A guide for every CEO faced with a disaster not of his own making, such as a regulatory intervention or a cyber attack. Donald and Pullen provide a strategic guide to a CEO who is facing potential armageddon. They explain why dealing with a regulatory intervention is not just a matter for lawyers and why you need the full spectrum of PR, shareholders, stakeholders and government all on side.
This book spells out the lessons that can be learnt from the biggest regulatory disasters of the last 15 years. It explains what steps can be taken to get through a regulatory intervention and come out the other side with both reputation and company intact.
The opening pages of the book ….
You can’t help but feel a bit sorry for Tony Hayward. When he joined BP as a young geologist in 1982, the thought of one day becoming CEO of one of the world’s top ten companies must have seemed like a distant pipe dream. He spent his whole career working his way up the corporate ladder and finally the dream came true. In May 2007, he was appointed CEO. Then, two years later when the Deepwater Horizon rig exploded in the Gulf of Mexico, the dream became a nightmare. Within five months, he was out of a job.
BP was Tony Hayward’s life. He met his wife, Maureen Fulton, at BP while she was working there as a geophysicist. He travelled the world on expatriate assignments for the oil major, living in a wide range of countries including China, Vietnam, Mongolia, Colombia and Venezuela. His seven years in Latin America had an impact on his personality and he ‘learned to think with [his] heart and not just [his] head’.1 When he finally took over from Lord Browne as CEO, he was keen to demonstrate a change in style. Where Lord Browne, nick- named the ‘Sun King’, had run BP with an imperious, dictatorial style, Tony Hayward wanted to introduce a more collegiate atmosphere. He turned his predecessor’s palatial suite of offices into meeting rooms and moved into something smaller and more modest. Out went the expensive art collection, replaced by low-key photographs of his family and his hobby, sailing.
Tony Hayward’s style was relaxed and down to earth; he had a boyish enthusiasm and a smile that was almost cherubic. He had a team approach to management, listening to opinions and trying to find a group consensus. He spoke in a straightforward way. His responses were often unguarded, informal and passionate. The stereotypical CEO is an egotistical monster, surrounded by a fawning court of ‘yes’ men, living in a bubble of complacent narcissism and mouthing a stream of bland pre-processed cant. Tony Hayward was the opposite: a CEO who was almost human. Sadly, this was the root cause of his subsequent downfall.
The Deepwater Horizon was a drilling rig, built in South Korea, owned by Swiss-based Transocean, and registered under a Marshall Islands flag of convenience to reduce operating costs. In February 2010, it was chartered by BP at a cost of $96 million to spend a month drilling a 10-km-deep exploratory well in the Macondo prospect in the Gulf of Mexico, 66 km off the coast of Louisiana. Drilling actually took two months and the well was finally completed in April. The wellhead was cemented over by the subcontractor, Halliburton, blocking it off until another specialised rig could be brought in at a later date to begin extracting the oil. On 20 April, several BP managers gathered together on the Deepwater Horizon to conduct a short ceremony to celebrate seven years without an injury on that rig. With the cruellest of ironies, at 9.45 p.m. that same day a blast of methane gas came shooting up the wellbore onto the deck of the rig, triggering a huge explosion that killed 11 workers and injured a further 17. The fire raged for another two days before the whole rig sank beneath the waves on 22 April, which, in another ironic coincidence, happened to be Earth Day.
What followed was a PR nightmare. For 87 days, in the inky silence of the ocean, 1.5 km below the surface, the well spewed forth its noxious plume of oil. Above the surface, it was all colour, sound and fury. TV screens worldwide were filled with pictures of oil-covered pelicans, beaches befouled with tar, dead baby dolphins washed up on the shoreline and trusty, local fishermen bemoaning the loss of their livelihoods.
Efforts to cap the well traced an arc of heroic failures that could have been scripted in Hollywood. First, BP tried remotely controlled submersible robots, which failed. Then it tried deploying a containment dome, a massive inverted funnel that could gather and direct the oil safely to the surface, but this became blocked by gas crystals in the intense cold. Then came a succession of improbably named fixes like the ‘Top Kill’ and ‘Top Hat Number 10’. They also failed.
