Contaminated by crisis: BP’s survival may be riding on management’s leadership skills

Past crises hint at whether BP can pass its test

BP is being vilified from the Louisiana marshlands to the White House as its leaking oil well pollutes the Gulf Coast, raising doubts about whether the company can survive the backlash.

“There are no magic bullets for something like this,” said Tony Jaques, a crisis management consultant in Australia.

Past corporate crises teach us that it might be too late for BP to recover from the worst oil spill in U.S. history after initially playing down the severity of it. But history also indicates that the company could still bounce back if CEO Tony Hayward and his management team do the right things. Most companies contaminated by crisis recover, even if the stigma sticks.

“Strong leadership will survive any crisis,” said public relations executive Richard Levick.

Several high-profile corporate crises in the past 30 years offer insights into what BP PLC should have done from the start — and might still do.

— Johnson & Johnson’s cyanide scare in 1982

THE CRISIS: Seven people died in the Chicago area after taking Tylenol, a pain reliever that ranked among Johnson & Johnson’s best-selling products. Someone had laced the pills with cyanide.

THE RESPONSE: In what is still regarded as the “gold standard” in corporate crisis management, Johnson & Johnson quickly accepted responsibility and set up a 24-hour hotline to keep consumers updated. Then-CEO James Burke became a media fixture as he stressed that consumer safety was the company’s top priority. That point was reinforced by Johnson & Johnson’s decision to recall all Tylenol products and develop a tamperproof seal to protect its bottles. To lure back leery consumers, the company offered coupons for Tylenol.

Johnson & Johnson had an advantage many companies in turmoil don’t. The cyanide poisonings were the work of an unknown miscreant, which made the company a victim, too.

THE LESSON: Always put the public’s welfare before the company’s profits, even though the response cost J & J more than $100 million — considered an astronomical number at the time. Get the company’s CEO in front of the media if he is forthright and affable. And if there is a legitimate sympathy card available, play it.

— Union Carbide’s toxic gas leak in Bhopal, India, in 1984

THE CRISIS: At least 10,000 people died and more than 555,000 others reported health problems from 40 tons of poisonous gas leaked from a pesticide plant operated by Union Carbide’s Indian subsidiary.

THE RESPONSE: Union Carbide initially seemed to have trouble getting accurate information about the accident and its fallout, possibly because of conflicts with India’s government. When then-Union Carbide CEO Warren Anderson went to India a few days after the accident, he was arrested. He quickly left the country, but he remains a wanted man in India.

Seven former employees of Union Carbide’s Indian subsidiary were convicted of “death by negligence” this month. The former employees, all Indian nationals and many in their 70s, were sentenced to two years in prison and ordered to pay fines of 100,000 rupees ($2,175) apiece.

Union Carbide paid $470 million in 1989 to help compensate accident victims. Protesters say the damage caused by leak still hasn’t been completely cleaned up.

The company plunged into a downward spiral after the incident. It fended off one hostile takeover attempt and divested some of its operations before eventually being sold to Dow Chemical Co. for $7.3 billion in 2001.

THE LESSON: Sometimes a catastrophe is so bad that there is a little a company can do to rehabilitate its image, particularly if the problem is in a foreign country where the government is determined to extract a pound of flesh. This example could be unsettling for Britain-based BP, especially with President Obama making it clear he would fire Hayward if he had a chance.

Marshall Goldsmith, a business consultant who has advised dozens of CEOs and written books on leadership, predicts that BP’s U.S. operations “will need to be sold, spun off or the name will need to be changed because the brand doesn’t look salvageable in this country.”

— Exxon Valdez oil spill in 1989

THE CRISIS: A supertanker ran aground and spewed 11 million gallons of crude into Alaska’s Prince William Sound. The spill killed hundreds of thousands of birds and marine animals and was the nation’s biggest oil spill until the BP catastrophe.

THE RESPONSE: Exxon Mobil quickly came under fire for deflecting the blame and being aloof. The company wound up paying $3.4 billion in cleanup costs, fines and compensation to victims. An Anchorage jury determined in 1994 that Exxon should pay $5 billion in punitive damages, but Exxon spent more than a decade fighting that decision. It argued it shouldn’t be liable for the actions of the tanker’s captain, Joseph Hazelwood. In 2008, the U.S. Supreme Court reduced Exxon’s punitive damages to $507.5 million.

THE LESSON: Perseverance can pay for the company. Exxon Mobil is stronger financially than when the spill happened and reigns as the most valuable U.S. company.

Levick, the public relations expert, thinks Exxon Mobil has managed to recast itself as environmentally sensitive because of the work it did to restore Prince William Sound. (Some environmental researchers see it differently, arguing it will be decades before all the oil is gone.)

Exxon Mobil may not have emerged in such good shape had its spill not occurred in one of the least populous states, Goldsmith said. He also thinks Alaska’s economic dependence on the oil industry made things easier for Exxon Mobil. BP’s spill is far larger and is damaging a much more densely populated area. This calamity also threatens to defile beach communities more interested in money from tourists than oil companies.

— Math flaw discovered in Intel’s Pentium chip in 1994

THE CRISIS: A college mathematician disclosed that personal computers relying on Intel’s Pentium chip spit out the wrong answer to some obscure division problems.

THE RESPONSE: Intel initially brushed off the flaw as too inconsequential for most computer users to care. But consumers began to fret about the Pentium’s reliability, especially after the problem attracted media coverage and became a cultural touchstone for ineptitude. IBM, then a leading maker of PCs, also didn’t like the idea of putting faulty chips in its products.

The backlash culminated when a mortified Intel CEO Andy Grove agreed to replace all Pentium chips. The company set aside a $420 million reserve to cover the costs.

THE LESSON: The customer is always right and corporate arrogance is always wrong.

— JetBlue’s operational meltdown in February 2007

THE CRISIS: When a severe ice storm paralyzed the Northeast, JetBlue kept some passengers on planes stuck on tarmacs for more than 10 hours on Valentine’s Day. Things didn’t get any better in the next few days. JetBlue canceled more than 1,000 flights over the busy President’s Day holiday weekend.

THE RESPONSE: JetBlue’s then-CEO, David Neeleman, quickly went on national TV to apologize and the airline also expressed its regret in full-page newspaper ads. Passenger complaints prompted JetBlue to adopt a “Customer Bill of Rights” that promised full reimbursements for some flight cancellations and credits for delays within the airline’s control.

The contrition and concessions won praise from public relations experts, but JetBlue’s board still wasn’t satisfied. Neeleman, the airline’s founder, was forced out as CEO less than three months after the Valentine’s Day mess.

THE LESSON: Making financial concessions after a crisis isn’t always enough. Sometimes a CEO’s head must roll, too.