The Costa Concordia reportedly failed to address many safety problems before its famous crash near the Italian island of Giglio. The recent news is another reminder that Carnival Corp. (CCL), which operated the scandal-tainted cruiser, has put its customers and investors at risk by continuing to have poor governance.
After six months of investigation into the tragedy that killed at least 30 people, CNN said July 5 that countless survivors had received little or no safety training after boarding the Costa Concordia. Multiple passengers didn't even know where to gather during the emergency. The Costa Concordia's black box recorder had broken numerous times and was scheduled for repair, its doors designed to prevent flooding were left open, and its maps were unauthorized, according to news reports this week.
The Costa Concordia hit a rock and turned on its side on January 13. Before the more than 4,200 people aboard had finished evacuating, Captain Francesco Schettino allegedly abandoned ship; he was later accused of manslaughter. On July 5 Italian judges released Schettino from house arrest but also ordered him not to leave his home town, according to Reuters.
Carnival's website said July 5 that all its crew undergo safety training that meets or exceeds regulatory requirements, its boats are designed in compliance with international law, its ship command platforms always have multiple people on watch, and its officers expertly use the most advanced navigation technology. The U.S. Coast Guard inspects Carnival ships for their safety every three to six months and a third-party organization also conducts annual inspections, the company said.
Although Carnival uses government services such as the U.S. Coast Guard, the company paid only 1.1% tax on $11.3 billion in profits during the five years before 2010, CNN reported. Carnival registers most of its ships in Panama and is incorporated there, while keeping U.S. headquarters, CNN said.
The problem with Carnival is that even after a debacle like the Costa Concordia, the company continues to leave glaring and ongoing management issues unresolved. As we reported in May, GMI has flagged Carnival's board for years as having dubious supervisory capacity. Carnival's chairman and CEO Micky Arison, along with his family, controls over a third of the company's voting power. Seven directors are long-tenured with over a decade of service, and five have at least two decades of service. Good old pals like these aren't as likely to ask tough questions and demand accountability for accidents such as the Concordia's.
No wonder that tragedy wasn't Carnival's last. 18-year-old Adrian Vasquez, the lone survivor of a drifted fishing boat, recently alleged in a lawsuit that a Carnival cruise ship ignored him and his friends in March when they waved for help.
Although Carnival's AGR score is a 71, indicating average accounting risk, GMI has given the company a D on its corporate governance since July 2003. Had investors paid closer attention to such problems before this year, they might have saved themselves money. Carnival's stock has sunk by 10.8% in the past twelve months to trade at around $34.21 per share intraday on Thursday, underperforming its benchmark the S&P 500 index.
Until the company tightens up its supervision with better checks and balances, there's no telling what could happen next.
Additional disclosure: I work full-time for GMI as a corporate governance expert.