BP Crisis Management – How to Avoid PR Misfires
About every 20 years, there’s a major oil-spill disaster. None has been handled well, PR-wise.
On Jan. 29, 1969, an oil spill involved Union Oil off the coast of Santa Barbara, CA. On March 24, 1989, it was the Exxon Valdez oil spill in Prince William Sound, Alaska. And following an explosion on April 20, 2010, it was the BP oil spill in the Gulf of Mexico.
Dr. Peter Drucker’s quote, “Arrogance is being proud of ignorance,” obviously was not intended for the most-recent public relations debacle facing BP, but it sure is applicable. The results are a case study for worst-practices in crisis management.
BP has inadvertently created a PR situation synonymous with herding cats. It’s been fighting to clear up two quagmires – its oil mess and its rapidly deteriorating image.
It’s important to understand the need for a comprehensive risk analysis. First impressions demonstrating empathy and competence are vital. It didn’t appear BP was prepared to successfully deal with such a catastrophe. A good old-fashioned SWOT analysis of strengths, weaknesses, opportunities and threats with worst-cases scenarios would have sufficed.
For possible insights into BP’s corporate mindset, a former CEO of Royal Dutch/Shell’s U.S. subsidiary, Shell Oil, has some illuminating realities. In the strategy+business management magazine, CEO John Hofmeister’s article, “Why We Hate the Oil Companies,” explains how some corporate oil CEOs dysfunction. He indicates they earn their reputations for arrogance and blow opportunities to create the right image.
“Retailing fuels is basically a secondary exercise from the oil company’s point of view, a way to get rid of the product it has spent so much time and money producing,” he writes. “This makes the retail side the least valuable part of the business, more often a nuisance than a value creator.”
BP’s “Beyond Petroleum” branding has not helped.
Since the spill occurred, despite BP’s best efforts, the company has not been front and center of the media. And when it has been in the media, it’s not a pretty picture, such as offering $5,000 to potential plaintiffs not to litigate in anticipated lawsuits. Nor has BP been seen as compassionate and aware of their social responsibility. Nor has it appeared eager to roll up the proverbial sleeves to work with government to minimize the ecological damage.
In responding to a question about BP’s safety record in an interview with ABC’s George Stephanopoulos, BP CEO Tony Hayward said:
“I think we’ve made enormous strides as a company in the last three or four years with a remorseless focus on safe, reliable operations. Ah, this wasn’t our accident. This was a drilling rig operated by another company. It was their people, their systems, their processes. We are responsible not for the accident but we are responsible for the oil, dealing with it and cleaning the situation up.”
However, here are my recommendations:
- He should have been mindful of all his operations. In the middle of the disaster recovery efforts soon after his interview on ABC, another negative headline was published: “Washington state fines BP $69K for violations.”
- His initial comment should have been a strong note of empathy regarding the need for due diligence in safety.
BP’s Web site mentioning a minimal number of advisories per day with links to Twitter and Facebook are insufficient. Why?
This is a war – a war to save the environment, the livelihoods of families depending on fishing, and the company’s reputation. Where are the pictures of a hardworking CEO, in oil-stained work gear, directing crews like Gen. George Patton in World War II? Where are images of him conferring in teamwork-style with government representatives?
Furthermore, published revelations in this typical headline, “U.S. exempted BP rig from impact study,” looks terrible for BP and a federal agency. The article indicates BP lobbied for an exemption in order to avoid an environmental impact analysis. The waiver was reportedly rubber-stamped by the Minerals Management Service of the Interior Department.
The Obama Administration has also received criticism for its initial tepid handling of the accident, including this commentary: Government scholar Paul Light calls on Secretary Napolitano to step down.
To minimize the damage, BP should have immediately accomplished five tasks:
- Issue regular, frequent progress reports
- Control the pictures (even some on the Web site appeared to be canned or generic)
- Transparency
- Display empathy as a concerned corporate entity comprised of authentic people diligently making a good-faith effort to solve the problem
- Stopped lobbying for environmental waivers.
