If Hayward beats a retreat, it’s unclear who could lead BP


In the course of two months, BP chief executive Tony Hayward has gone from paragon to punching bag.

The oil geyser in the Gulf of Mexico has indelibly blotted his leadership. It has doused hopes he had for building a safer, more profitable company than the one he inherited when he became chief executive in 2007. It has overshadowed the dispute he settled in Russia, the streamlining of upper and middle management and the contract in Iraq that brought BP back to a giant field it helped discover half a century ago.

Since the April 20 drilling-rig blowout that triggered the oil spill, any investor applause for strong first-quarter profits has been drowned out by anger and calls for his resignation. A 55 percent dive in the stock price, a series of clumsy comments, a standoff in Congress and an outing on his yacht in England put the finishing touches on a lousy stretch for the British executive.

“Does a CEO who has presided over . . . almost $100 billion in loss of shareholder value, in the suspension of a $10 billion annual dividend, who’s lost the confidence of shareholders and regulators and, most importantly, the families and citizens of the gulf, does that person enjoy the confidence necessary to continue acting as CEO, or is it time for that CEO to resign?” said Rep. Peter Welch (D-Vt.) during a June 17 hearing at the House Energy and Commerce subcommittee on oversight and investigations.

Hayward responded quietly: “I’m focused on the response. I’m focused on trying to eliminate the leak, trying to contain the oil on the surface and defend the beaches and to clean up the spill and to restore the lives of the people on the Gulf Coast. That’s what I intend to do.”

But questions about Hayward’s leadership — and who might replace him — continue to hang over BP.

“If you take it from the standpoint of the board of directors . . . you have to ask yourself whether there is somebody better because Hayward has been so damaged,” said Michael Useem, director of the Center for Leadership and Change Management at the University of Pennsylvania’s Wharton School.

“The image of what BP stands for is capitalism at its worst,” said Warren Bennis, an expert on leadership at the University of Southern California Marshall School of Business. “How does BP redeem itself to its investors, to its markets?”

BP’s past troubles

This isn’t the first time BP has endured upheaval at its top ranks. Hayward became chief executive after a tabloid scandal involving the gay personal life of his predecessor, John Browne. Once hailed as the model British industrialist, Browne also faced a series of accidents, including the massive Texas City refinery explosion and Alaska pipeline leaks, and friction between him and Peter Sutherland, the non-executive board chairman. Searing U.S. government and independent reports blamed the accidents on a corporate culture of penny-pinching.

“The top of the organization doesn’t listen hard enough to what the bottom of the organization is saying,” Hayward wrote in a late 2006 memo. “The mantra of ‘more for less’ says that we can get 100 percent of the task completed with 90 percent of the resources; which in some cases is okay and might work but it needs to be deployed with great judgment and wisdom. When it isn’t, you run into trouble.”

In many ways, Hayward has followed the corporate playbook for catastrophe. He rushed to the scene. He expressed deep sorrow about the 11 lives lost in the drilling disaster and accepted the company’s obligation to, in his words, “put things right.” He has cooperated with more than half a dozen investigations and brushed aside suggestions that BP would try to cap its liability despite the Oil Pollution Act limit of $75 million for economic damages.

The two months Hayward devoted to the Gulf disaster contrasted with Browne’s response to Texas City. Browne paid a visit, but later took a low profile, leaving his North America chief to take the brunt of the bad publicity. That executive, John Manzoni, once considered a contender to succeed Browne, left BP; he is now chief executive of Calgary-based Talisman Energy. (He declined to comment for this story.)

Hayward has also made a handful of ill-considered but memorable comments. He told one interviewer that he wanted “my life back,” a genuine reflection of his separation from his family in London but a remark that did not take into consideration the Gulf Coast lives that will remain disrupted for a long time. At another point, he said the spill was small compared with the size of the Gulf of Mexico.

The final blow was his June 17 congressional testimony, during which he repeatedly declined to give any opinion on the voluminous evidence unearthed about the accident, saying it was too early to judge or that he lacked expertise and information.

“This is the kind of transparent untransparency and stonewalling that even an 8-year-old could see this guy was not telling the truth,” Bennis said. A corporate leader in crisis, he said, should “be as open as you can be without giving up patents.”

Possible successors

If Hayward did resign or was thrown overboard by BP’s directors, who would take over? It isn’t obvious.

Three leading candidates — head of exploration and production Andy Inglis, BP America president Lamar McKay and Chief Operating Officer Doug Suttles — are all closely associated with the oil spill. Inglis, the most senior, has kept out of the public eye, while McKay has taken his lumps before Congress and Suttles has been the voice of the Gulf operations.

But any one of them could — and perhaps should — have been aware of the costly and dangerous problems the Macondo well was having before the blowout. Pressed by lawmakers at the June 17 hearing about what he knew about the well before the blowout, Hayward said only that the drillers had discovered oil. It remains unclear who was the most senior person aware of the fateful decisions made about the Macondo well. The only thing more disruptive than ousting the company’s top leader might be ousting two, three or four of them.

Corporate housecleaning has been done before with positive outcomes. Warren Buffett took charge at Salomon Brothers, when the securities house was caught up in a scandal for violating Treasury auction rules. Tyco survived the ouster of its chief executive, chief financial officer and general counsel over charges that they were stealing from the company.

The oil industry is an insular business. Even companies within the industry have their own cultures and rarely poach each other’s executives. Useem says BP’s trouble might “not be flawed people but a flawed culture or a flawed mindset.”

BP repeatedly has said that it will be judged by its actions, not its words. Yet many observers say it will be judged by its leadership, too.

At the June 17 House hearing, Rep. Cliff Stearns (R-Fla.) said, “Now, let’s say you were on a ship, and you ran into New Orleans and you spewed all this oil and you killed 11 people. Do you think the captain of that ship should be fired? Has anyone in BP been fired because of this incident? Anybody?”

Hayward began, “Not . . .”

“Yes or no?” Stearns said.

Hayward replied, “No, so far.”

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Stuart H. Smith is an attorney based in New Orleans fighting major oil companies and other polluters.
Cooper Law Firm

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