Crisis Management and the BP

Crisis Management and the BP Oil Spill

It is a common fact that the economic agents of today are no longer able to generate profits through the simple creation and sale of products and services. While their main goal remains the everlasting generation of profits, the means in which this objective is attained today has changed. In other words, economic agents strive to generate the satisfaction of as many stakeholder categories as possible and through this satisfaction create profits.

In terms of the stakeholder categories, these are vast and differ from one entity to the other, but at a general level, they are the parties which impact or are impacted by the actions, decisions and operations of the firm. These categories as such include the organizational staff members, the customers, the business partners, the governmental and non-governmental agencies or the general public.

Throughout the recent years, more and more stakeholder groups gave came to place an increased emphasis on environmental sustainability. This particularly means that they ask economic agents to operate in a means in which they reduce their negative impact upon the environment. The economic agents are as such expected to replace their technologies with more efficient ones, to reduce water and air pollution, to recycle and better manage their waste or to instate crisis management plans in cases of emergency situations.

These same expectations were also forwarded for BP, one of the world's largest companies and a leading oil and gas organization. But despite their stated commitment to environmental responsibility, an accidental spill in 2010 caught them unprepared. The results were devastating for the environment, but also for the company's reputation.

2. The 2010 BP spill

On the 20th of April 2010, the pressure accumulated into the marine riser expanded and ignited, causing the Deepwater Horizon drilling rig to explode. Later investigations identified that methane had also contributed to the explosion and linked the explosion with the improper implementation of safety precautions. BP had not technically broken the law, but it only implemented the minimum precautions and these were insufficient.

In the immediate aftermath of the explosion -- the staff working on the rig recollected a time period of five minutes -- a fire broke out and it burned through the 22nd of April. During the day, it eventually sank. The explosion and eventual sinking of the Deepwater Horizon caused an accidental oil spill in the Gulf of Mexico and this spill is recognized as the largest oil spill in the history of the United States, and the second largest environmental disaster in the U.S., after the sand storms of the 1930 through 1936 (CBC Minnesota).

The explosion of the Deepwater Horizon led to the death of 11 staff members on the rig, and the severe injury of another 16 workers. Nearly 100 workers survived the incident with less severe injuries. From an environmental standpoint, more than one year after the spill, the damages are yet undetermined. Over five millions of barrels of oil have been released into the water, and much of them are missing and infecting the waters, the soils, the water reserves, the birds and the marine life (Biello, 2011). Dead birds, dead baby dolphins and dead turtles are continually found. Yet, the general impact onto the environment has yet to the identified after more years of research and observation.

"In short, they said, [the scientists] nature did not work in such a way that the full picture will present itself within just one year" (Kinver, 2011).

3. Crisis management

The management of the oil spill by the BP group was generally handled in an inefficient manner. Communications with the media were delayed until the 22nd of April, two days after the explosion, and on the day the Deepwater Horizon sank. The representatives of BP issued a public statement and argued that an estimated 8,000 barrels of crude oil were spilling into waters every day. This statement was revised days later, when it was argued that no component of the rig was in fact leaking and there were hopes that the environmental impact of the spill would be zero. Then, after additional investigations, on the 24th of April, it was once again argued that a spill did in fact exist as a damaged wellhead was leaking. The leak was then catalogued as "a very serious spill" (CBC News, 2011).

On the month of May of the same year, BP's chief executive officer Tony Hayward argued that the Gulf of Mexico had an impressive water volume and that the spill caused by the rig would release insignificant quantities of oil. In his own words:

"The Gulf of Mexico is a very big ocean. The amount of volume of oil and dispersant we are putting into it is tiny in relation to the total water volume" (Hayward, quoted by Greg Jarboe, 2010).

Virtually, the CEO of the BP group had not documented the spill and did not have a clear idea of its magnitude and impact. Additionally, it appeared that he had not learned from the mistakes Exxon had made with its spill in 1989.

"So, if you aren't prepared because you cannot remember the past, then you say dumb things like "the environmental impact of this disaster is likely to have been very, very modest," as Hayward told British TV station SkyNews on May 18" (Jarboe, 2010).

On the one hand, the BP Group waited too long to make a formal statement regarding the spill. Then, when it did so, it did not take any responsibility, but emphasized that it was an accident which was not the fault of BP. The company eventually filed law suits against the three organizations also involved -- the owner of the rig, Transocean; the manufacturer of the blowout preventer, Cameron, and the Halliburton cementer. BP argued that each of these parties played their parts in what eventually came to be the largest spill in the history of the United States. The lawsuits have yet to finalize, but the parties are striving to reach a settlement, without the actual recognition of any wrongdoing for the part of either of them (Kennedy, 2011).