For environmentalists, the proposed remedies were almost worse than the disease. They included extensive spraying with toxic chemicals to disperse the slicks and releasing genetically modified microbes into the ocean to digest the surplus oil. It was even suggested that a nuclear bomb could be used to permanently seal the well. In the end, a second relief well had to be drilled to relieve the pressure. This then allowed cement to be pumped into the original hole, sealing it off. Finally on 19 September, the well was effectively plugged, stopping the oil spill for good.
The causes of the accident were the subject of much acrimonious debate and finger pointing. Was Halliburton to blame for doing a faulty cement job? What about the blowout preventer, which manifestly failed – a device designed specifically to avoid this type of accident, and built by Cameron International Corp? What about Transocean? It owned the rig and it was Transocean engineers who replaced the drilling fluid with seawater that was insufficiently dense to contain the methane gas. The court cases to apportion liability for the disaster are still rumbling on today. At the time, and in the mind of the American public, there was only one villain in the piece – BP – and sitting at its head was Tony Hayward.
Drilling for oil offshore is a risky business. The last major disaster had been the explosion on the Piper Alpha platform in the North Sea in 1988, which killed 167 rig workers. In that case, in a neat reversal of the Deepwater Horizon episode, it had been a US oil company, Occidental, drilling in UK territorial waters. Two days after the accident, Arnold Hammer, the chairman of Occidental, had tea with Prime Minister Margaret Thatcher. They then stood together on the steps of Number 10 while the prime minister told the press ‘what a wonderful man’ Hammer was.2 The press was full of sympathy for the victims and their families and admiration for the derring-do of Red Adair, the Texan firefighter who eventually put out the blaze.
Twenty-five years later, when Tony Hayward was in the hot seat, that was not the way it played out at all. No cosy chats with President Obama for him. Instead, Obama was open and scathing in his criticism of BP’s CEO. The public mood was uniformly hostile and the president, recalling George W. Bush’s Hurricane Katrina fiasco, was keen to appear on top of the crisis and to bash whatever scapegoat was to hand. If it was a foreign multinational, then so much the better.
Tony Hayward made an easy target and a series of PR gaffes just made his situation worse. One of the first comments he made to the press was, ‘The Gulf of Mexico is a very big ocean. The volume of oil and dispersant we are putting into it is tiny in relation to the total water volume’.3 A sensible, measured, top-down view and one that was scientifically correct, but it was completely at odds with the public mood. In the same interview, he was asked if he thought his job was on the line. He replied, ‘I will be judged by the nature of my response.’
Judged he was. A week later, he was forced to revise his opinion, telling CNN that the oil spill was ‘an environmental catastrophe’. Soon after, in a TV interview on 30 May, he tried to express his empathy with the victims of the oil spill: ‘We’re sorry for the massive disruption it’s caused to their lives. There’s no one who wants this thing over more than I do; I’d like my life back.’ It was an unguarded comment in which he was trying to express his emotional involvement with the crisis. It was also a PR disaster. He was roundly condemned for appearing selfish; what about the lives of the people who had died in the explosion? From then on, it just got worse. Grilled by a Congressional hearing, he appeared evasive and unco-operative. He read from a prepared statement and often replied ‘I can’t recall’ or ‘I can’t answer that question’. Taking his only day off after two months of extreme stress, he was then photographed on his yacht sailing in a race around the Isle of Wight, which made him appear aloof and uncaring. It was all getting to be too much. On 23 July 2010, BP issued a statement declaring that Tony Hayward had the full support of the board,4 but five days later they had changed their minds and announced that Bob Dudley would take over as CEO.
That’s the way it all ended for Tony: first with a bang and then with a whimper.* He was a decent man caught up in a corporate crisis not of his own making, and whose reaction to it was probably similar to what you or I would have done in his shoes. It was a crisis that came as a Bolt from the Blue.
This book is about corporate crises; where they come from, what form they take and what you can do about them. There are plenty of useful lessons to be learned, as we will show through examining various case studies. They all start the same way, though – with a cloud on the horizon, at first no bigger than a man’s hand, which soon transforms into a deadly tempest. In BP’s case it was not, strictly speaking, deadly in a corporate sense. The company survived and Tony Hayward soon got another job in the oil business running Genel Energy, an adventurous start-up with operations in northern Iraq.
The next crisis we will look at did prove to be deadly. Enron was founded in 1985 when Kenneth Lay merged two Texan gas utilities: Houston Natural Gas and InterNorth. The deregulation of the gas sector created a new market for energy trading, which Enron enthusiastically embraced. Where previously gas had been sold through…