Case study HR

Running head: BP & THE GULF OF MEXICO OIL SPILL

Case Study: BP & The Gulf of Mexico Oil Spill

Central Michigan University

Organizational Dynamics & Human Behavior – MSA 601

Abstract

This paper will focus on the monumental disaster and ensuing public relations nightmare of British Petroleum (BP). This disaster of course was brought about by the oil rig explosion and fire in the Gulf of Mexico. BP is a multinational conglomerate of gargantuan proportions. They have molded and perfected their public image over decades. This paper will take a look at the lapses in BP’s management and public relations efforts and what measures the company should have taken.

BP & the Gulf of Mexico Oil Spill

The reason that the authors selected to evaluate British Petroleum (BP) for a case study was due in no small part to the endless media attention given to the oil spill in the Gulf. BP is an extremely popular brand that everyone in this country undoubtedly is effected by in one way or another. One of the initial reasons for choosing BP was the unmitigated disaster put forth on the public relations front in explaining the company’s efforts at dealing with the Gulf of Mexico oil crisis. The authors were further intrigued at this assignment for the poor leadership and decision making acumen of the former CEO Tony Hayward (CMU, 2009, p. 227). With this multi-focal approach, the study will highlight the conflicting messaging presented to the public and the lackluster and ultimately ineffective leadership within the organization.

BP is a huge multinational conglomerate whose primary focus is the petroleum industry. The company does business in over 30 countries around the globe. Its annual operating income is $239 billion dollars with over $14 billion dollars in profit in the year 2009. The company employs over 80,300 individuals and owns 16 refineries worldwide. BP operates several subsidiaries under the names AM/PM markets, BP and ARCO gas stations, Aral gas stations in Germany, Wild Bean Café, and Castrol Motor Oil (BP at a glance, 2010).

The competition within the petroleum industry is not as plentiful as one might think. There are actually very few players in the game. Due to the limited number of refiners of crude in this country the oil from various sources are blended prior to coming to the consumer. BP doesn’t have much use for the service station business anymore. In 2007, it announced plans to sell the last 700 stations that it hadn’t already sold to franchisees. The company chose to focus on finding and collecting oil. Once companies make a discovery, it comes out of the ground and ends up at a refinery. There, it can be mixed with oil that a variety of companies have poured into the tanks. This is further evidenced by BP’s plans to divest itself of its remaining 700 gas service stations. The highest percentage of income is made from oil exploration and extraction and not in the selling of gasoline at its stations (Lieber, 2010).

BP has done an excellent job of fine-tuning its brand image to the public. The company has crafted a persona of being environmentally friendly. This presentation stretches from its “Beyond Petroleum” tag line, which reflects the ideal that it is not a petroleum company, but some sort of green energy hybrid (Tharoor, 2010). This image that BP successfully marketed to the public worked quite well. The downside is that the petroleum industry inherently has risks associated with it. This came to light on April 20, 2010 with the Deepwater Horizon oil rig disaster. The oil rig explosion released millions of gallons of oil into the Gulf of Mexico and killed 11 workers. BP, which had done an excellent job at marketing its image and receiving positive feedback from the public, was not prepared for the immediate backlash that ensued.

Challenge Within the Organization

The public perception following the rig explosion was that BP’s response in getting a handle on the rig explosion was slow, poorly orchestrated, and lacked transparency. Instead of getting a handle on the disaster a BP spokesman stated, “The sort of occurrence that we’ve seen on the Deepwater Horizon is clearly unprecedented. It’s something that we have not experienced before…a blowout at this depth” (Burdeau, 2010). The finger pointing and blame game continued with BP initially not taking responsibility and blaming its partners in the oil venture. While the oil continued to spill into the Gulf and stretching more than 130 miles long and 70 miles wide, the public relations train wreck continued. BP’s CEO Tony Hayward further degraded his company’s image with several infamous quotes: “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.” He later stated that he thinks, “the environmental impact of this disaster is likely to be very, very modest.” The final slip up came when he stated, “I want my life back.” His poor leadership style and lack of sensitivity are great examples of a dysfunctional conflict (CMU, 2009, p. 227). The lack of direction exhibited created an unnecessary conflict. In spite of the disaster, it was his job as the leader of the organization to marshal his forces and control the spin.

