Aug 5

The Consequences Of Poor Leadership for BP

Heinz Landau
Heinz Landau is a seasoned business leader who has gained valuable working and leadership experience on three different continents.

The huge oil spill in the Gulf of Mexico, the biggest environmental disaster in U.S. history, lifted the veil off BP’s leadership face. It brought to light an ugly picture of irresponsibility, insincerity and non-caring leadership.

Over the years, the meaning of the abbreviation BP has changed. Originally standing for British Petroleum, the company came up with a clever marketing idea where they played with the letters BP. During a massive rebranding effort in the year 2000, BP spent about US-$ 200 million on an advertising and public relations program and revealed the tagline “BP: Beyond Petroleum”.

However, after the recent explosion of the oil rig and all the investigations and exposures that followed, “BP: Broken Promise” seems to be the more realistic and fitting tagline.

BP’s in the year 2000 publicly stated intention to move beyond petroleum and become a new, more environmentally-friendly energy company never materialized until today. It appears that the intention was never sincerely pursued. In the first quarter of this year, BP’s revenues amounted to US-$ 73 billion, while less than 2% were from alternative energy. BP’s planned investments in 2010 in non-oil and -gas products showed a similar percentage (about 3%).

Apart from that, BP has a terrible track record of safety and environmental violations. The Gulf of Mexico oil drilling rig explosion and fire on April 20, 2010 that killed 11 men and triggered a massive oil leak is not the first time that BP has had to contend with a horrible accident or spill. In the past five years, two high profile accidents have occured at BP facilities – one at a Texas refinery, another at a pipeline in Alaska’s Prudhoe Bay. In 2005, at a refinery in Texas, 15 BP employees died and 170 were injured after a unit that manufactured jet fuel exploded. In 2006, the BP pipeline at Prudhoe Bay in Alaska burst, spilling hundreds of thousands of gallons of heavy crude.

During the last five years, in the U.S. alone, BP paid fines close to US-$ 500 million. Considering the massive profits that BP is making  (US-$ 5.65 billion profit in the first quarter 2010), it is legitimate to ask whether the company considers these fines as the cost of doing the business.

The burden of the broken promise and the crisis will weigh on BP for decades. Some of the immediate impacts have been substantially lower stock prices (at one stage, the stock price had more than halved), lower company valuation, changed credit ratings, lower market capitalization, massive compensations for damage claims, reduced capital investments, suspended dividend payments and accelerated asset disposal.

The further existence of BP in its current form is highly unlikely. The company might be broken up, might become an acquisition target or might be forced to merge with another company.

There is a good chance that the name BP will disappear, since it has now a negative brand equity and has become one of  the world’s most shamed brands. BP’s brand is so tarnished that it will eventually have to break itself up and rebrand the various parts of the businesses with new identities. The irony is that BP is the most famous repositioning case of the century. The change of the logo, the name and its positioning towards a company that is exploring new ways to live without oil were accompanied with marketing and public relations campaigns worth a few hundred million US-$ during the past few years. In 2007, the “Beyond Petroleum” – campaign even won the “Gold Award” from the American Marketing Association.

There is also massive damage done at BP from an employer branding perspective. On one side, they will lose many good employees and, on the other side, they will hardly be able to attract any top talent. And imagine how the current employees of BP will feel about their company. They have even been advised by their management not to wear the company logo and to be cautious in public to disclose whom they work for.

BP’s former No. 1 employee, CEO Tony Hayward has been replaced. The crisis was obviously more than he could handle. His infamous statement “I want to have back my life.” and his preference for going yachting at the weekend where he should rather have been in New Orleans leading the people showed he didn’t really want to be bothered any longer with a disaster he had helped to cause and take responsibility for. It appears that he as the CEO presided over a company culture that put profit first and sanctioned extreme risk-taking, tolerating negligence and not taking safety issues seriously enough  while cutting maintenance and capital spending costs.

The sorry state of leadership at BP, and this obviously comprises not only of the former CEO, but also the board and the upper management, and the resulting consequences will weigh heavily on BP for decades to come.

Caring leadership demands a stakeholder orientation, not merely a shareholder orientation.

Leaders must lead for the longer term and must realize that they are no longer accountable only for their shareholders, but for all stakeholders. Leaders have to recognize that the environment and the livelihood of local people are more important than corporate profits.

The arrival of a new CEO at BP represents, of course, a chance. Although I would have preferred to end on a more positive note, so far the overwhelming evidence  is that BP’s priority is less to show real concern and to take full responsibility for the catastrophe it caused, but BP’s interest seems to be still more in reputation damage control and public relations efforts to restore public and investor confidence.

This entry was posted on Thursday, August 5th, 2010 at 07:33 and is filed under Corporate Social Responsibility, Human Resources, Leadership, Management, Marketing. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.

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  1. Muk Hian Lai says:

    These top reported scandals from US like; World dot com, Enron, L Brothers, AIA, “Mcdog” (Ponzy) and BP were all rooted from a word call “GREED”.
    “LOVE of money is the ROOT of evil”

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