To no-one’s great surprise, BP has fired chief executive officer Tony Hayward – while reporting record losses.
Pausing just long enough to negotiate a hefty financial package, said to include a $1.6 million payout in lieu of notice, a $1-million-per-year-pension and shares, he leaves a company fighting for its survival. According to the Guardian newspaper, BP is reporting “the largest losses in British corporate history”:
In its second-quarter results the company has set aside $32.2bn (£20.7bn) to meet the cost of the clean-up, far higher than the City had expected and plunging the company into a $17bn loss, compared with a profit last year of $3.1bn. The dramatic loss means that BP will be able to slash its tax bill by about $10bn, in a move likely to infuriate politicians on both sides of the Atlantic.
To pay for the mounting costs of the spill created by the explosion on the Deepwater Horizon rig on 20 April, BP plans to sell $30bn worth of assets – predominantly oil and gas fields – over the next 18 months.
As CEO, you don’t expect to keep your position after steering your company into a $17 billion loss and a hornet’s nest of legal action. The media may talk about Hayward’s PR gaffes costing his job, but it’s the bottom line that counts. This has the potential to be far, far greater than the losses just reported – BP’s legal woes are just starting, and stretch ahead for decades, so they urgently need to get things on the right track. President Barack Obama said back in June that Hayward should have been fired, and Congress is gung-ho for pulling BP to shreds. The latest issue is BP’s 2007 lobbying of the UK government for the release of Lockerbie bomber Abdelbaset Ali Mohmet al-Megrahi.
BP is the subject of a US Department of Justice investigation to determine whether US civil or criminal laws have been violated; a US presidential commission to examine the causes of the incident; a joint investigation by the US Coast Guard and the Bureau of Ocean Energy Management, Regulation and Enforcement (which until June 2010 was named the Minerals Management Service); an inquiry by the Securities and Exchange Commission and other investigations by US state and federal agencies including the US Chemical Safety and Hazard Investigation Board as well as the US Congress.
Having said that, an interesting Harvard Business Review post, headlined Leadership Tips from Tony Hayward (or Not) suggests “The Case of Tony Hayward and the Gulf Oil Spill will be fodder for business school discussions for years to come, as a how-not-to-do-it guide for leadership when disaster strikes.”
It cites failures to follow the rules of media communications, suggesting Haywood minimized problems and failed to apologize, which I can agree with, but also alleges that he emphasized his own power and importance and made the story about himself – spun from another angle, you could say the guy stood up and took it on the chin, rather than trying to hide behind the team.
(My take on it: I’m a journalist turned communications person, and wondered all along what was going on with BP’s handling of the issue. Maybe Hayward’s hands were tied because he was told not to alarm shareholders, but if he’d been more forthcoming from the beginning he’d have prevented much of the press mauling and end-of-the-world-is-nigh online speculation – or just got the US government onside. If he’d have spoken of the urgent need for deepwater drilling because of the looming specter of peak oil, while admitting to BP’s own mistakes in how the Deepwater Horizon was operated, he’d have emerged as an unlikely hero. Being cynical, in my opinion the corporation as a whole handled the issue like it did the African spills and deaths – it’s a horrible cliché, but life over there is cheap; just ask anyone who’s worked on the continent for a time. An incident off the coast of the most litigious and powerful nation on Earth needs a different response. )
After a 28-year career with BP, including three years as CEO, it appears Hayward is going because of his response to the Gulf oil disaster rather than for allowing it to happen in the first place. Maybe it’s just coincidence that Haywood’s replacement, Robert Dudley, was born in New York and raised in Mississippi – but it looks to me like his departure was to appease the American government. (And that’s fine with me; one of the functions of a CEO operating at that international level is to smooth over issues at governmental level. Hayward is damaged goods in the US, and it’s on this continent that the future of BP will be determined.)
A close reading coverage of this changeover suggests Hayward is better thought of in Europe than his replacement Dudley. According to an Associated Press report, Haywood boosted BP’s bottom line but not safety:
Dudley was forced to flee Russia in 2008, running the company in absentia until that became untenable, after a row with Russian shareholders. That history means that Hayward, who is still well-regarded in Europe, will be a key negotiator for his new boss.
“It’s recognizing that this is a very smart guy and has good contacts,” said Stephen Pope, the chief global equity strategist at Cantor Fitzgerald. “He will very good at smoothing the way.”
Phil Weiss, an oil analyst with Argus Research in New York, said BP thinks highly of Hayward, “but they have to get him away from this situation.”
It will be interesting to observe how much of a different company BP will be in five years’ time, if it still exists. Hayward, in his three years as CEO, managed to focus on improving refinery efficiency and other cost cutting measures to put the firm on a stronger footing. What he didn’t – and in fairness probably didn’t have time to achieve – was focus “like a laser” on safety, which he promised when taking the job.
I’m going to stick my neck out and suggest that this kind of corporate change only comes about as a result of legal expenses. My experience is in the newspaper industry, and I’ve seen that verbal apologies are just so much breath – and the most humble of printed apologies are forgotten by the next edition. It was when we got sued that things were shaken up. Any court action is potentially ruinous, with the legal costs always dwarfing any actual payouts. It’s when accountants get involved, and when transgressions become part of the cash flow calculations that senior management regard things like safety or staffing levels as a business model rather than the first thing to be cut.
This is not a tirade against BP, because to do that I have to believe they are the only oil company to behave badly. A recent must-read Newsweek item, sarcastically titled Boycott BP! Because it’s much better to give your money to Exxon, looks into oil majors across the board. It states:
In other words, pick which malefactor or criminal—environmental or human—you’d like to support when you gas up. And the list above doesn’t even include the fact that what the oil companies sell is one of the major contributors to catastrophic climate change. So unless your boycott of BP extends to all oil companies—oh, and throw in coal companies and natural-gas utilities—you get points for symbolism and self-righteousness but not much else.
As it stands, all the oil corporations are on borrowed time in this era of peak oil. Non-opec oil is in decline, and the majors face some stark choices: their only opportunities for future growth are essentially the over-hyped oil sands and increasingly controversial deepwater options – and both are expensive, high risk ventures, requiring long-term capital investment at a time of fluctuating oil prices. Right now they have the money and the power, but many commentators can see a time when oil development is nationalized; the BP case tends to lend credence to this, considering that one blowout might bring the company down. Nationalization would be for military, geopolitical reasons, as much as anything because global oil supply is becoming increasingly dependent on a small group of deeply unstable countries and downright rogue states.
That is not to suggest Hayward is a victim of peak oil, but that his departure is systematic of what is likely to be a growing trend. Expect more persuit of environmentally contentious oil supplies, each with a greater potential for disaster.