Black swans and risk management

ON APRIL 20, 2010, there was an explosion onboard BP's oil rig Deepwater Horizon, located in the Gulf of Mexico. The massive fire that ensued caused the death of 11 crew members. Two days later, the rig sank, flooding the seabed with crude oil for 87 days. It is considered the largest accidental marine oil spill in the history of the petroleum industry.

This disaster was described by the BP Group chief of staff, in a 2012 speech, as a "black swan" event. The term is usually used to describe an unprecedented event of major, often catastrophic, impact. It is viewed, in the first instance, as an outlier outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. However, after the event, a black swan is also sometimes rationalised, in hindsight, as something that could have been expected.

This rationalisation was manifested in BP shareholders' attempt to sue the board of directors in the US courts. In January 2013, the derivative suit alleging breaches of fiduciary duty was dismissed by the US federal court on the grounds that the US court was not the appropriate forum for such a lawsuit. Whether a similar suit will be successful in the UK, where BP is incorporated, remains to be seen.