It is also quite possible that the backlash exhibited by the American public could be indicative of ethnocentrism (CMU, 2009, p. 316). There was a lot of grumbling and outward hostility that BP was not as concerned with the devastation caused by the oil spill since it is a British company and America is not its top priority. BP’s embattled CEO, Tony Hayward, further stoked the flames of this sentiment when he went yachting in England during the height of this disaster (Boyce, 2010).

Solution to Organizational Dynamic Problem

The conflict facing BP was complex in nature and an environmental disaster. The conflict as well as the publicly made comments made by BP’s CEO, Tony Hayward, was threatening not only the organizations interests but also that of the nation. The U.S. government had no choice but to use a dominating conflict-handling style to deal this type of dysfunctional conflict (CMU, 2010, p. 237).

The government forced BP to act by increasing political pressure during congressional hearings. On June 4th, President Obama publicly “warns BP against skimping on compensation to residents and businesses”. Two days later, Obama increases pressure on BP by asking “whose ass to kick” over the oil spill. On June 9th, U.S. Interior Secretary Ken Salazar informs BP that the company is required to pay the salaries “of thousands of works laid off by a moratorium on drilling” (Reuters, 2010).

In an effort of good faith and bowing to both social and political pressure (CMU, 2009, p. 357), BP leadership met with the Obama administration and agreed to a $20 billion dollar fund. This fund was set up to compensate the affected communities for their losses and to aid with the cost of environmental cleanup and restoration. BP went a step further and on July 28, 2010 announced that the embattled CEO Tony Hayward would be replaced with an American Robert Dudley.

Evaluation Techniques and Evidence

To evaluate BP’s performance the authors reviewed Gallup poll opinions and cross referenced this data with the company’s stock performance. Gallup is a world renowned research company that provides the most up-to-date findings on societal viewpoints on current events as well as a wide variety of other issues (Gallup, 2010). This technique will provide a broad overview of the public perception on BP’s performance handling this crisis. By cross referencing this data with the company’s stock performance the results will include impacts on not only stockholder confidence, but also that of the general American public.

In a USA Today/Gallup Poll conducted June 11-13, 2010, the majority of American’s polled believed that BP should “pay all losses, even if it goes out of business” and rated the company’s handling of the oil spill as very poor. During this same time period, the American public also felt that President Barrack Obama had “not been tough enough in dealing with BP in regards to the oil spill”. While Americans are dissatisfied with BP’s handling of the spill, they are divided at who should be responsible for controlling the oil spill, BP (49 percent) or the government (45 percent). These results suggest that the American public is losing confidence in BP’s ability to control the spill when compared to a Gallup poll conducted less than two months earlier. In late May, 68 percent felt that BP “should be in charge of the efforts to control the oil spill and its effects” (Gallup, 2010).

After BP successfully placed a temporary cap on the spill, Gallup conducted another poll to examine if the publics perception had changed. The majority still did not approve of BP’s handling of the oil spill but were divided on whether the company should be allowed to drill for oil in the Gulf. When asked about the damage from the spill, 44 percent felt that the damage was worse then they thought it would be, 29 percent thought is was about what they expected, and 22 percent did not think that the damage was as bad as they expected (Gallup, 2010).

Gallup poll opinions seem to somewhat coincide with stockholder opinions. On the date of the disaster, BP’s closing stock price was $60.48. The stock spiraled downward to a 52-week low on June 28, 2010 at $26.75 (see Appendix A). The downward spiral can be attributed to a variety of factors: failure to take responsibility for the spill; several failed attempts to stop the leak; and, BP’s announcement in May that it may take two to three months for a relief well to be in place (Reuters, 2010).

