By replacing CEO Tony Hayward with Robert Dudley, BP’s board once again appears to be doing its job and serious about reforming the company’s safety-last culture. Reality is starkly different. Two facets of its change-of-command clearly demonstrate that this board is not serious about reform, that it is clueless and that it needs a leader and some spine.
Firstly, the Board has coddled the departing Hayward with money, time for a graceful exit and another job within BP, signaling that its members are clueless about his responsibility for the catastrophe, that they reward corporate loyalty over competence, and/or that they haven’t the stomach to take decisive action and risk combat and finger pointing with their departing leader. In 2007, this same Board (only three of its 14 members have changed since then) appointed CEO Tony Hayward; a BP insider and board member to reform the same broken culture. He has grossly failed to do so, in fact I seriously doubt that he even tried, at a cost of 11 dead oil workers, an enormous loss of equity and dividends to stockholders, added insurance costs to the oil industry, uncertainty in future deep water projects and massive pollution of the environment which permanently degrades the lives of millions.
Secondly, the Board’s latest choice is yet another BP insider and board member; a man who starts with the same two strikes against him because he rose to the top by going along with the broken culture and because his power base is solely other people inside BP who have accepted and prospered from repeatedly choosing profits before safety.
If this Board was up to the task and serious about reform, it would immediately sack Tony Hayward, appoint an acting CEO, and then proceed to look outside for its top executive. This executive would probably come from another oil company with a safety record that models BP’s objectives. (Based on the recent performance by Big Oil’s top executives, the Board would have to look at smaller oil companies.) He or she would be expected to bring in a cadre of lieutenants and appoint them to key positions throughout BP.
Such a course of action, probably the only one which can produce significant reform, is downright scary. It requires commitment and leadership which few CEOs and even fewer Boards have. It is far easier, as Shakespeare said through Hamlet, to “bear those ills we have than fly to others that we know not of”. Significant reform, which BP desperately needs to survive, is not an easy thing. Its consequences are not all predictable or controllable.
Perhaps the most unpredictable step is that of selecting a CEO who would succeed. Boards do a poor job of holding CEOs accountable, but their track-records for selecting them is far worse. Should BP’s board accidentally select an outstanding person committed to reform, the uncertainty continues. Those BP employees who have succeeded in the existing culture will strongly resist, both passively and actively, any substantial reform. Reform means that former allies become adversaries and adversaries become allies, former winners become losers and former losers become winners. Meanwhile, the business must operate effectively.
Cultural reform is comparable to repairing a car while driving it a 65mph on a crowded freeway. It is far easier to administer the ongoing system, make cosmetic changes in leadership, run self-serving commercials for outsiders, hire PR firms and lobbyists and hope you’ve departed the board with your share of the loot and prestige before the next disaster occurs. BP’s board has chosen the latter course.
I don’t excuse the board members for being weak and derelict in their duty. However, they are just your average board members, incompetently handling a crisis produced by decades of neglect. I doubt that the Board members of any of the other oil companies, any of the financial behemoths or any other large organization with diverse stockholders would do anything more risky to their personal reputations.
Boards of Directors are the Achilles’ heels of large, older, public corporations. Because of defects in corporate structures, they serve the interests of management and not the best interests of stockholders or society.
There are structural reforms that would reduce the average cluelessness and spinelessness of corporate Boards, but making these structural changes would require leadership, strength and competence in the governments which create and support these structures. Until that happens we should expect all mammoth organizations to be poorly run by self-serving and overpaid executives, who are protected by inept and cautious Boards and coddled by self-serving myths about free enterprise.
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