David Cameron stepped off the Amtrak train at Penn Station this week to a traditional New York welcome from Mayor Mike Bloomberg: a hot dog from a street vendor. Just off camera was a less welcome sight for Britain’s prime minister, in the form of a stand selling the New York Daily News. The tabloid, less than impressed by Mr Cameron’s attempts to defend BP in the US, headed its front page simply: “British Bull”.
BP has been in political trouble in the US since oil started gushing from its well in the Gulf of Mexico in April. But on a visit intended to seal his promising relationship with President Barack Obama, Mr Cameron endured a gruelling two days defending the oil company and trying to explain why the group, in spite of having lobbied the previous government to speed up a deal on a prisoner transfer agreement with Libya, was not responsible for the release of the Lockerbie bomber, Abdel Basset al-Megrahi, from a Scottish jail last year.
For BP itself, by the standards of the past three months, this has been a pretty good week. The prime minister had at last come out swinging on behalf of the country’s largest industrial company. A swiftly struck deal with Apache, the US oil independent, raised $7bn (£4.5bn, €5.4bn) to ease its immediate cash worries. And although bad weather on Friday forced delays to the effort to seal permanently the Macondo well, the cap bolted to the top of it has stopped oil escaping into the water for eight days.
The tactical successes have, however, thrown the strategic challenge all the more starkly into relief. With liabilities estimated at $40bn-plus, a demoralised workforce, and the hostility of the US administration and Congress, the group is facing a bleak and uncertain outlook.
The board has long been criticised for weak leadership, accused of standing by as management presided over mistakes in the US that culminated in the Deepwater Horizon disaster, in which 11 died. On Tuesday, when BP announces second-quarter results, the 12 men and two women who lead it have a chance to show they can turn the company round. If they fail, the group’s survival as an independent business will be in doubt.
As one leading shareholder puts it: “The board is now under a lot of pressure. In the face of the disaster, it has to do a full management and strategic review with its back to the wall and the headlights coming straight at it.”
As Mr Cameron’s British Airways flight arrived back in London on Thursday morning, the directors were gathering in the boardroom in the St James’s Square headquarters to agree the plan for next week’s announcement. In their first statement since June 16 – when BP announced it would pay $20bn into a fund to compensate victims of the spill and would suspend dividend payments for the rest of the year – they aim to set out a vision of a future in which the group can retain its position in the US, and offer growth for its investors.
Company insiders talk about a six-point plan: stopping the leak and paying the damages claims; stabilising the financial position with asset sales; uncovering the causes of the accident; taking action to put right the weaknesses that lay behind it; restoring the company’s reputation; and setting its new strategy.
Although there are concerns among BP’s leadership about the risks of operating in the US in terms of the high potential cost of any further accidents, advisers still believe the company has a future in the country. In time, as the oil is cleaned up and fishing resumes, public fury will fade. The spill, while huge, will probably turn out not to have been America’s worst environmental catastrophe, as commentators have claimed.
For Tony Hayward, the chief executive who is America’s hate figure, it is almost certainly too late. He commands in*vestors’ respect for improving financial performance, but his board colleagues and their advisers conclude his US standing has been destroyed.
Carl-Henric Svanberg, the charming, tanned Swede who took over the chairmanship in January and was plunged into one of the greatest crises in the group’s history, may have done enough to save himself for the time being. Excoriated by shareholders for his initially hands-off attitude, he is now playing a much more visible role.
Other newly arrived directors, Ian Davis, former chairman of the McKinsey consultancy, and Paul Anderson, former chief executive of miner BHP Billiton, who both joined this year, have been central in setting a course out of the maelstrom. Along with Douglas Flint, the chief financial officer of HSBC who chairs the audit committee, they are the most influential figures at the company.
Sir William Castell, the former chief executive of Amersham medical technology group who is the senior independent director, has been authorised to conduct a review of culture and attitudes in the group, and is supervising BP’s work with the many external inquiries into the disaster. He has also been talking to investors about possible management changes.
Yet in their bid to take command of the crisis, they are fighting a legacy of long-running weakness in the board. For more than a decade, the company was dominated by the forceful personalities of Lord Browne, obliged to resign abruptly as chief executive in 2007, and Peter Sutherland, who stepped down as chairman last year.
After Lord Browne left, Mr Sutherland promised to “refresh” the board. Directors such as Sir Ian Prosser, deputy chairman from 1999 until this year, and Sir Tom McKillop, former Royal Bank of Scotland chairman, stepped down, and Mr Davis and Mr Anderson were appointed.
In spite of those changes, several investors have not been happy with board performance during the crisis. It was “slow on the uptake and made several mis-steps”, one shareholder says. “While the non-executive directors might have good reputations as individuals, collectively the board didn’t work well.”
The leeway given to Mr Hayward has epitomised that failure, some BP insiders believe. His decision to lead the response personally was right at first; but, after it became clear he was making the communications problem worse, he should have been recalled earlier than mid-June, critics say. Some have also criticised him for speaking openly about the possibility of suspending the dividend when this was a decision for the full board.
The crisis has tested the board in other ways. No non-executive has the industry knowledge needed seriously to challenge management’s account of the spill and its response. In addition, despite the fact BP was committing half of its global capital spending to the US, “it was obvious that the board did not have people with access to the corridors of power in Washington”, says another shareholder.
A further problem is that the directors’ role has become extremely time-consuming, with meetings generally every week. That has raised the pressure on directors with other full-time commitments, such as Cynthia Carroll, chief executive of mining group Anglo American and chairman of Anglo Platinum.
A seat on the board is now coming free, with DeAnne Julius, a non-executive director who is chairman of the Chatham House think-tank, due to step down at the end of her standard 10-year stint next year.
One investor suggests BP could bring in a deputy chairman from outside, who would have the confidence of the City of London and be able to exercise considerable power. Others fear this could exacerbate tensions within the board. Even if that idea is rejected, it is clear that the leadership, both executives and non-executives, will have to be strengthened.
To be allowed to resume offshore drilling in the US, BP faces the task of showing that it understands how to stop such a disaster happening again. That will mean adopting gold-plated safety standards and spill-response systems. It will probably mean restructuring the Houston-based exploration and production division.
Above all, though, it means new faces at the top. Mr Hayward is likely to be replaced by Bob Dudley, the Mississippi-raised managing director for the Americas and Asia who has done a world of good for BP’s image as head of its spill response. Andy Inglis, head of the E&P division that was responsible for the Macondo well, may also step aside, as may Mr Svanberg, depending on how he performs over the next few months.
With the well sealed, the worst of the spill cleaned up, a stable financial position and new leadership in place, by the end of the year BP’s prospects may not look so bleak. However, there will still be threats from the succession of investigations into the company: its own internal inquiry, the National Commission, the Coast Guard’s Marine Board, the Department of Justice and others.
If the evidence emerges that BP wilfully ignored safety warnings, or knowingly ran critical risks to save money, the attitude of US authorities will be unforgiving. However, convincing the ideas set out by BP next week, if it loses its licence to operate in the country, all its plans will be cast into doubt again.