BP's Slippery Slope: The Dangerous Disconnect Between Rhetoric and Reality at a Time of Crisis

• By Knowledge@Wharton
• Jul 5, 2010
• Article is provided courtesy of Wharton School Publishing

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Soul of the Corporation, The: How to Manage the Identity of Your Company

This article is provided courtesy of Knowledge@Wharton.

Its logo implies beauty, sunshine, a concern for "green" and a love of nature. However, the recent events off the coast of Louisiana raise major questions about BP's stewardship of the environment and its commitment to behaving in ways that are consistent with its emphasis on social and environmental responsibility. In 2007, we wrote about how BP's handling of the explosion at the Texas City, Texas refinery in 2005, in which 15 workers lost their lives, was at odds with the company's efforts to construct an image of a green and socially responsible corporation. Three years later, we find ourselves writing about BP again.

Here is how we see matters to date: BP's response to the disaster has made a bad situation worse. Not only has the company been unable to stop the flow of oil into the Gulf of Mexico and onto the shores of Louisiana and other states, it has consistently underestimated the scope of the problem. And in so doing it has outraged the American public.

The company's leadership has seemingly been oblivious to the fact that every company has an identity, a set of things that differentiate it more or less clearly and more or less consistently from its competitors. And they seem to be oblivious as well to the fact that when there is a substantial gap between rhetoric and reality, between the image an organization constructs of who it is and how it actually behaves, there can be a huge backlash.

When times are good, when profits are rolling in, an organization can construct an image for the outside world that may, in fact, be somewhat fanciful. It is when the going gets rough, in times of crisis like the one that BP is now facing, that we discover the organization's true identity -- who it really is -- through the way it behaves. To the extent that the constructed image aligns with the way it behaves, we can speak of authenticity. But when there is a gap between the two, however large, questions inevitably get raised, both for those inside the organization and those outside, about who the organization is, really. In this respect, BP is digging itself a huge hole.

The explosion that sank BP's Deepwater Horizon rig on April 20 took 11 lives and has released millions of gallons of oil into the Gulf, causing untold damage to marine life and many miles of shoreline. The company's response thus far leads us to ask a central question, "Who is BP, really?" Is it the responsible steward of the environment that the image the company has worked so hard to project would have us believe? The company's initial slow response to the crisis, its CEO's relative invisibility and its consistently serious underestimation of the magnitude of the spill have certainly raised large doubts in the minds of all concerned: employees of BP, environmentalists, the businesses along the coast that depend on the Gulf, coastal residents, and officials of the affected states and the federal government, to say nothing of the millions of customers who fill their gas tanks with BP products every day.

Playing Down the Damage

Where has the company's leadership been in this crisis? Tony Hayward, BP chairman and CEO, did not appear at the Senate Energy and Natural Resources Committee hearing held on May 11, sending his representative instead, Lamar McKay, president and chairman of BP America.

On May 19, Hayward attempted to play down the extent of damage to the environment in a statement on Sky News: "We will mount, as part of the aftermath, a very detailed environmental assessment but everything we can see at the moment suggests that the overall environmental impact will be very, very modest." Most recently, he has denied that there are any oil plumes, directly contradicting researchers from three universities who are working on the spill.

Furthermore, BP managers are suspected of repeatedly ignoring warnings about the risks of deep sea oil drilling and possibly, according to a government report, of using gifts and other ethically questionable tactics to neutralize drilling regulators. The picture is getting uglier by the day, and the company's behavior is only making things worse.

So what can we learn from this tragedy thus far? As of this writing, BP managers have certainly not displayed much in the way of empathy in elaborating on the circumstances of the blowout and the toll on human and marine life, or in acknowledging the actual and potential suffering of the communities affected by the spill. Circulating settlement agreements among coastal residents that reportedly offer $5,000 in exchange for not suing the company can hardly be seen as a gesture of empathy (the company has halted that process). Taking responsibility for the consequences in carefully crafted legal language -- "where legitimate claims are made, we will be good for them" -- will never be mistaken for empathy no matter how much BP is willing and able to pay.

In the heat of the moment, BP managers may have forgotten that the whole purpose of investing as liberally as they did in building a corporate identity is to establish emotional connections with stakeholders, internal and external, and shift the transactions with these stakeholders from a purely instrumental plane to an emotional one. When corporate branding efforts are aligned with how the corporation actually behaves, its claims about who it is are validated internally and externally, and can generate enough trust and goodwill to elicit from its stakeholders understanding, even forgiveness, in times of crisis.

Is BP eliciting this type of reaction? The evidence so far does not suggest a positive answer, thus putting years of branding efforts at risk. In the meantime, public anger is mounting steadily, as witnessed by former Labor Secretary Robert Reich's call for receivership for BP, putting the futures of both Tony Hayward and the company in doubt.

What Should Have Been Done

How could BP managers have handled the crisis in a way that is more consistent with the official emphasis on BP as a socially responsible and good environmental citizen and that might have avoided -- or at least minimized -- the public relations disaster the company now faces?

With the obvious benefit of hindsight, we would suggest the following lessons, not just for BP executives, but, more importantly, for leaders in other companies who might at some point face their own crises.

• First, BP executives should have been more alert to the significance of the company's identity in the minds of the public. Top managers should have been mindful of the fact that everything they say (and do not say) and do (and do not do) in this time of high public scrutiny sends messages about who BP is.
• Second, they should have reacted quickly. As Toyota recently learned the hard way, there is a need to be proactive immediately. Almost any delay sends an unfortunate message.
• Third, they should have appreciated the symbolic value of being physically present, on the ground, as close as possible to those affected by the spill as quickly as possible. The message of real concern this sends is unmistakable.
• Fourth, they should have tried to balance legal/economic language with emotional/empathic tones in their public statements.
• Fifth, they should have acknowledged the company's moral responsibility before dealing with legal liabilities.
• And finally, they should have had the courage to put the interests of the company's shareholders and managers after those of the environment and the communities affected by the spill.

The product recall by Perrier in 1990 immediately following the discovery of traces of benzene in some of its water bottles in the United States is a case in point. Although the Food and Drug Administration found no immediate risk to consumers, the company's managers decided on a worldwide recall, on the grounds that a premium brand such as Perrier could not afford to do otherwise. While the recall hurt the company's sales and market share badly, its broad and dramatic action showed that it cared more about its customers' health and its reputation with them than about immediate sales and profits.

When are BP managers going to show that they too care as much about the environment and the communities as they do about profitability? Only when they do will there be consistency between the image they project and who BP is, really, and only then will there be a long-term payoff from the company's substantial investment in image-making.

This article is provided courtesy of Knowledge@Wharton.