Fishburn Hedges

19.07.2011

Book review - Spills and Spin: The Inside Story of BP by Tom Bergin (published July 7)

Tom Bergin has reported on energy for Reuters for the past 15 years or so, and he’s written a gripping tale of BP in the years leading up to the Gulf disaster and in the months following it. Bergin knows the key players well, and was based in Houston for much of the crisis, and he’s clearly benefited from a wide range of sources.  I promised him I would make a real effort to grasp the engineering and the geology, but despite retaining a vague notion of ‘long string’ and ‘liner and tie-back’ pipes, it’s the communications and corporate governance insights that I enjoyed most.

The story starts with BP’s transformation under John Browne from a “two pipeline company” in the 1990s.  Browne’s cost cutting, decentralisation and outsourcing of much exploration revitalised BP, and “by the end of the decade, BP had dislodged Shell – in people’s minds if not in reality – as Big Oil’s leading explorer”.  The book reminds us how powerful Browne’s reinvention of BP’s image became for a long time, based both on actual business performance, but also on aggressive external promotion of its success.  The book recounts the optimistic way in which exploration in Columbia and elsewhere was communicated in the 1990s, and explains how BP redefined its categories to maximise what it appeared to be doing in renewables: “BP would invest a little bit of money in renewable energy and then spend a lot of money publicising it”.

We also learn about the way in which BP, by pushing outsourcing, became a financially-driven rather than technically-driven company, with negative implications for safety.  Unlike the other majors, BP did away with the classic role of the Chief Driller, devolving drilling decisions to managers with a short-term financial focus on the project for which they were responsible.  As someone who is instinctively sympathetic to the private sector line rather than Greenpeace world, I was taken aback by some of the tales about cost-cutting and non-investment in safety.  In particular, the appalling Texas City accident in 2005 was arguably a more egregious case of penny-pinching (at an aging refinery acquired with Amoco) than the Macondo Gulf disaster.  It’s surprising in retrospect how BP was able to weather that – and the Alaska spills – without greater ferment at the time.  The US data over the last decade shows clearly that BP was way ahead of rivals in breaching regulations.

Browne's departure

Bergin then takes us through the departure of John Browne. Arguably Texas City and other setbacks may have weakened his lustre when he was seeking to stay on beyond the age of 60, but what really counted was that Peter Sutherland played the governance role that a Chairman is there to do.  Browne, whatever his many talents and achievements, was clearly suffering from hubris, and Sutherland also played a decisive role in nixing Browne’s musings about a merger with Shell. (As an aside, it’s a shame that Browne’s memoirs didn’t get more attention, perhaps because he opened up on some matters more than others, or perhaps because his book came out just ahead of the UK election).

When Hayward succeeded Browne, he was given the benefit of the doubt in both turning around BP financially and, apparently, in reforming its safety culture.  Bergin talks about the way Hayward declared “mission accomplished” within 18 months of taking the helm.  He’s intrigued at just how easily this story was accepted by investors and others, but he puts it down to the inherent optimism of the stock market, and the fact that a stock with an index weight of 10% just can’t fall too far out of favour.

The book is pretty fair to Hayward, but makes clear he didn’t really have the temperament to run a huge public company.  His long history of complaints about media misinterpretation predated his becoming CEO and set the tone for a prickly relationship.  In addition, his stilted relationships with his PR advisers, internal and external, got in the way of effective decisions.  Some days before his infamous “I want my life back” comment, Bergin heard Hayward say “I don’t have a life right now” to assorted stakeholders on a visit to the clean-up effort.  Bergin’s point is this: Michele Davis of Brunswick (an ex Bush administration official) was there, but not close enough to hear this, nor perhaps confident enough to put Hayward right before he used such self-referential language in front of the media.  Hayward was also extraordinarily naïve in thinking US media didn’t have access to points he was making in the UK, which is why the phrase about the “very, very modest” spill came back to bite him.

Hayward had in fact cut back communications in his first days as CEO, for example axing Blair’s Anji Hunter as head of communications.  Brunswick’s Alan Parker and the new BP head of comms, ex-FT editor Andrew Gowers, get about a dozen references each in the index.  We learn a bit about them; I’d have loved to have known more, but they stand rather Rosencrantz and Guildenstern-like in a story with bigger actors. Bergin makes the point that neither Gowers nor Parker knew the US that well.  While Brunswick’s Michele Davis was a DC insider, Brunswick wasn’t really known for crisis PR, and didn’t have the same resources in the US as some other agencies.  I’m not sure that analysis is entirely fair to Brunswick – in such a situation what really counts is not scale, but the chemistry the adviser has with the principal.  Bergin criticises Brunswick for not pushing Hayward to stand back from fronting the response but “like any service provider, the firm had more incentive to flatter their paymaster than to challenge him”.

