says that is not the case. Most see such lawsuits as the "cost of doing business." (Interestingly, management is most concerned over the cost.)

Do the settlement costs affect any corporate change? Selmi says that business simply goes on. The culture rarely changes. But here's the catch. The people who make the real money are the lawyers and the diversity industry.

 "In many cases, it appears that employment discrimination litigation has become a private affair that is largely about money and public relations, and rarely concerned with implementing  broad institutional reform. It also seems that only those cases that include sensational allegations generally involving racial epithets or blatant discrimination, can capture national attention. Under these circumstances, it is possible that a company such as Denny's will seek to transform itself. However, these instances are infrequent, as is the prospect of corporate reform arising from private class action litigation...the cases are primarily about transfers of wealth, transfers that are often channeled to entities other than the parties to the suit. In any event, these transfers are to inconsequential to affect corporate balance sheets."

In today's environment, where true regulation has gone by the wayside and courts appear to be all that is left for demanding change, Selmi recommends that we should "...not rely on the litigation to eliminate or deter discrimination, but instead should see it in a more limited lights as a process of wealth transfers with a substantial public relations dimension that can occasionally lead to significant change, but only to the extent a firm finds that is is in its interest to reform its employment practices.

"In this respect, the litigation has become just another form of tort, which reflects our declining national commitment to eradicate discrimination--discrimination that, based on this study, remains a significant presence in the labor market."

Are we seeing a need for regulation to be strengthened? In employment discrimination laws? On Wall Street? Regarding our environment? It looks to me like Selmi's research presence has a place in these arenas, as well.