On the 20th April 2010, BP's Gulf of Mexico deep water drilling platform, suffered an explosive fire which resulted in 11 deaths and a total destruction of the platform. At the same time, substantial amounts of crude oil began escaping on to the sea bed from the oil head. Despite best efforts by BP and their associated companies, the oil well was not successfully capped until 15th July ,during which time an estimated 4.9 million barrels of crude oil escaped from the well head on to the sea bed .Deteriorating public sentiment turned against BP causing the intervention by the president of the United States ,BP being forced to attend a senate hearing, the resignation of BP's chief executive Tony Hayward ,the allocation of 40 billion dollars into an Escrow account (a trust account held in the borrower's name to pay obligations such as property taxes and insurance premiums). to cover future pollution claims and the suspension of BP's immediate dividend payments to shareholders.
The Gulf of Mexico oil spill will undoubtedly go down as an exceptional event, not just because of its impact environmentally and socially, but also in terms of BP's crisis management. Organisations which want to learn from this event and prevent themselves from becoming part of a similar reputational damage should pay most attention to mistakes BP made before the crisis erupted, not afterwards.
In the event of any crisis what is at stake for most companies is maintaining their reputation, continuing with new innovation, remaining competitive and continuing to grow their business. In the case of Bp I would like to examine the impact that the recent oil spill had on their reputation, identify what sort of crisis management was implemented and whether or not it was effective. I will also examine the mistakes that were made and what action should be taken to limit such damage should another pollution disaster occur.
The oil spill impacted BP's reputation in a number of ways. BP's US operation had already suffered a major setback with The Texas Oil Refinery explosion which resulted in a number of deaths, over 530,000 lbs of chemicals released into the air and accusations of negligence in the handling of their operations, particularly that BP had sacrificed safety in the pursuit of cost savings. It didn't help BP in that the admission of negligence on BP's part was only announced two weeks prior to the oil spill. By its nature deep water drilling is a highly complex operation and initially there was some confusion as to the cause, from a corporate standpoint the most obvious impact was seen in the share price movement which in the first 30 days after the spill declined by approximately 40% of its share value.
Daily news coverage of the impact of the spill on local communities and wildlife increased negative public opinion on the company. This was made worse by the unsuccessful attempts of BP's Chief Executive to reassure the American Public that the company was totally committed to limiting the damage of the spill. Whilst internally BP's risk management procedures were being implemented at an operational level with the aim of rapidly sealing the well head, it became apparent that their contingency plan to deal with issues of social responsibility and negative public sentiment were not adequate.
The crisis moved rapidly from one fought both on land and sea to one fought in the hearts and minds of the American public. The intervention by the US President, Barack Obama helped push the crisis into the political arena, which in turn forced BP to launch a committed public media campaign. This appeared to be too little too late. The crisis management at an operational level to seal the well was highly complex .BP were not the sole operators of the platform and had brought in outside management to conduct the operations. No successful attempt had previously been made to seal a well at such depths.
BP was quick to inform shareholders and the public of the difficulties of this and the planned attempts to solve the problem. BP's reaction to the impact of the spill on local communities was also effective .A fund was quickly established to tackle pollution on the beaches, for the protection of wildlife reserves and minimisation of losses to the fishing and tourist community.
Whilst these efforts were rapidly overwhelmed by the size and duration of the spill, BP's local efforts were well received and appreciated by the local community. It was in the larger context of American public opinion that BP made mistakes. Firstly, in not launching an extensive media and internet awareness campaign highlighting the very real difficulties involved and the programmes that they had already launched to deal with the crisis. Political and public opinion were further coloured by the unfortunate comments made by the chief executive," I want my life back!", which appeared detached and disinterested .BP failed to recognise the delicate timing of the spill as anti global corporate sentiment was running high in Washington following the financial crisis of 2008.Effective crisis management now required a very clear action plan to counter this. At the same time BP's decision to distribute corporate dividends to shareholders, which they subsequently withdrew worked negatively against them in the minds of the American people as Bp seemed more focussed on profit than addressing the disaster at hand.
BP had recent experience of a negative report into the handling of safety as Oil procedures at their Texas oil refinery plant which should have made them fully aware and prepared to deal with similar events. To this extent it appears that they misjudged the complexity of the operation and the need for a swift, and visible nationwide media programme headed by more media aware executives.
It is interesting to compare the recent BP crisis with that of Exxon, with the Exxon Valdez oil spill of 1991, the liabilities of which were less than 12 billion dollars over a 10 year period after the spill. In contrast in the first 6 weeks of the crisis, by June 20th 2010, BP's actual liabilities had reached 25 billion and continue to rise. What has changed in this 20 year period is the media environment itself. The fact is that there is a difference in scope, visibility and access to information now that was not available 20 years ago. Furthermore it was the speed and reach of the information about what was happening in the gulf that made public sentiment more difficult to manage than in the case of Exxon. I would suggest that BP's crisis management team did not take this change fully into account when anticipating the potential response to the crisis.
What BP should have done/should do.
Expansion - BP should focus less on expanding and slow down. If they do this it is easier to concentrate and tackle safety. They should employ specific employees to work just on safety and maintenance. BP should pay these people in person upfront instead of contracting them. This means that future disasters become less likely due to higher safety standards and that BP know exactly who is responsible for the safety and maintenance of the rigs and pipes. BP must not rely on 'rental workers'. One way in which BP was able to save money was they disposed of their technicians. If they ever needed technicians, they would simply call one up locally to deal with the situation. BP need to hire they own expertise so that they know exactly who is doing what.
Reaction - BP should not rely on reacting in the same ways as other companies reacted to their own disasters. BP needs to look ahead into the future and decide for themselves. Exxon Valdez had an oil spill like BP in 1991. Just because it is another oil spill, BP should not try and react in the same way as Exxon did. The reason for this is that the Exxon spill occurred around 20 years ago, and back then many things were very different than they are today such as technology. Technology is much faster than it was 20 years ago and therefore what BP failed to realize is that as soon as the disaster occurred, before they knew it media was all over the scene and the whole world knew about it within a couple of days. BP needs to be more efficient now and deal with the situation more swiftly. It is easier for BP to receive a bad reputation because of social networks too. If they want to avoid this, they must create their own, more efficient path.
Fig. Above: A sample of "live data" from social media sources as monitored by Fisheye Analytics. This shows social media "buzz" on the BP Oil Crisis as monitored on FaceBook, Twitter, MySpace, online news media, blogs and media articles.
Environment - The oil spill caused a huge amount of the environment surrounding the area of the spill extreme damage. BP need to act faster so that damage caused is not so extensive. Instead of worrying about how much money is involved, BP should invest as much money as is needed in order to quickly clean up everything. If this is done, there is less damage caused to the environment and also BP's reputation would receive a boost for dealing with the situation solidly.
I still have to write a conclusion and expand slightly on my 'what should BP have done/should do' section.
SORRY ITS LATE!!