Hayward told Bergin well before the spill that he thought Gowers – newly in post - was “doing a great job”, “a comment I [Bergin] interpreted as meaning that Gowers had not asked him to do anything he didn’t want to do”. There’s a great anecdote that Gowers couldn’t accompany the team visiting the rescue ships because beards were forbidden on safety grounds, and Gowers wouldn’t shave his off.

For the BP internal press team overall, they “were used to dealing with financial journalists who wrote unemotional, carefully balanced stories, deep in context: they found themselves ill-equipped to handle the bare-knuckle tactics of 24-hour TV news”. (Bergin’s description of ‘objective’ financial coverage no doubt reflects his Reuters background!)  

BP's handling of Deepwater Horizon

BP’s mistakes, of engineering, safety and communications, around Deepwater Horizon are well known, but it’s striking to be reminded of their crassness.   Passing the blame initially to TransOcean unravelled very quickly.  The headline of the first press release BP put out says it all: “BP Offers Full Support to TransOcean after Drilling Rig Fire”.   The $50m ad buy in the US to say sorry – having said earlier that glossy statements of regret were meaningless – simply annoyed Obama.

BP’s failure to come clean on the flow rate was a critical error, and its attempt to blame the Government for the initial estimate of 1,000 barrels a day didn’t stand up.  Bad information, coupled of course with the wrong type of well design (the cheaper one) led to over-investment in the futile “Top Kill” effort.  As a result, the relief well process was unnecessarily delayed. Bergin examines the way the “anchoring” effect of the initial low estimates influenced many, admitting it made it more difficult for him, covering the event closely, to accept that much, much higher levels could be accurate.  The vastly higher numbers slowly emerged, with BP stuck out on the rack.

Bergin suggests Hayward’s decision to lead from the front in America was a mistake.  I’m not so sure about this.  It’s also possible to argue that appearing to hide in London wouldn’t have worked either for a Brit CEO with the US media.  Certainly, however, Hayward could have shared the media role earlier with Bob Dudley, who had the immense advantage of a US passport.    

Crisis communications lessons

Regardless of the PR failures, the scale of the event would have brought BP close to the edge, and would almost certainly have cost Tony Hayward his job. We should not overestimate the impact of communications here.

The Gulf leak was, unlike many crises, an ongoing incident.  BP didn’t know when, and if, it could stop the leak.  That made it much, much harder than crises where the key event has in essence “happened” by the time the story hits the media. BP was forced to broadcast the footage captured by its underwater submarine cameras - as one advisor is quoted as saying: “As soon as we put up the footage of the plume, we were finished.  It was like bleeding to death live on television”.

On the other hand, relative to many crises, BP had quite a lot of time – a couple of months – to start to turn things around. It’s not at all clear that it used that time well.

Political opinion turned against BP very quickly.  This shows (as does Murdochgate) that politicians generally reflect the objective public policy interests of their parties and their governments.  Good connections can help communications, but carefully built relationships can crumble at great speed.   While Lord Browne spent time with US Presidents and Hayward did not, that would not have made any difference once the firestorm was raging.  What counted at the end of the day was the objective case that Svanberg and Hayward were able to put privately to the Obama administration, namely that BP’s pockets, while deep, were not infinite, and that if financial markets put BP out of business, as was starting to look conceivable, such a bankruptcy would be bad news for the US and its leadership.

Other observations

Investors, it turns out, are not actually that interested in safety, partly since they are in the business of beating the market quarter by quarter.  One head of IR speaking to Bergin said “when you talk about safety people switch off“.   And although Bergin doesn’t explicit say this, it’s clear he also believes the press isn’t that good at reporting on safety except when accidents occur - the classic long tail event.

In the cleanup effort, BP has a curious symbiotic relationship with local communities affected: it has been in both their interests to downplay the long-term environmental impacts.

There are some great sections on Chairman and CEO interaction, with the breakdown first of the Browne-Sutherland relationship, and then the Hayward-Svanberg relationship. Gowers and Brunswick both denied they had briefed against Svanberg, but as chairman he continued Sutherland’s practice of retaining a separate adviser.  Actually Bergin is very fair (and I think accurate) in recognising that Brunswick’s essential loyalty was to the company, rather than to any individual, however important.

Interestingly Hayward’s wife wanted to write a book addressing the criticism, but was advised against this.

Overall Bergin, who is a very good natured Irishman, thinks that while some media might have ‘overclubbed’ BP, other media were over-lenient to BP over a long period.

For me, the disaster, and the book, show both the power and the limitations of corporate communications.  Good crisis communications can influence perceptions of a company and affect how individual executives come out of a crisis.  But the relationship natural resources companies have with the environment, and with their staff’s safety, is ultimately one that democratic governments cannot outsource.

Posted by Andrew Marshall