November 1, 2010 8:58 pm

Memo to board: we need to talk about BP

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A Deepwater Horizon lurks in every organisation. You do not need to be in a safety-critical industry

When, in 1982, seven people died in the Chicago area after taking Johnson & Johnson Tylenol capsules that had been contaminated with cyanide, the company cleared the shelves of the product throughout the US. Ever since, J&J’s decisive action has been held up as the model of corporate crisis management.

It is now time to retire the Tylenol case study. It is not that it doesn’t contain lessons. It does, and even J&J sometimes forgets them: the company attracted criticism this year for its handling of the recall of its Motrin painkiller.

The problem is that the Tylenol case was more straightforward than most. There was no doubting the seriousness of the threat: people had been poisoned. The contamination was the work of a criminal; the company was not to blame. And while the recall decision was bold, it was not logistically complicated.

Corporate crises are usually messier than that. Toyota made several mistakes this year when drivers claimed its cars were dangerous. Executives did not make themselves available, and appeared unsure of themselves when they did. But the cause of the problem was not initially clear: was it the result of poor manufacturing or driver error?

The BP oil spill in the Gulf of Mexico began with an explosion on the Deepwater Horizon rig that killed 11 people. Many assumed BP would staunch the flow and clear up the damage. Instead, the incident spiralled into a crisis so severe that it almost brought down one of the world’s greatest companies.

The BP crisis had enough drama to fill a summer movie blockbuster: the encroaching slick; the desperate laying of 3,000 miles of barriers; the locals staring bleakly out to sea; the fishermen landing with tales of lost livelihoods; an embattled US president touring the beaches, damning the company and its leader; the failed attempts to “kill” the well; and, day and night, the undersea television pictures of the oil spewing out relentlessly.

The oil has stopped flowing now, even if the recriminations have not. A US commission has alleged that BP and Halliburton, its contractor, knew the cement lining the well was unstable.

Last week, in his first public speech, Bob Dudley, BP’s new chief executive, recounted the drama to the annual conference of the CBI, the UK employers’ body. Every company board should set aside a day to discuss Mr Dudley’s talk.

What lessons can we draw? First, a Deepwater Horizon lurks in every organisation. You do not need to be in a safety-critical industry, such as oil, chemicals or nuclear. Enron and Arthur Andersen were felled by fraud; Lehman Brothers by risky financial bets.

Every company needs to ask: what are our potentially grave threats and how are we dealing with them? Mr Dudley said BP was appointing a new safety head, reporting to him, in charge of a division with the authority to intervene in any company operation. This is not foolproof, but a powerful figure heading a team whose rewards depend on safety is more likely to uncover risky practices than the managers who stand to benefit if those risks pay off.

Second lesson: BP did itself no good in the early days of the crisis by saying that, while the spill was its responsibility, it was not its accident because a subcontractor had been running the rig. This didn’t work, nor should it. Companies are fully responsible for what their contractors do. Remember that when outsourcing, offshoring or spinning off some operation. Those people are still operating in your name.

Third, words matter. Mr Dudley approvingly quoted Tony Hayward, his predecessor, who declared that BP would be judged by what it did rather than what it said. Actually, Mr Hayward’s fate was sealed both by what he did – he failed to stop the oil spilling – and by what he said. Anyone could suffer the attention lapse that led to Mr Hayward making the unfortunate “I’d like my life back” remark. That is why you need to rehearse what you plan to say before you venture out. You do not want to be stiff or offer “no comments”. You want to be helpful, while measuring your words. It is not easy, but, as ever, the more you practise, the better you get.

Fourth, there is no point moaning about the media. The only note of self-pity in Mr Dudley’s talk was when he referred to the “great rush to judgment by a fair number of observers before the full facts could possibly be known”.

That is the way it is. Blogs and Twitter keep up a relentless patter. But what really hurts is round-the-clock television. Those hours need to be filled with supposed experts who are expected to say what is happening before they can possibly be sure. It rankles with companies, but is not going to change. Far better to prevent the crisis happening in the first place.

More columns at www.ft.com/skapinker

michael.skapinker@ft.com

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