At a more detailed level, the errors in the management of the oil spill refer to the following:

The chief executive officer was advanced to handle the situation, and no other organizational representatives addressed the population.

The official response of the company was delayed and when it did come, it was ambiguous and even offensive as the company did not assume any responsibility but tried to put the blame on anybody else but them.

The approach of the CEO was extremely unconstructive. Hayward indulged in self-pity, wondering what the company had done wrong to deserve the crisis and arguing that he wanted his life back. Such a statement was an insult to the families of the 11 workers who lost their lives on the rig. Then, Hayward also denied the gravity of the incident and he was arrogant and insensitive. As he was turning into one of the most reviled person in the United States, Hayward declared that he was a Brit and he could take it. Also, he declared that he was sleeping well at night and that he did not feel that his job was threatened (Owen, 2010).

Another mistake made by the company, and executed by CEO Tony Hayward, was represented by the fact that the organizational representative traveled to Washington only to discuss with the politicians and ensure stability of the future operations. He nevertheless did not go to the site of the spill to recognize the problem.

Finally, the last part of the faulty puzzle was offered by the very federal institution in the United States, who granted the permit for the rig. The authorization should not have been granted until an adequate crisis management plan had been set in place. Also, the American government is being blamed for having too soon accepted the operations of BP on their territory (Tellem Worldwide, 2010).

Overall, the BP oil spill was improperly handled as there did not exist a crisis management plan. Most of the blame is attributed to CEO Tony Hayward, but it has to be noted that this blame is associated with the means in which he administered the crisis and the details pegged to this. The overall situation is however the fault of the entire company as Hayward would probably be turned into the scapegoat, which would also be fired and replaced with someone to create a new direction and image for BP (Owen, 2010).

4. Impact of the spill and the faulty crisis management upon BP

An actual and palpable impact felt by BP in the aftermath of the Mexican Gulf oil spill is difficult to measure and this is because the company remains one of the most powerful ones at a global level. The generation of energy through the use of fossil resources is already frowned upon from an environmental perspective, but the companies in this industry remain strong as fossil fuels continue to represent the number one source of energy generation.

In a context in which alternative sources of energy are better developed and an infrastructure is accessible to the populations across the globe in an efficient manner, fossil using companies would be better punished for their mistakes. Today however, as these organizations remain strong and virtually without any real competition, dramatic impacts are not observable.

In spite of this situation however, BP did encounter some negative impacts as a result of its poor management of the spill of April 2010. A first of these impacts is obvious at the level of the American population. The spill occurred in the Gulf of Mexico, near the populated coast of Louisiana, creating a sense of danger and discomfort for the population in the area. Also, at a national level, tension occurred as the American people came to blame the English company for the environmental disaster. In other words, the reputation of the BP Group was severely affected.

Then, another impact felt by the company is revealed in its relationship with the business partners, the more relevant of them being Transocean, Cameron and Halliburton cementer. These three parties had perceived themselves as partners of the BP Group, but have come to realize that in a case of a crisis situation, BP would not hesitate to find them guilty of any issues in order to salvage themselves. This specifically means that the reputation of BP as a valuable and trustworthy business partner has also been negatively affected.

Another impact is revealed at the level of the people who lost their lives as well as those who were injured. In this line of thoughts, the company has agreed that it would pay financial compensations where these are due. Additionally, it is possible that other entities would also forward financial claims and it is unknown how much the BP Group would have to spend in order to settle all claims. In other words, there is a direct strain on the company's financial stability.

At the level of the financial demands, CEO Tony Hayward has made another mistake in that he publicly stated the firm would cover the expenses, whereas in private, he denied this. For the time being, the BP Group could spend as much as $75 million in damages connected to the oil spill, but democratic efforts are being made to eliminate this cap and ensure that the company is asked to compensate for the full damage it created.

"There already are questions about how much BP will pay in damages. Despite Hayward's media statements about taking care of legitimate claims, Hayward privately rejected committing to paying all economic damage claims, Sen. Bill Nelson (D-Fla.) disclosed after the two met in April.

There currently is a $75 million cap for economic damages connected to an oil spill, but two Democratic senators are pushing legislation that would eliminate that limit" (Mulkern, 2010).

Overall, the company's reputation plunged to appoint at which the firm had lost complete trust from the many stakeholder categories. So low was the trust of people and investors in the company, that the very interest for the BP shares decreased to an 18-year low minimum (Wardell, 2010). Still, as the company launched a multimedia marketing campaign to restore its image and credibility, the stock also commenced to rise in market value.