To be sure, this is no way to run a railroad – or an oil company or government claiming to have environmental credentials. Aren’t there classes on how to be environmentally conscientious, take safety precautions, or perform best-practices in crisis management?
From the Coach’s Corner, for any company following a disaster, here’s a column to enable business continuity: “19 Tips to Protect Your Core Assets from a Disaster.”
Will Obama’s Lifetime Income Plan Confiscate Your Retirement?
Feb. 14, 2010
Instead of productive public policies to create jobs, the federal government is pushing an increasingly nerve-wracking idea.
The Obama Administration appears to be taking an elitist approach regarding your retirement plan – bureaucrats ostensibly think they know better than you regarding your retirement planning and money.
Yes, the federal government is considering proposals to convert your 401 (k) and IRA accounts to annuity-type plans.
On February 1, President Obama advocated amending government rules that permit 401 (k) retirement plans with annuities.
There have been multiple news accounts of the government’s scheme. A comprehensive BusinessWeek report concerning the Obama Administration and your retirement was published Jan. 8, 2010 but didn’t seem to attract much attention.
The article by Theo Francis explained the plan, and indicated the U.S. Treasury and Labor Departments want Americans to weigh in on the ideas to exchange their retirement plans into annuities. Carrying the annuity ball for the Obama Administration are Assistant Labor Secretary Phyllis Borzi and Deputy Assistant Treasury Secretary Mark Iwry.
The government has begun soliciting comments.
Naturally, there are several companies that would benefit because they sell annuities including AIG (the company that received a $182.3 billion taxpayer bailout). The major players also include MetLife, Hartford Financial Services, Lincoln National, and New York Life.
In general, annuities would seem attractive because they guarantee funds until a retiree passes away. The thought is they’re a hedge against retirees running out of savings. And some people seem to think that annuities are a viable option for senior citizens because of their losses in the stock market.
The article quoted a 2009 report that stated only 2 percent of 401 (k)s are switched to annuities.
Fidelity Investments reported the average 401 (k) fund decreased by 31 percent between 2007 and 2009.
Hence, the alleged government interest in retirement security for citizens.
A lot of money is in retirement plans: $3.6 trillion, according to a trade group in Washington – the Investment Company Institute.
So what, you ask?
Well, my sense is that the government bureaucrats have another furtive motive.
In 1993, Democrats were looking into ways to get control of retirement funds. During the Clinton Administration, there was a proposal to levy a 15 percent tax on retirement plans to share wealth with low-income citizens. The scheme was attributed to Dr. Alicia Munnell, who was assistant secretary of the Treasury for economic policy. But the idea died with the 1994 voter revolution that swept Democrats out of office.
Early in my career, I enjoyed working for two insurance companies offering annuities. Because of the expensive fees, sales commissions were healthy which conjured images of me driving a new Lamborghini as a 20-something.
But in some ways it was embarrassing. Annuities were not flexible or affordable for many of my policyholders. Plus, the annuities would not have yielded sustainable retirement incomes.
If annuities seem like a good idea for your situation, fine. But for many, they’re not viable, and a government-backed enterprise would not be productive.
Just look at the mismanagement of the Wall Street bailouts. The plan was not transparent and was administered by bureaucrats with a conflict of interest. The big banks still are not loaning money to deserving businesses and consumers, and the investment bankers are once again getting huge bonuses made possible by taxpayers.
Moreover, why give the federal government more power over your finances? If the government succeeds and does try to resurrect the Clinton proposal, redistribution of wealth represents another theft of your economic and political freedom.
A government plan to provide lifetime income. I don’t think so.
My hope is that you give the Obama Administration a loud, ringing earful.
From the Coach’s Corner, by May 3, 2010, here are three options in which you can comment:
- Via post office – U.S. Department of Labor, Office of Regulations and Interpretations, Employee Benefits Security Administration, N-5655, 200 Constitution Ave. NW, Washington, DC 20210, Attn: Lifetime Income RFI.
- Via e-mail – E-ORI@dol.gov
- Via the Internet – Visit Regulations.gov
Is it Time to Police Pay at Wall Street Banks?
