Blaming the regulators at Massey Energy…

April 20, 2011

It’s the one-year anniversary of the massive Gulf of Mexico oil spill. But if you think back to April 2010, the Deepwater Horizon crisis came on the heels of another unnatural disaster: The death underground of 29 coal miners in Massey Energy’s Upper Big Branch mine in West Virginia.

Well, yesterday Massey (MEE) amended its 10-K to disclose pay and governance information. The filing is illuminating, not least because what horrified the nation about the mine explosion was not just the human tragedy, but also the ugly details came out about Massey’s approach to mine safety and safety regulation.

Sadly, the filing isn’t likely to do much to improve things. It may not matter much to shareholders, or to Massey’s board or executives — the company plans to merge into Alpha Natural Resources (ANR) in a deal expected to close mid-year. But we’ve written about Massey several times since the tragedy, and it seems fitting to take what may prove to be a final look.

First, Massey makes a point of the fact that its board created a new Safety and Environmental Committee last year — better late than never, we suppose. But the company previously had a —Safety, Environmental and Public Policy Committee, and four of the new panel’s five members, including ex-offiicio member and board Chairman Bobby Inman, were on the old committee as well; the fifth is new to the board altogether. In other words, it’s pretty much the same folks minding the safety record — it’s just that some of them no longer have to oversee the lobbying as well.

Massey also says the —new committee is made up entirely of independent members — which is presumably technically true under the New York Stock Exchange’s rules. Yet one of the committee’s members, Stanley C. Suboleski, is a former interim COO of the company and at various times helped run two of its subsidiaries; the company also paid him $47,300 in consulting fees last year, apparently above and beyond his director compensation, including for —tremendous support — as we investigate the UBB mine tragedy… Meantime, Massey gives us no sense of how active safety committee has been: Although last year’s proxy told us that the old committee met just four times during the year before the Upper Big Branch Mine explosion, this year’s proxy is mum on the subject.

We were also struck by how the filing deals with the tragedy, or perhaps tries to avoid doing so. The document mentions the incident a handful of times, depending how you count, but mostly obliquely: Once, it’s to explain why the board met more frequently in 2010 than in 2009 (in part to deal with —the investigation into the causes and —the multiple litigation matters stemming from the tragedy); another time it’s to help explain why Suboleski was paid consulting fees in addition to his director’s compensation (in part, because his “substantial knowledge of mining regulations and their application is essential to assist us with our operations.”).

And then there’s the most substantive paragraph, in the section discussing executive pay. After briefly summarizing the explosion and deaths, the filing continues:

—As a result of the tragedy at UBB, [federal mine-safety regulators] significantly increased regulatory enforcement in our mines. The increased regulatory enforcement had a significant negative impact our productivity and operating results for 2010. Although revenues increased 13% compared to 2009, due to the UBB tragedy and the significantly increased regulatory environment in which we operate, we had a net loss of $166.6 million for 2010.

As best we can tell, that boils down to Massey blaming increased regulatory scrutiny after the accident for some or all of the company’s losses. Isn’t that a little like blaming fire inspectors for the consequences of your house burning down? Massey, of course, has essentially refused to take any blame for the accident, and its new owner doesn’t seem perturbed, as NPR reported a few days ago, despite the emergence of plenty of disturbing information.

To its credit, Massey’s board didn’t quite repeat the blunder of Transocean (RIG). You’ll recall that Transocean owned the drilling rig that spilled millions of gallons of crude oil into the Gulf of Mexico after burning and killing 11 people — and then gave bonuses to its executives based in part on the company’s —exemplary statistical safety record during the year. Massey, by contrast, decided not to exclude its own disaster from bonus calculations — though it attributed the decision —to uncertainties surrounding the accident.

At the same time, it’s hard to say Massey’s top brass suffered much, in a financial sense, from the incident. Former Chairman and Chief Executive Don Blankenship saw his total pay drop to $10.4 million from $17.8 million in 2009. But he also got a handsome retirement package for stepping down late last year. We footnoted his retirement details before, but now the company has quantified it in its entirety: $14.4 million in all, including severance, 2010 bonus payments (yes, he got one), a secretary and office space for up to five years in retirement, two years of health-care benefits, a two-year consulting contract, a free house, reimbursement for $257,111 in taxes on the free house, and even an option on the land next to the free house. Plus, as far as we can tell, he still stands to collect a pension valued at $7 million, and a deferred-compensation account balance of $32.1 million.

And the board? They’ve done rather well, too, in part because of those extra board meetings. Other than one who stepped down April 19, 2010, nearly all the directors made more than $250,000 last year (and the lone exception made $240,560). Five directors made more than $300,000, including independent Inman (the retired admiral and National Security Director), who has been on Massey’s board since 1985 and collected $330,709 last year, mostly in cash.

Unsurprisingly, the board’s own November review of its pay concluded that it was just fine.

Image source: Massey Energy Co.

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