Holcomb Ethics Boot Camp Crisis Management 2014

Crisis Management: from BP to NFL to ISIS to GM John M. Holcomb Ethics Boot Camp October 10, 2014 Sentencing Guidelines Mitigating Factors      Lack of Involvement in the Offense by Any Policy-Influencing Personnel Taking Appropriate Steps to Prevent the Commission of Crimes Taking Appropriate Steps to Detect Crimes that Have Been Committed Self-Reporting of Offenses to Authorities Cooperating Fully with the Government’s Investigation Mitigating Factors Cont.     Accepting Responsibility Taking Swift, Voluntary Remedial Action Disciplining Individuals Responsible for the Offense Responding to the Occurrence of an Offense by Taking Steps to Prevent Further Offenses Impact of Sentencing Guidelines      Sentencing and Culpability Charging Guidelines of Government Agencies Federal and State Tradeoffs Legal and Public Relations Strategies Converging Legal and Crisis Management Trends Steps in Crisis Management Model         Investigating the Facts Portraying the Problem Assessing Blame or Responsibility Responding to Critics Adopting New Policies Implementing New Practices/Procedures Political Tactics Cost in Money and Credibility Crisis Management and Responses to Public Controversy Firm Finding Facts Problem Portrayal Assess Blame Response to Critics Policy Changes New Procedures Political Tactics Costs in $ Credibility J& J Tylenol Internal Tests Serious Problem Blame Others Collaborate Unilateral Change None Ads and Self-reg Low/Low Abbot Labs Infant Formula Internal and External Tests Serious Problem Accept Limited Blame Collaborate Unilateral Change Code and Decision Structure Negotiate Selfregulate Low/Low Nestle Infant Formula Inactive No Problem Blame Others Confront, then Collaborate Industrywide Change Code and Decision Structure Later Negotiate Med/Med Hooker Chemical Love Canal Inactive No Problem Blame Others Selfdefense No Change Decision Structure Ads and Litigation High/High Firestone 500 Recall Suppress No Problem Blame Others Confront No Change Product Testing Lobbying High/High A.H. Robbins IUD Suppress No Problem No Blame Confront No Change None Litigation High/High Crisis Management and Responses to Public Controversy Firm Finding Facts Problem Portrayal Assess Blame Response to Critics Policy Changes New Procedures Political Tactics Costs in $ Credibility Exxon Valdez Delay Not Serious Blame Captain Selfdefense No change None Litigation Med/High Union Carbide in Bhopal Delay Serious Problem Blamed Indian Managers sabotage Selfdefense; try the case in India Slow change Slow change Litigation and Avoid Med/High BP Diligent but spoke too soon UnderEstimated Extent Shared Blame with other firms Selfdefense and Collaborate Clean up and Safety Measures Change Leaders, Board Internal Report Testify Pay Victims Ads on cleanup High/High News Corp Inactive No gemeric Problem Blame rogue reporters police Selfdefense Investigat e but weak board Fired editors Testify and Litigate Med/Med Tyco Suppress Minor problem CEO blamed accounta nts Selfdefense Massive Change in leaders board mgmt Cultural change values governan ce Strategic changes High for old mgmt Low for new mgmt Goldman Sachs Inactive No Problem Benefits for SHs Selfdefense Changed Bonuses None Testifu Settle Med/Med Crisis Management and Responses to Public Controversy Firm Finding Facts Problem Portrayal Assess Blame Response to Critics NFL Inactive Isolated Players Mea Culpa Policy Changes New Procedures 6-game rule Political Tactics Costs in $ Credibility Defend NFL ? ? ISIS CIA Active W.H. Not Jayvee Terrorists and Advisers Al Quaeda Is Gone; Fox News Return to Iraq; No Derad Progra m Air Support Coalition Longterm Campaig n GM Inactive and Suppres s Limited Apology Limited Agreement Internal Investigation; Safety Culture; Aid Victims Fire Culprits; Global Safety Director; Board Monitor Litigate on property; Defend New GM; Victim Compensation Fund High/Hi gh Lessons from Crisis Management Cases  Where you start is where you finish    Mid-course corrections are rare indeed     Conscientious initial response predicts later positive steps and outcomes Resistant initial response predicts later negative steps and outcomes Require long lapse of time Require major changes in management Nestle is the only aberrant mixed case Learning behavior is unusual   From one’s own mistakes From mistakes of others Pre-Crisis Stage     John Browne era – eliminated rivals Beyond Petroleum Brand; Caspian Sea CSR Growth over quality control Hayward era to emphasize safety, but questionable culture     Texas City refinery explosion Pipeline corrosion Thunder Horse platform problems Safety problems at Magnus platform, North Sea Ascertaining the Facts  Underestimated flow rate     Government also or chiefly responsible Effect on aggressiveness of response? Internal investigation launched by BP Multiple efforts to probe the causes Portraying the Problem      Acknowledged “worst ever” oil disaster “Just want my life back” comment showed hubris and inability to empathize with those who were suffering Less impact on coast and wildlife than Exxon Valdez, especially on the fish stock Major impact areas: oyster beds, marshlands, coral reefs, seabed and possibly plankton Oil has dissipated – 75%; was Hayward right? Allocating Responsibility     Took responsibility for cleanup of Gulf and “all legitimate claims”; not liable for gross negligence Internal investigation set up legal case but does not address legal issues; no mea culpa but PR document  Halliburton responsible for cement problems, not acting on warning about gas flow problems  Transocean and rig maintenance problems Discusses eight factors and BP takes responsibility for half of one; reaction after bottom kill indicated no well design problem; two executives in trouble Causation is still murky and yet to be determined Investigative