BP Made 9 Big Mistakes, Says Report. Is It Making The Same Mistakes Right Now?

Last Updated Jan 6, 2011 6:50 PM EST

No one familiar with BP can be surprised by the findings of the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, who released one chapter of their final report last night.
In nine instances, the Commission traces BP's mistakes to decisions the company made to tolerate more risk in order to move faster. The time they saved, of course, saved money. But each time BP has had a major fatal accident, experts study and analyze its management approach - and nothing has changed. So the question has to be: What does BP know now that it didn't know before? And does it matter?
Acquisitions are costly
BP has always been an aggressive cost cutter because it has had to be. The company was compiled, rather than built, according to an aggressive acquisition strategy led by John Browne in the 1990s. As so often, the costs of that strategy had to be recouped through 'efficiencies' which could only be achieved by cutting corners. In 1999, when BP bought Amoco, the new combined company instantly ordered a 25 percent cut in fixed cash costs across all refineries. The order was made regardless of the condition of each site. Everything was cut, down - it was said - to the number of pencils. Cost cutting and safety are bad bedfellows and it has been clear for years that while saving money at BP will make you a hero, safety doesn't.

Cheap labor
The easiest way to cut ongoing costs is, of course, to cut people and hire non-unionized cheap labor. Before Deepwater Horizon, it was public knowledge that, in its hiring, BP was essentially competing with Burger King in its search for casual workers. There were two problems with this. First, in most cases, such workers do not feel any long term investment in, or commitment to, the business. They just want to get paid. Using such staff in dangerous situations amplifies risk. Second, maintaining oil rigs isn't like flipping burgers. Training and experience count. No wonder the Commission points to the "inadequate training of key personnel". Cost-cutting and training don't go together; indeed, in many companies, training is the first thing to go.
Outsourcing Amplifies Risk
Cost-cutters love outsourcing because it moves costs off the balance sheet and appears to do the same to risk. In reality however, outsourced relationships are inherently dangerous because they put the danger where you cannot see it, effectively blinding management to what is done in the client's name. Although the Commission points the finger only at Halliburton and Transocean, in fact the string of relationships behind the Deepwater Horizon was even more byzantine: the rig was built by Hyundai in Korea to a design from a Texas firm, R&B Falcon which was bought by the Swiss operators, Transocean who leased the rig to BP. BP may imagine that, in outsourcing, it distances itself from responsibility and that may be one reason why they persist with it. In the 2005 Texas City explosion, the fatalities were primarily contractors, which reduced BP's ultimate liability. That may be what this company deems a success.

No Reward for Dissent
One of the most striking comments in John Browne's bromidic autobiography (Beyond Business) is his admission that "I wish someone had challenged me and been brave enough to say: "We need to ask more disagreeable questions."" Instead, the company has rewarded obedience over dissent - as most companies do. There is some evidence that, after Browne's departure, real efforts were made to change this. But the heroic leadership style to which the company had grown accustomed was hard to change. Gaining access to Hayward was only slightly easier than an audience with the Pope. With so much power centralized at the top, it is inevitable that executives will believe - however many times they're exhorted otherwise - that obedience, not dissent, will garner rewards.

Can BP Change?
A few months before Deepwater Horizon, senior staffers within BP believed that, in the years following the Texas City explosion and Browne's departure, they truly had turned the company around. Very tentatively they had just started talking about this in public. Such caution ultimately proved judicious; in the ensuing months, any expressions of satisfaction would have been turned against them. But the fact that they were beginning to feel confident prompts a hard question: if BP thought, at the beginning of 2010, that it had fixed itself when it hadn't, what is its capacity to do so now?

It's hard to be optimistic. Apart from nearly-but-not-quite firing Hayward (he continues to work on BP's Russian joint venture) there have been few external signs of change. The management is, it's fair to say, utterly traumatized but that doesn't necessarily make them open to root and branch change even if the company is intellectually capable of conceiving such a thing. Thanks to Browne's determination that the company become a super-major, the company may now be simply to big and ungainly to change. Strangely enough the only marginally encouraging signs of change stem not from this corporation but from the U.S. government. In its recognition that federal regulation has to become more authoritative, better trained and better resourced may lie the only source of optimism in this whole grim affair.
  • Margaret Heffernan On Twitter»

    Margaret Heffernan has been CEO of five businesses in the United States and United Kingdom. A speaker and writer, her most recent book Willful Blindness was shortlisted for the Financial Times Best Business Book 2011. Visit her on www.MHeffernan.com.

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