What BP should have done (and should be doing) from a PR perspective

It always amazes me about the lack of lucid public relations thinking during corporate crises. After all, there are tons of case studies to study about effective (and disastrous) handling of a crisis. The gold standard for dealing with a crisis was set back in the 1980s by Johnson and Johnson after it had to deal with cyanide tainting of Tylenol. The Tylenol crisis case has been studied to death in every MBA class and PR manual. But tonight, I'll make a few remarks on BP's handling of its crisis and will comment on what it should have done (and should be doing) in terms of PR. Of course, a pure parallel can not be drawn between Tylenol's crisis and BP's oil disaster. For one, the Tylenol poisoning was not the fault of Johnson & Johnson (or at least was not perceived to be) because a sicko tampered with the packages of Tylenol at stores whereas BP is allegedly for the underwater oil geyser because of cutting corners. Then again, Johnson & Johnson didn't have anywhere close to the $12 billion in annual profits that BP has to play with.

So how should BP have handled (and be handling) this disaster from a PR perspective? Here are three thoughts.

The right spokesperson

I resent even commenting on this first point because it is so elementary. Crisis management requires two immediate steps (i) notify all stakeholders so that they get your message properly framed; and (ii) have a single, competent, credible, spokesperson to provide the message to the key stakeholders. Again, there are excellent case studies that provide guidance on this. Tylenol did it right. Chysler when dealing with staffers who rolled back the odometers on new cars, on the other hand, did as bad a job as was thought possible - until BPs Tony Hayward came along. Let's revisit some of Tony's faux pas and tactless remarks:

"What the hell did we do to deserve this?" - April 29th (Daily Finance)

"I think the environmental impact of this disaster is likely to have been very, very modest." - May 14 (Newsweek)

"...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." -May 18 (Fortune)

"...there’s no one who wants this over more than I do. I would like my life back." - May 30 (Newsweek)(Don't forget that 11 of his staff lost their lives during the explosion)

"... food poisoning is clearly a big issue" June 1,(Newsweek) responding to claims that workers were hospitalized with nose bleeds, nausea, headaches, dizziness and chest pains while cleaning up the slick with dispersant.

Point one is clear. BP either needed to train Tony a lot better on PR or get a better spokesperson, which they eventually did. But keeping Tony Hayward, who probably has a lot of other decent skills, as the face of BP was a big, bad mistake.



Save the whales and dolphins too...

Let's compare Exxon's 1980's spill in Alaska to BP's 2010 Gulf disaster. Again, any PR professional will tell you that pictures are a lot more powerful than words. Exxon's brand got blistered by the media which constantly showed pictures of oil-drenched birds and soggy coastline. Let's look at BP's situation. BP's sludge is much bigger and covers a much larger area than Exxon's. The Gulf, by virtue of its geography, has more abundant and vibrant wildlife. In 2010, people have digital cameras and access to the Net and there are more news channels than ever before. Environmental awareness is at an all-time high. Furthermore, more people live in the Gulf area than Alaska meaning that more people are going to be taking more pictures to a larger, receptive audience. Translation: there will be a record number of oil-drowned birds, dying dolphins, sick sharks, suffocating Portuguese man-o-wars, ailing whales and sick turtles coming out of the BP carnage. BP needs something bold. It ought to have mobilized (and still should) a massive "save the animals" initiative. A $1 billion initiative to rescue and clean-up Gulf animal inhabitants would go a long way to saving animal life as well as show BP's commitment to Mother Earth. Let's take this idea one step further. BP could also announce an environmental refuge for these saved critters. In addition to being "a right thing to do", these efforts could be used to frame many positive news stories creating goodwill for the brand. Other brands like Ivory or Dawn would probably want to join in the clean up and natural refuge. There would also be spill-over benefits for the local communities if local folks could be hired and trained to help rescue and clean the animals and manage the wildlife refuge. With additional jobs, the local economies are buffered a bit from the oil sludge calamity. In addition, BP will have some good will when facing judges and politicians' wraths at election times.

