Natural gas fracking well in Louisiana, (c) 2013 Daniel Foster
Transparency, perception of bias, and BP: the case of paying Mr. Feinberg
Kenneth Feinberg, the adminstrator of BP's $20 billion fund to compensate parties for damages from the Horizon oil spill, is a fascinating guy. Not so much for his current role (though it is certainly important), but rather for his willingness to step in to administer settlements to victims' families from the 9/11 attacks in New York. That task, which he took on willingly, entailed trying to use logic, reason, encouragement, and pursuasion to navigate seemingly impossible human conflicts.
A lecture Feinberg gave at the University of Massachusetts in 2008 provides powerful resolution to the challenges he faced, and his balancing act in trading off amongst the many constraints. Through that process, he was careful to lay out what he was required to do by Congress, what assumptions and factors he was incorporating into his decisions, and why he felt his approach was justified. It was not a perfect system, but in the end, it worked.
The BP fund is different. The spill was a public disaster, but administration of the settlement fund is private. Feinberg's firm has been hired by BP to administer the claims process, not the government. He is not overseen by outside judges, as many settlement funds are. And now, the transparency of Feinberg's pay has become an issue, as nicely summarized in this Reuters article by Moira Herbst.
Feinberg's pay is substantial: his small firm is receiving $850,000 per month from BP as a flat fee. He claims there is no conflict; others are worried. But that's not really the point. It is likely that his firm is worth this level of compensation -- if he can deliver payments to affected parties in a way deemed fair and transparent; avoids protracted litigation (think Exxon Valdez); and that gets money to the spill-affected parties sooner rather than later so they can get back on their feet and restart their economic lives.
But the buy-in he got on the World Trade Center payouts was in large part due to the transparency he provided. That disclosure allowed people to understand and trust the process, and therefore to accept the solutions he promulgated. The lack of visibility on his compensation this time, and perhaps even that his pay is coming directly from BP rather than from funds over which BP no longer holds any ongoing control, undermines the very transparency on which Feinberg's ultimate success will rest. It is a conflict far more simple to resolve than the ones he had to grapple with on the WTC fund; hopefully he will resolve it soon.