The Deepwater Horizon oil rig explosion on April 20^th and the uncontrolled fouling of the Gulf of Mexico are creating legal liabilities and an environmental clean-up of unprecedented proportions.

While oil industry executives are receiving a tongue lashing in Washington, D.C. and evidence of incompetence (spill plans for the Gulf talking about walruses and contact info for a deceased marine scientist) are fodder for late-night comics, there is nothing funny about the damage being done to the ecosystem and those whose livelihoods of those who depend on it.

BP says it will pay to fix the problem; but, the true proportions of the problem are unknown because until the well is capped tight the problem continues to grow and spread with the currents and the tides. 

How much will it cost to clean up?  How much will it cost to pay for lost wages and business?  Will BP have the resources available to pay it all?  Will it file for bankruptcy protection?

A number of good articles have recently been written about the topic.  I recommend Roger Parloff’s interview with attorney Christopher B. Kende.  It is a legal primer that lays bare what statutes apply to this situation and whether liability caps will be triggered.

Another good read on the subject of what options are available to BP to limit its legal liability is The Deal Professor’s piece in The New York Times.  It reminds us that while we may want to think of BP as a single monolithic,  hulk with deep pockets, it is really more of a patchwork quilt consisting of subsidiaries with much shallower pockets.

While some boast that BP has the financial strength to raise capital and weather the current unpleasantness; I know from my own experience in working with environmental engineers that clean-ups always cost much more than you expect.  One engineer confided to me that you should take your “best” estimate, multiply it by three and then add 10% to start getting into the ballpark of actual costs.

Putting aside for a minute the $20 billion escrow idea that is currently being floated, the good news for BP is that it will take years to sort out all of the liabilities and the out-of-pocket liability payments that go with it.  With proper cash flow management those payments can be spaced out over years, if not decades.  It gives BP an opportunity to generate the income necessary to pay for it all.  That of course assumes it will be able to salvage enough of its brand to make customers want to open their wallets.  That, of course, is another unanswered question.

Regardless of the actual amount of legal liability, there is one cost that you CAN take to the bank.  It’s the cost of the army of lawyers BP will employ to fight all of the lawsuits that have been and will continue to be filed, to lobby against legislative changes in the existing laws, to prepare executives for Congressional hearings, to process claims, etc.  Those outside legal costs will be HUGE.  They will not be deferred and they will be continuous.

Maybe they’d like to plug THAT hole with some solid project management techniques like the kind that Rob Thomas and I will be talking about tonight at 8pm Eastern, 5 pm Pacific, on Ask the No Nonsense Lawyer where our topic is: How to Control Outside Legal Spending.

You don’t have to be BP to join us.  The program is complimentary.  You’ve got nothing to lose except the cost of a phone call and some legal costs.  Click here for more information.

Policies are unilateral contracts.  One party gets to make the rules.  The other party gets to follow them.  In the workplace, for example, we’re subject to employment policies.  If we don’t like a particular set of rules we can go work somewhere else.

One of the downsides of being subject to a policy is that you typically have no say over the content.  You’re not the one making the rules.  They are.  You also have no control over how often a policy can get changed.  That gives the policy maker the upper hand.  All you get to do is vote with your feet.

As consumers, we’re subject to the policies of various service providers, such as banks, telephone companies, internet service providers, and yes, social media sites that we belong to. 

When Facebook recently announced that it was changing its privacy policy it caused a tremendous up roar.  Facebook users suddenly realized how vulnerable their information was.   One survey found that nearly 60% were making serious noises about leaving the site.

So what did Facebook do?  It announced an about face (sorry — I couldn’t resist that one).  CEO Mark Zuckerberg is now pledging simplified privacy settings to give users more control.  They are being responsive to their customer base.

And that’s the beauty of policies.  Easy come.  Easy go.  They can be changed in a heartbeat and just as easily changed back again.  

While flexibility is definitely an asset, the Facebook example illustrates how the loss of goodwill should not be underestimated when engaging in policy changes.

If you haven’t read Liz Ryan’s 5 Ways to Ensure Mediocrity in Your Organization, click here.   The insightful article describes five of the most insulting leadership practices and the lifeless, disengaged team members it creates.  From a legal literacy perspective, these leadership practices also serve to turn your organization into a litigation lightning rod.

How?

Well, let’s take Liz’s #1 insulting leadership practice: letting your employees know you don’t trust them.  She says that it causes employees to create the appearance of working without actually getting anything done.  They’re “present” but disengaged.

Being checked-out also means that those employees will have no interest in pointing out that iceberg on the horizon.  Why bother? The lack of trust has created a barrier.  It stifles communications and means problems escalate before they’re visible to senior management. 

More trust yields a better flow of information and allows legal issues to surface and be addressed while they are still small and less expensive to fix.  It’s a win-win situation.  It allows employees to contribute and make a difference and can save your organization time, money, and a ton of aggravation.

Fraud represents a very serious breach of trust and poor judgment in the exercise of legal literacy.  Because it occurs at the intersection of law and finance, fraud can be very costly to your business.

Being able to spot warning signs and stop fraud in its tracks can therefore be a useful and life-saving business skill.  That’s why I wanted to share with you this link from the Journal of Accountancy.  It’s a quiz designed to test your Fraud IQ.  Take it and see what warning signs you may have been missing and then take steps fill in the gaps.