Buy businesses

BP's has already agreed to pay out compensation to businesses and communities affected by their spill. So, BP's about to deal with lengthy court cases, massive legal fees, bad-speak by politicians and more negative press. How about this for a novel solution, courtesy of a buddy of mine? BP could buy out the local businesses affected by the sludge. Think about it. BP could make offers to buy out hundreds (if not thousands) of small businesses for a measly $1 billion. This will infuse a lot of money into the local economies which would help to avoid legal pains, and political and PR wrath. It's a radical idea but BP needs to do something big and proactive. But, time is running out.

So What?
If we revisit PR case studies, Tylenol came up with bold, proactive initiatives (rewards to capture the murderer(s), tamper-proof packaging, deals with the victims' families) and dealt with third parties (including governmental agencies) to come up with solutions. Chrysler, by contrast, played its hand only when forced by regulators. Tylenol rebounded immediately and came back stronger than ever; Chrysler tarnished its brand. The reality for BP is that it is going to pay very handsomely for its disaster. My point is that it is a lot better off for the everyone involved- communities, environment, and BP - for BP to take some bold, massive environmental initiatives and communicate them clearly to all stakeholders. So far, BP has failed on both fronts.

British Petroleum - Disaster Metrics & Money Talks

There's an old quote, "statistics don't lie but liars tell statistics." And,the stats, stories and spin-doctoring spew almost as fast as the devastating oil geyser in the gulf. Here are a couple disaster metrics - and a few thoughts on the fate of BP -that can help give some context for the average Joe the Plumber.

The Size of the Sludge
With the help of http://www.ifitwasmyhome.com/ we can see how the slick would look if it was placed in Eastern Canada. Here we see that Montreal, Ottawa, Quebec City and southern Vermont would all be drenched by toxic sludge. That's a 2.5 hour drive east-west and a 5.5 hour drive north-south through venemous devastation.


From a North-eastern American perspective, the size of the toxic sludge would cover all of Massachusetts and Rhode Island, and a healthy chunk of Vermont, New Hampshire and Maine.


Tony Hayward, president of BP is on record for saying, "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." (May 14, 2010) While he is right (see map below), what is really tiny is the amount of thought put into that statement. I don't think we need to do a deep dive on his comments, discuss his lack of judgment on the ecosystem and cruelty towards animal life, or examine his lack of sensitivity towards the tens of thousands of residents of the Gulf coast who lost their livelihoods due to the disaster. The point is that the slick is a big, nasty blog that is damaging to a big area. But we're also living on a pretty big planet.

Money metrics
As Angus Young wrote, "money talks"- so how much money is at stake here? More specifically, how much liquid gold has been lost and what's the clean up price tag? According to Reuters, about 40,000 barrels per day flow into the sea. So let's do a back of envelope calculation: 70 days of flow at 40,000 barrels per day at a little under $80 per barrel is just under a quarter billion dollars of oil. That's hardly anything to BP's $12 billion profit from last year. But, obviously the longer the hole goes unplugged, the greater the value in lost oil. But then there are the big costs: Plugging the hole, containing the mess, cleaning up the mess, payouts,legal costs, and damage to the brand. Let's look at these one at a time.

At the start of the crisis, BP was spending $6million per day on containment. As containment becomes more difficult due to mini blobs, a growing slick, and tropical storms, this amount inevitably rises. A recent Drudge article noted that BP is paying $30 million per day in hole-closing and containment costs. Soon we'll be on day 90.

That takes us to the clean-up costs. For this, we have some historical data for a benchmark. The 1989 Exxon Valdez oil tanker disaster had an estimated $5 billion clean up price tag. So given that the BP geyser is already much larger in terms of both volume and area - and continuing to grow- and adjusting for the time value of money, the clean-up will far exceed the estimated $5 billion dollar Alaska clean up. Add on to BP's catastrophe, the clean-up costs the $20 billion of compensation (or should I say "starting point compensation), legal costs and other defenses, and, any way that you calculate it, if BP antes-up like it says it is going to do, we can predict a 1:100 ratio of lost oil revenue to damage costs to BP. And of course, this tally doesn't include the damage to the BP brand, which is already estimated at $1 billion.

