An Unethical Culture That Bred Death 9:12, February 14, 2017

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An Unethical Culture That Bred Death

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Despite the uniqueness of its criminal convictions and sentencing, the PG&E pipeline explosion provides valuable ethics and compliance lessons for any large business. There’s a lot of blame to go around, but the focus is looking at how an unethical culture propagated such a tragedy.

First, the tragedy. On September 9, 2010, a “fireball . . . soared into the sky . . . and transformed the neighborhood into a scene of chaos,” according to KQED News. A pipeline managed by utilities company Pacific Gas and Electric Co. (PG&E) ruptured in San Bruno, California, causing an explosion that left a 72-foot-long crater in the ground, killing eight people and injuring 58.

Subsequent state and federal investigations (not to mention an indictment by a federal grand jury, civil lawsuits, and a criminal trial) found that PG&E engaged in a variety of unethical behavior leading up to the tragedy:

An unethical relationship with regulators. Uncovered evidence showed an “unethical” relationship between PG&E and its main state regulatory body, the California Public Utilities Commission (CPUC). Despite being the regulator, behind closed doors CPUC coached PG&E on how to avoid or sidestep its regulatory responsibilities. This is “a problem, because when you start to get at a certain level of casualness, then you can slide into other kinds of ethical breaches,” according to Commission President Michael Picker, speaking in an interview with KQED. At the very least, developing an effective ethics and compliance program requires senior leadership to approach the organization with honesty and integrity, both of which were lacking in this case.

Forsaking the greater good. According to the US Department of Justice, “PG&E willfully failed to identify threats to its larger natural gas pipelines and to take appropriate actions to investigate the seriousness of threats to pipelines when they were identified.” It prioritized profit and bonuses over safety, according to an independent audit that found the company diverted more than $100 million in gas safety and operations money collected from customers and spent it for other purposes. By doing so, PG&E violated federal law and national safety standards, putting its employees and the public at dire risk. Many workplace laws protect employees from getting hurt. For example, California passed new laws to help prevent workplace violence and sexual harassment in the workplace. Businesses have a responsibility to mitigate the health and safety implications of violating the law as much as the effect on their bottom lines.

Not fostering a good culture. Many sources, such as the San Francisco Chronicle, indicate that PG&E’s corporate culture was problematic. Employee incentives were one aspect. For example, for a time PG&E rewarded bonuses to managers if their crews reported fewer leaks in the gas-distribution system. This naturally created a conflict of interest between personal gain and public safety, which the US Occupational Safety & Health Administration (OSHA) warns against, as this type of incentive program hinders the reporting of safety problems. Indeed, after the bonus system ended, the company found ten times as many “high-priority” leaks as before.

After the explosion, an unpublished, independent audit of PG&E found “numerous critical deficiencies” in training, supervision, and record keeping and an “impression that quality was not a high priority” for management and employees, according to the Chronicle. An investigator reported that PG&E employees were “giggling, laughing and were sarcastic” during official interviews, reflecting “ugly” exchanges, “shady” actions, and “dismissive” attitudes even after the explosion. Federal prosecutors charged PG&E with obstruction of justice, and a jury found it guilty as PG&E refused to cooperate with federal investigators amidst an attitude that denied responsibility for its actions.

Ethics, respect, and safety are common characteristics that were uniquely lacking at PG&E years before the pipeline explosion. They didn’t have to be, and certainly should not be promoted at any company that desires a sustainable, ethical culture.

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Douglas Kelly
Douglas Kelly is EverFi's lead legal editor. He writes on corporate compliance and culture, analyzing new case law, legislation and regulations affecting US companies. Before joining EverFi, he litigated federal and state employment cases and wrote about legal trends. He earned his JD from Berkeley Law and BBA from Emory University.

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