Unwise Choices

One of my favorite truisms about management is the oft-repeated “Never second-guess the person on the ground” – meaning, don’t tell someone who was facing a crisis what they should have done; they were there and you weren’t, and while your choice might have been a better one, none of us will ever know for sure. What people seem to forget about that statement is that it refers to choices made during a crisis; split-second decisions where all the manager had to go on was judgment, or intelligence as guided by experience. If you read the news these days it’s quite easy to find decisions made in the comfort of a boardroom or executive suite days or years before the crisis actually came that show a lack of judgment so complete it’s difficult to even think of sufficiently snarky things to write about them. The recent gas pipeline explosions in San Bruno, California, are a good case in point…

As reported online by CNN here , Pacific Gas & Electric (PG&E) had planned to replace the section of pipeline that caused the explosion back in 2009, and had received $5 million in rate increases to pay for the work, but then diverted it to “higher priority work.” Instead, in 2009 they requested another $5 million in rate increases, and then awarded roughly the same amount of money to six top executives as bonuses. The watchdog agency quoted in the online article also claims that PG&E spent $62 million over their budget in 2009 for “management incentives” and an additional $60 million in re-doing gas leak surveys that had been botched the previous year. Probably the most amazing part of the case is that the pipeline in question had been built in 1948 and never replaced, and the PG&E had identified it as being one of their top 100 most likely to fail according to their own records…

Now, I could go off on a rant about the ethics of not maintaining gas pipelines in densely populated areas, gouging your customers for rate increases in order to furnish a handful of your top executives with million-dollar bonuses, or providing incentives to a management team that apparently can’t even cope with the idea that exploding pipelines that kill both your customers and your public image are bad – but there’s not much point; none of those topics really require elaboration, let alone explanation. Let me instead call to your attention the line at the end of the article, where PG&E has already agreed to set up a $100 million fund to re-build parts of San Bruno affected by the blast. There has been no word yet, but with at least 7 wrongful death suits to follow, the total cost of this fiasco will probably be two or three times that much…

Obviously, the people running PG&E knew there was a risk; just as obviously, they decided that paying large bonuses was worth running that risk. Losing that gamble has already cost them twenty times what they scooped out in bonus money, and could potentially end up being a forty-to-one or sixty-to-one loss. If any Federal, State or local prosecutor can find evidence of actual criminal negligence, there could also be trials for manslaughter or even murder (under the Depraved Indifference statute), and it would be surprising if there aren’t stockholder lawsuits (assuming PG&E has stockholders) to recover ALL of the management incentives and bonuses during the period when these asinine decisions were made. Which leads us to the obvious question: why in the world would you bet the assets, reputation and public image of your company, if not your own reputation and possible future, on something that could come back to bite you sixty-fold if you are wrong? Or, it that isn’t snarky enough, why would you take a chance with this much potential to end badly in a way that almost literally screams “Stupid Management Tricks” for a net of less than a million dollars each?

Of course, it’s possible that the people who received the wayward $5 million are not the same ones who made the choice to allocate those funds in such a manner, but it hardly matters now. The only remaining questions for the company are “What on Earth were you thinking?” And, almost as important, “What other bright ideas have you acted on lately?”