Sept. 20, 2009
As a longtime free-market advocate, I never thought I would be writing this – but the time has come to regulate the Wall Street compensation of senior banking executives. So, I’m endorsing the proposal from the Federal Reserve – with two provisos.
The Fed ostensibly wants to discourage excessive risk-taking by many banks, including their permissive lending by regulating bank executives’ pay. Nearly 6,000 banks would be covered.
Such practices helped lead to the deepest financial crisis in decades. The behavior has been so bad, it also helped exacerbate problems with the agency that insures consumer accounts to $250,000. Federal Deposit Insurance Corp. may have to borrow money from the U.S. Treasury. FDIC’s bank insurance fund will be paying out $70 billion through 2013 after 123banks collapsed by Thanksgiving in 2009.
Businesses have suffered because their accounts are not insured.
“Wall Street greed and irresponsibility have nearly destroyed the U.S. economy,” said Dr. Peter Morici, a professor at the University of Maryland School of Business and former chief economist at the US International Trade Commission. “Big bonuses for bankers encourage reckless risk taking and were a principal cause of the credit crisis and Great Recession.”
Here are some examples:
“Banks wrote mortgages and sold those to Wall Street financial institutions, who bundled loans into bonds and sold those to investors, such as insurance companies and foreign governments,” said Dr. Morici. “From loan officers to the Wall Street bond salesmen, opportunities to exaggerate the quality of loans emerged. If local banks or Wall Street financial houses could pawn off high-risk, high-fee loans as reasonably safe, they enjoyed big paydays.”
He bluntly criticized the behavior on SWAPS, a financial instrument called a derivative. Simply put, it pays face value to the buyer if a company does not meet its debt obligations.
“Wall Street bankers wrote bogus insurance policies called SWAPS that were supposed to limit losses for investors when mortgages defaulted,” added Dr. Morici. “AIG wrote many SWAPS without capital to back them up, and banks even wrote SWAPS on each other’s mortgages – like two homeowners on a North Carolina beach promising to pay one another in the event of a hurricane.”
SWAPs and bad bonds victimized investors and the bankers garnered mega paychecks. But when the homeowners failed to pay mortgages, banks faltered and the huge losses rippled throughout the economy. But only the banks were bailed out by the government (taxpayers).
To add insult to injury, banks have been allowed to borrow at extremely low interest rates. But they failed to make funds available to consumers and business, and once again enjoy enormous profits. And they have been paying huge paychecks to management.
“Consequently, widows relying on Certificates of Deposit for income, now receive much reduced interest rates” said Dr. Morici. “That’s right – Ben Bernanke is taxing grandma to bail out Goldman Sachs.”
Receiving comparatively little attention has been the continuing predatory behavior on credit card customers – banks and credit card companies are still geting away with bogus reasons for jacking up credit card rates and fees.
But a year after the collapse of Lehman Brothers, another SWAPS practitioner, SWAPS have lost their stigma, according to published reports.
Dr. Morici agrees:
“Flush with profits, the banks are up to their old tricks – again creating highly engineered financial products, selling swaps, setting aside massive profits for bonuses, and manufacturing conditions for another crisis,” said the business professor. “If Wall Street banks are too big fail, then they are too big to let go on with this irresponsible behavior.”
But he points out the Fed would be over-matched in its proposal to regulate bankers’ pay.
“The latter is too complex to be realistic – the banks would run circles around such rules, much like lawyers creating tax shelters,” he said. “Better to limit bonuses and salaries of bankers to a fixed percentage of net income that aligns financial sector salaries with those of other industries.”
Agreed. In addition, I would add two caveats:
- Strictly reduce the amount of risk that banks undertake.
- Require high reserves – much higher.
And on a related topic while we are cleaning up Wall Street practices, let us correct the predatory behavior of banks and credit card companies that dramatically increase rates and fees for bogus reasons. The companies are domiciled in a handful of states that permit such behavior.
In other words, here is what is really needed: Police the behavior of these people.
But are the Obama Administration, Congress, certain state lawmakers, and regulators conscientious and determined enough to do the right thing and stop the madness?