In mid-July, BP sealed the leak with a temporary seal. This announcement is followed the announcement that BP had replaced its CEO with an American. Stock prices began to slowly rise. The stock reached a high of $41.33 on August 6, 2010 but has tapered off and has fluctuating between the mid-to-high $30’s (Marketwatch, 2010). Stockholders seem to mirror the viewpoints reflected in the Gallup polls. BP announced on September 19, 2010 that the seal is in place and that the well is no longer a threat to the Gulf, yet stock prices remain static since this announcement (Reuters, 2010).

Conclusion

In summary, the public relations disaster of BP was largely self-inflicted. BP’s dysfunctional organization allowed the story to get out of hand and the media and public perception turned negative because of this. BP illustrated poor organization, a lack of transparency and candor. Not owning up to the problem and being reactionary diminished the public’s good will and compassion. Stock prices and poll results prove this.

BP’s new CEO, Robert Dudley, needs to refocus company in order for the company to meet its organizational goals. Instead of being reactive, the company needs to have proven safety measures to handle a disaster of this magnitude. BP needs to improve its safety track record and practice “programmed conflict” to deal with organizational issues (CMU, 2009, p. 234).

References

BP (2010). BP at a glance. Retrieved September 20, 2010, from bp.com: http://www.bp.com

Boyce, G. (2010, June 21). Retrieved September 20, 2010, from New Orleans Progressive Examiner: http://www.examiner.com/progressive-in-new-orleans/tony-hayward-s-i-want-my-life-back-weekend-yachting-and-grey-poupon-mustard

Burdeau, C. (2010, July). Document: BP didn't plan for major oil spill. Retrieved September 19, 2010, from KVAL 13: http://www.kval.com/internal

CMU. (2009). Organizational dynamics and human behavior (2nd ed). Boston: McGraw Hill Learning Solutions.

Gallup (2010). About Gallup. Retrieved on September 16, 2010, from: http://www.gallup.com/corporate/115/About-Gallup.aspx

Gallup. (2010, August 18). Americans divided about future gulf drilling. Retrieved on September 23, 2010, from: http://www.gallup.com/poll/142172/Americans-Divided-Future-Gulf-Drilling.aspx

Gallup. (2010, June 15). Americans want BP to pay all losses, no matter the cost. Retrieved on September 16, 2010, from: http://www.gallup.com/poll/140744/Americans-Pay-Losses-No-Matter-Cost.aspx

Kielburger, G. (2010, June 16). BP oil crisis: A PR nightmare. Retrieved September 19, 2010, from GKPR: http://www.gkpr.wordpress.com/2010/06/16/bp-oil-crisis-a-pr-nightmare/

Lieber, R. (2010, June 11). Punishing BP is harder than boycotting stations. Retrieved September 20, 2010, from New York Times: http://www.newyorktimes.com

Marketwatch (2010). BP PLC. NYSE: BP. Retrieved on September 23, 2010, from: http://www.marketwatch.com/investing/stock/BP/charts?countryCode=US&submitted=true&intflavor=advanced&origurl=%2Ftools%2Fquotes%2Fintchart.asp&time=7&freq=1&comp=Enter Symbol(s)%3A&compidx=aaaaa~0&compind=aaaaa~0&uf=7168&ma=1&maval=50&lf=1&lf2=4&lf3=0&t

Reuters. (2010, July 27). BP says DOJ, SEC probe trading around the oil spill. Retrieved on September 23, 2010, from http://www.reuters.com/article/idUSTRE66Q4A920100727

Reuters. (2010, August 20). Timeline – Gulf of Mexico oil spill. Retrieved on September 23, 2010, from: http://www.reuters.com/article/idUSLDE67J0PD20100820?pageNumber=1

Tharoor, I. (2010, June 02). A brief history of BP. Retrieved September 15, 2010, from Time.Com: http://www.time.com/time/printout

Appendix A

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Source: Marketwatch custom charts (2010, September 23)