Why BP won't go bankrupt
So with mounting billions in liabilities, some folks in the press are flirting with the question, "should BP close its doors?" A more interesting question is, "why can't BP fail?" There are a few interesting forces at work here.

First, British Petroleum is the flagship brand of Britain. It hovers around being the 4th largest company in the world(as ranked by market cap). With such international prominence, the British brand is a source of strong national identity for its citizens. Just as Embraer or Petrobras are sources of great pride for Brazilians, or as Ferrari is for Italy, BP generates emotional appeal for its citizens. On this note, it is not coincidental that these "national brands" often prominently display the home nation in the brand name. (BRITISH Petroleum, PetroBRAS, EmBRAer etc.) So, if BP seems under attack by another nation, odds are the homeland residents will rally in support of their national brand. BP is the home team for Brits. (Note: BP has officially changed its name from British Petroleum, but media persistently calls it British Petroleum)



Second, organizations of BP's size and power have tremendous clout, lobbying and reach with in political circles. Excuse me for being cynical, but the investments BP has made in lobbying and elections has been done in exchange for political favors. Is anyone surprised that Joe Barton, the Republican Congressmen who said BP "deserves an apology" from the Obama, received $27,000 in donations from BP? Let's not forget that Obama and McCain also received handsome BP donations- $75,000 and $45,000 respectively. The point is this- there is a lot of BP goodwill in political circles and it reaches from Congressman to Senator to the President of the United States. I would bet it also reaches even deeper into British parliament.

Third, BP stock is widely held in pension funds. As the BP stock plummets, British pensions are being devastated, which means that the British government is going to be very reluctant to let BP fail. While the "anti-BP" rhetoric can be pretty strong in the US, the US government also has incentive to help out BP. According to Bloomberg, public state retirement funds have lost around $1.5 billion in value due to the declining BP stock price. (Eg.California State Teachers’ Retirement System lost $104.8 million; Florida State Teachers' Retirement lost $87.8 million). This is further compounded by the fact that many of these losses are in states that are already in terrible fiscal shape due to the housing collapse. Pile on the federal pension losses and private fund losses and we can see that the impact is huge. In short, a lot of people are going to be losing a lot of money and corporate welfare can alleviate some of these losses.

Finally, BP is an energy company. Governments repeatedly demonstrate their desire to have a national energy company. Petro Canada in Canada was started for this purposed. Brazil's Petrobras is 50% owned by the government. Boliva recently sent military troops to nationalize energy areas within its borders. Many argue that US-led Iraq war also was done to support American oil companies. Because energy has strategic importance for nations, governments like their nation to have an energy company. I'm making the case that Britain wants BP to succeed in the sector.

So, the incentives are aligned for BP to find a way out of its mess. While the environmental carnage continues with no end in sight and while economic value continues to be plundered, many will talk about how bad BP is. As long as BPs balance sheet can support the clean up, "BP is bad" rhetoric will continue among the politicians and compensations will be pursued. But, if there comes a time when BP is in financial jeopardy, Brits will support their national brand, many politicians will support the hand that has fed them, and the governments will help BP bail out and clean up. This will be done to support the stock. In the meantime, let's all hope the hole gets plugged pronto.

The Financial Driver of Tiger Woods.

Researchers at University California Davis studied the impact of the Tiger scandal on shareholder value and concluded that the Tiger-endorsed brands collectively lost between $5 and $12 billion in the two weeks following the wake of the extramarital affairs. More specifically, share values (and market caps) of public companies endorsed by Tiger including Accenture, AT&T, Electronic Arts, P&G (Gillette), Nike, Pepsi (Gatorade) and TLC Laser Eye Centers fell over 2% of value with the news. I am not going to comment on the authors' methodology or if they normalized the stocks values over the two week period, but I will say that I tracked Nike's BrandMojo.org ratings over the same weeks following the scandal. Nike's overall average score decreased along with its overall ranking and the proportion of "1" ratings increased. Using the logic of Till and Shimp, the brand most closely related to the tarnished endorser will suffer the most- and this is precisely the case with Nike. A 4.5% drop in shareholder value and a changing image of it customers. Ouch. We'll see how long these drops last.