Surface Ripples

What Can We Learn From Deepwater Horizon?

The Deepwater Horizon disaster has sparked considerable comment - from the environmental and economic havoc resulting to President Obama's efforts to show he's in charge, to BP's risk management to CEO Tony Hayward's public comments and behaviour.

There are several dimensions to this event: environmental, economic, political, commercial and perceptive. The environmental part will take massive efforts to resolve and recover from. Similarly, the economic hardship caused to those who make their living from the sea and shoreline (in a time of global economic crisis) will reverberate for years to come (assuming that the economy can be restored to even a shadow of its former self).

Politically, President Obama has to show leadership despite having allowed this kind of drilling to take place. The grilling of BP CEO Tony Hayward by the US Congress shown on TV to millions has really been political grandstanding in the run-up to congressional elections this year.

Commercially, the US consumes almost 20% of the world's oil output, whilst having only 2% of global oil reserves. With such an imbalance, the oil to feed US demand has to come from somewhere, and BP responded to this. Would the fuss in the US have been as great if the pollution had hit the coast of another country far away? One can only speculate.

On the perception side, this is where real damage limitation could have been done had BP taken advice on managing the situation. Whatever the truths of the matter, BP have adopted a crisis management strategy of a CEO as the front man and the Chairman and the most senior US employee out of sight. Soundbites have consisted of gaffes (perhaps unfairly in one case, given that the Chairman's native language is not English). Information has been sketchy and perception is that senior management are distant and too keen to await the results of the enquiry into the disaster. Facts reported look more selective than part of a coherent chain.

BP's CEO is now spending all his time managing one disaster. This should be managed by the most senior BP US employee who understands the culture and priorities in the US and has the contacts. Tony Hayward should be keeping a close eye on things and flying to the US once a week for updates and meetings, but he still has the rest of the world to manage. We have little idea of how BP is managing the rest of its global operations, and this is getting the market antsy. The one calming factor has been their setting aside a USD20billion compensation fund.

In the end, this episode will result in stricter regulation of the global oil extraction industry, a review of our dependence on hydrocarbons and a change in BP. These will take place relatively quickly. Longer to repair will be the environmental and economic damage to the US and BP's reputation.

Labels: Crisis Management

posted by William Martin @ 16:34