Reports and Allocating Responsibility     Presidential 0il Spill Commission Report: criticized all three companies, claiming shared responsibility, with special focus on Halliburton for unstable cement mixture; BP accepted report, while Transocean criticized it and awarded bonuses for “best year in safety performance in company’s history” Coast Guard Report: highly critical of Transocean for safety management system failure and poor safety culture National Academy of Engineering: failures by all parties, focus on lack of discipline and training, compared to nuclear and chemical industries Did BP cut corners and sacrifice safety? Markey says “yes,” while presidential commission found no evidence Transocean Internal Investigation  Put primary responsibility on BP     Faulty well design Failed to check cement Chose process to close well that created unnecessary risk, unapproved by Interior Department BP Response: Advocacy document and cherry-picked facts to support its litigation strategy Responding to Critics        More collaborative than confrontational Three BP and two Transocean officials refused to testify Pushed by Congress and tension with Administration  Nationalistic impulses  BP rarely if ever pushed back Hayward was inept, unknowledgeable, and weary before Congress; understood the anger; blamed media and rivals for hysteria; board fired him No battle with NGOs, despite tepid boycott No engagement with investor groups and their proposals but no avoidance of their complaints US media harshly critical of BP; British media of Obama Responding to Critics       Did not join refiners in opposing climate change law in CA by supporting Prop 23 Hypocrisy in posing as green company invited more criticism and scrutiny External programs in CSR (Pipeline to Caspian Sea) conflicted with internal problems, so overall CR profile is weak Debate over value of disclosure and apology Criticism from Gulf state politicians Potential conflict between legal and PR advice mitigated by changes in sentencing and charging guidelines Adopting New Policies          Selling $30 million in assets Forging closer ties with Russia; Fiasco over Rosneft deal and conflict between Russian government and oligarchs More emphasis on deepwater drilling, less on refining Moving more into emerging markets Remediation and cleanup efforts praised Voluntary aid to Gulf states for tourism; relocation of sea turtles $500 million scientific research fund facing state politics Committed to changing culture; “heard it before” Danger of Spanish company drilling off of Cuba may benefit American companies – extending knowhow and equipment Instituting New Procedures         Ousted head of exploration and production Established global safety division Centralizing control under Dudley Review of employee assessments and rewards Review of supervision of outside contractors Splitting exploration and production division into 3 units: exploration, development, production Shut down operations in Alaska and North Sea Scrutinizing board committees on safety/environment and audit – membership and Political Tactics     Restoration payments contingent on continuing ability to drill in the Gulf – political bargaining Tripled amount spent on advertising – criticized but insignificant amount compares to $9 billion paid out thus far; best ads have been of employees cleaning up the Gulf area Use of Brunswick crisis communications firm; retained political consultants on both sides of the aisle; increased PAC donations Reilly lauded BP for defining the problem as systemic industry failure, while Transocean sees it as a BP problem Litigation and Penalties        $20 billion fund for property and human damages Possible $18 billion fine, if there is gross negligence ($4,300 per barrel vs. $1,000) Settlements with contractor Weatherford and partner Moex Offshore; first wave and indicates lack of gross negligence 300 civil lawsuits pending – wrongful death and economic damages Center for Biological Diversity has lawsuit of $19 billion for damages under Clean Water Act Civil lawsuit by DOJ under Clean Water Act; possible criminal charges for manslaughter BP has sued Cameron and Transocean for $40 billion Costs in Money and Credibility         Possible ultimate liabilities of $80-100 billion Litany of future investigations Provoked costly drilling moratorium Faces tougher regulations in the future Reputation is stained Branded stations lost sales and customers Stock cut in half, rebounded now down 1/3 Public credibility is low but has recently doubled Industry Risk Management       Newer risks from deep-water drilling Industry’s Chernobyl; Gulf is Silicon Valley New industry initiative to build equipment to contain and cap well blowouts; National Center for Offshore Safety to improve self-regulation Reilly: “…the spill is a game changer. The industry has never been more alert to safety.” Leaders are pushing laggards Largest companies will benefit as small companies lose to increased costs Minerals Management Service        Collaborator or partner with industry; adopted industry standards; part of re-inventing government Capture theory at work Built-in conflict of interest – promoter and regulator of drilling Encouragement of more drilling from Watt through Babbitt (like Levitt) and Norton. Categorical exclusions from environmental reviews if “no significant effect on human environment” (1970 NEPA) Royalty-in-kind program and Lakewood sex & drugs scandal Similar problems at Mine Safety Agency and Nuclear Regulatory Commission Reforms in MMS      Bureau of Ocean Energy Management, Regulation, and Enforcement Split functions in agency New conflict of interest controls Appointed Michael Bromwich as director Same staff but hiring new people as well

Holcomb Ethics Boot Camp Crisis Management 2014

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