07.26.10

Plugging the Hole in BP

Tony Hayward sunk himself with his media gaffes and poor political performances. Can Bob Dudley do better? Tom Bower on the challenge of rebuilding the company's badly tarred reputation.Tom Bower's new book, Oil: Money, Politics, and Power in the 21st Century, is out now.

On Monday night, BP’s board of directors will approve the departure package of Tony Hayward, the corporation’s beleaguered chief executive. Condemned as the face of failure, Hayward’s premature departure is directly linked to the successful capping of the ruptured well in the Gulf of Mexico and the upcoming announcement of the company’s appalling second quarter results. BP’s directors hope Hayward’s exit will draw a line in the sand. Faced with $30 billion in compensation and clean-up costs, BP’s assets and trading results are strong enough to rebut any opportunistic bid by a rival. But the reconstruction of the company over the next five years will provide a severe test for Hayward’s successor. The favorite is Bob Dudley, the American director now responsible for supervising BP’s operation in the Gulf. Dudley’s past record is not a sufficiently convincing record of achievement to guarantee that he can cure BP’s problems. At the moment, he seems to offer BP a band-aid treatment rather than a miracle antidote.

Hayward failed because he was not clever enough to compensate for his weaknesses by appointing new advisers.

Hayward’s premature exit after 28 years’ service with a pay and pension package estimated at over $15 million became inevitable soon after the oil spill. After his media gaffes and lackluster performances along the Gulf and in congressional hearings, Hayward became a hated figure in America. Soon after the pollution began, Hayward’s minimization of the danger attracted suspicion of a cover-up. Local officials along the Gulf coast first lost confidence in his credibility, then his competence. Their anger influenced congressmen and senators and eventually President Obama. Quite simply, Hayward lost America’s trust. Most damningly, he was held responsible for failing to cure BP’s poor safety and maintenance record—exposed in three separate incidents since 2004. His public performances showed that he lacked the vision, energy, and leadership qualities to overcome the poisoned chalice he inherited in 2007 from John Browne, his predecessor. Under Hayward, BP had been pursuing a self-defeating strategy of more cuts in the search for greater profits.

Hayward, a decent geologist with a nondescript record at college and at BP, was only appointed as the company’s chief executive because by 2007, Browne had removed his most capable rivals—ensuring that he could continue as chief executive long after he should have resigned. Hayward was the only man left standing when Browne was summarily forced to step down after signing an untruthful court statement

Hayward’s most important task was to radically change BP’s culture to focus on repairing the flaws in its safety and maintenance programs. That critical expertise had declined under Browne. But Hayward’s progress was too slow and unfocused. BP lacked the capability and self-confidence to supervise its three American subcontractors drilling at the Deepwater Horizon site. A source inside BP says that investigations now under way will, however, off-load some of the blame on those subcontractors, who, in BP’s opinion, have unfairly escaped responsibility of serious faults to suit America’s domestic political agenda. Depending on legal settlements, BP will expect to reduce its costs from the $30 billion provision.

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The job of negotiating that minefield will likely fall to Dudley, a Mississippi-born graduate in petroleum engineering from the University of Illinois. Clean-cut and slightly prim, Dudley worked for 20 years at Amoco before BP bought the corporation in 1998. Browne was instantly attracted to the soft-spoken, polite engineer who had worked for Amoco in Russia. Dudley’s switch to BP coincided with Browne’s speculative investment in Russia’s oil industry. In 2003, after buying a 50 percent share of Russia’s third-biggest oil producer, Dudley was sent to Moscow to run the TNK-BP partnership with four aggressive oligarchs. Mikhail Fridman, the lead oligarch, would claim that Dudley misjudged his partners and foolishly tried to grab control. Another of the oligarchs accused Dudley of political naiveté, especially about the oligarchs’ relationship with President Vladimir Putin. In 2007, Fridman accused Dudley of condescension and duplicity, which Dudley denied. Whatever the truth, Dudley severely misjudged Russian politics and was forced to flee within one hour of being detained by the Russian police. BP was humiliated as Fridman took control of the partnership.

The question now is whether Dudley can repair relations with BP’s Russian partners and whether he possesses the political talents Hayward sorely lacked. Speaking with an American accent will be helpful in the Gulf and Washington, but it could be a handicap in other countries. Ultimately, Hayward failed because he was not clever enough to compensate for his weaknesses by appointing new advisers. Dudley will equally fail if he does not learn the lesson and hire new blood. He must hope that Carl Hendric Svanberg, the current Swedish chairman, is soon replaced by a more experienced operator. BP needs to become more professional.

Tom Bower is the author of Oil: Money, Politics, and Power in the 21st Century a distinguished investigative historian, broadcaster, and journalist, as well as the author of several bestselling books about tycoons, politicians, intelligence, and post-war Europe.