Complex Corporate Responsibility: Another Take

On May 1, 2007, BP Group experienced what many saw as a positive change, as Tony Hayward took over the CEO job from John Browne - Baron Browne of Madingley.

Lord Browne, by all accounts a brilliant man (he took a first in Physics from Cambridge), was a BP lifer, and during his tenure as CEO built BP into one of the largest companies in the world.

Lord Browne presided over the acquisitions of Amoco, ARCO, and Burmah-Castrol, creating a global behemoth with massive resources and massive reach. However, Lord Browne also created an unruly giant of a company, which lacked the nimble corporate structure necessary in a globalized and instantaneous economy.

As reported in the Wall Street Journal, one of Mr Hayward’s first actions as CEO was to hire management consulting firm Bain & Company to “hold a mirror” to BP’s corporate structure. What Bain & Company found would shock even the most jaded of corporate professionals – a staggering 10,000 corporate interfaces, or one for every 10 employees at the firm.

Mr. Hayward acted swiftly to create a leaner BP. He quickly cut 10 per cent of BP’s workforce, and standardized the firm’s safety practices. Mr. Hayward seemed to be putting BP on a course towards a company that could operate with the best of both worlds, combining the size and resources of one of the world’s largest firms while employing a lean and adaptable management style.

Then, on April 20, 2010, The Deepwater Horizon, an oil rig leased by BP, burst into flames and sank into the Gulf of Mexico. It was a day that would change the course of BP’s direction entirely, putting the company off course at best, and putting Mr. Hayward’s aggressive reworking on the company on the backburner. Damage control – both literally and figuratively – became the only thing on the minds of BP’s executives and employees.

It didn’t have to happen like this. The more facts that emerge about the Deepwater Horizon, the clearer it becomes that BP’s disaster is something that could have been avoided from the beginning, thereby sidestepping disastrous consequences for both the company, the economies of nearby seashore towns, and the environment.

BP should have set uniform standards for safety throughout the organization. While BP’s response was immediate, and they accepted responsibility quickly, as more became known about the event it was apparent that the rig was as much subject to the standards of its owner, Transocean Ltd., as it was of BP, it lessee.

The resulting back-and-forth of responsibility which ensued was an example of disorganization and disconnection that would have held more of a place in the ‘old’ BP, and indeed the ‘old’ economy than the ‘new’ BP and ‘new’ economy. It is up to the large multi-national firms such as BP to establish standards – be they safety or general practices – that exist on all operations under their name. As most all companies of BP’s status rely heavily on leasing, the fact that an interest is leased cannot be an excuse.

Additionally, BP should have set a more fail-safe system of control than it had in place. With a device as complicated as an oil rig, there are myriad possible ways that things can go wrong, many of them disastrous. While there were several safeguards in place, the rig had nothing in place that remotely resembled a fail-safe system.

However, the point of the complexity of entire incident brings to light the difficulties of managing an organization as complex and diverse as BP, and perhaps most interestingly brings into question what the real responsibilities of a Chief Executive are.

It is commonly accepted corporate wisdom that the CEO of a firm is responsible for almost everything that occurs to a company under their watch. When good things happen, the CEO rides the wave of popularity and earns more money. When bad things happen, the CEO rides a wave of negativity and may well lose his or her job.

Now, BP faces a crisis of public confidence. 210,000 gallons of oil are cascading from the underwater well each day, and spreading rapidly throughout the Gulf of Mexico. Despite efforts to contain the spill, lawmakers and the public are beginning to lose faith in the firm’s efforts – and, indeed, their ability – to contain the spill. It’s clear that such an incident would have been preventable with greater corporate governance and efficiency.

Yet the commonly accepted wisdom of assigning near-total responsibility to the CEO may prove misguided in this case, as in many others, as it takes the spotlight away from the remarkable intricacies of the fourth-largest company in the world, and boils it down to one man. For business leaders to learn from the mistakes of BP, they must learn from an accurate division of responsibility.

How much of this is the real responsibility of Mr. Hayward - or of Lord Browne, for that matter – remains to be seen. Whatever the final judgment, however, the truth will be as follows: a lesser degree of responsibility than is ultimately assigned.

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