Law

CHAPTER 7

Crisis Management: Taking Action When Disaster Hits

167

Opening Case, Part 3: The BP Gulf of Mexico Oil Spill

Landscape Survey Strategic Planning Crisis Management Organizational

Learning

The Internal Landscape

The External Landscape

Chapter 10: The Underlying Role of Ethics in Crisis Management

Chapter 9: The Importance of Organiza- tional Learning

Chapter 8: Crisis Communi- cations

Chapter 7: Crisis Management: Taking Action When Disaster Hits

Chapter 4: A Strategic Approach to Crisis Management

Chapter 6: Organiza- tional Strategy and Crises

Chapter 2: The Crisis Management Landscape

Chapter 3: Sources of Organiza- tional Crises

Chapter 5: Forming the Crisis Management Team and Writing the Plan

Crisis

Before the Deepwater Horizon incident in 2010, British Petroleum (BP) was already under scrutiny for some of its maintenance and safety practices. Two incidents that had occurred only a few years earlier had gained much attention. An accident involving worker fatalities occurred in 2005 at a Texas City refinery. In addition, a large amount of oil had spilled in Alaska due to the faulty maintenance of pipes in 2006. Both events would be relived again as the public demanded accountability on the part of the oil giant.

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168 CRISIS MANAGEMENT IN THE NEW STRATEGY LANDSCAPE

Previous Incidents

In 2005, a large explosion occurred at a BP refinery in Texas City, Texas, killing 15 employees and injuring another 170 workers. BP was found to be in violation of the Clean Air Act and was the first company to be prosecuted under a section of the act that was designed to prevent injuries to employees. The company was fined $50 million (Sawayda & Jackson, 2011).

BP acquired the Texas City refinery in 1999 from Amoco. Upon purchase, the refinery was in need of a major overhaul; Amoco had neglected maintenance and safety upgrades for years. Unfortunately, BP headquarters was in the midst of a 25 percent budget cut (Elkind, Whitford, & Burke, 2010), meaning such upgrades would be slow. The at-risk plant eventually had a malfunction on a cooking tank processing gasoline additives. The tank boiled over, sending a vapor cloud over the refinery. A pickup truck in the parking lot backfired, igniting the vapor cloud (Elkind et al., 2010). The accident attracted a lot of negative attention for BP as the refinery declined further, making it vulnerable to this type of accident.

In 2006, BP pipelines leaked in the Prudhoe Bay region of Alaska. The leaks were due to years of neglect in maintaining the lines and addressing corrosion. The pipeline failures triggered a 200,000-gallon oil leak and resulted in another violation of the Clean Air Act. BP was ordered to pay a total of $45 million in fines, $12 million in criminal fines, $4 million to the National Fish and Wildlife Foundation, $4 million in criminal restitution to the state of Alaska, and $25 million for violating clean air and water laws (Sawayda & Jackson, 2011).

The Arrival of Tony Hayward

To help address its safety problems, BP enlisted Tony Hayward as chief execu- tive office (CEO) in 2007. Hayward had joined the company in 1982, working as a geologist and traveling the globe, helping the company find new sources of oil. At the time, John Browne was a charismatic, celebrity-style CEO who had led the com- pany through growth by acquisitions (Elkind et al., 2010). Under Browne’s reign, BP took on more risks but also slashed budgets, creating an atmosphere of vulner- ability in the area of field operations. Texas City and the Alaskan oil pipe problems were examples of how cost cutting created problems for the company.

Hayward’s role was to improve safety and get the company in “silent running” mode, a term used to indicate “a quiet, methodical, trouble-free operation, with no problems, no surprises, and high productivity” (Campbell, 2008, p. 18). Hayward went to work insti- tuting expansive changes to improve safety, including the implementation of a common management system with precise safety rules and training for all facilities (Mouawad, 2010). Under his reign, Hayward has been given credit for improving the safety culture of BP and for its operational performance (Orwall, Langley, & Herron, 2010).

Individual Safety Versus Process Safety

Despite the improvements in the safety culture at BP, critics charged that too much emphasis was placed on ensuring individual worker safety, and not enough

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Chapter 7. Crisis Management: Taking Action When Disaster Hits 169

attention was devoted to process safety. Individual safety in the workplace focuses on ensuring that employees do not commit unsafe acts, such as lifting a heavy object incorrectly. As a result, workplace rules such as requiring employees to wear eye protection when working around machinery are established. At BP, strict guide- lines were in place that prohibited employees from carrying a cup of coffee unless it had a lid (Elkind et al., 2011). While these kinds of rules can decrease accidents, they do not address the hazards that can occur on a drilling rig or in a refinery such as the one at Texas City.

Process safety is much broader and does not assume that employee error is the primary cause for workplace accidents. Instead, it emphasizes the “process” that caused the employee to commit the error in the first place. For example, poor train- ing of an employee—a process—can contribute to that employee’s involvement in a workplace accident. Process safety does not blame an individual employee or equipment failure (Schreiber, 2012). Instead, if equipment did fail, the process that caused the failure would be examined. Perhaps poor maintenance—a process— caused failure. The process approach to safety seeks to identify root causes, at which time safety issues and the prevention of accidents can be addressed from a more holistic perspective.

For BP, one process in particular was suspect: conducting of a negative pressure test on a well. A correct understanding of the test results was necessary, because it indicated whether hydrocarbons and oil were entering the drill casing. However, BP had a process problem because it did not have standardized procedure to conduct the test, interpret the results, and respond if the test indicated the well had failed (Crooks, Pfeifer, & McNulty, 2010). The process for checking the integrity of the well was not defined, and therefore flaws compromised the safety of the well, the rig, and its employees. In hindsight, we know now that flammable hydrocarbons and oil entered the drill casing, that the well was indeed compromised, and that a fatal incident occurred.

Opening Case Part 3 Questions

1. Think of an example of an accident that occurred where you work. Assume that you cannot assign the blame to employee error or faulty equipment. Instead, analyze the process that led to the accident, and identify any flaws that existed in the process.

2. Was the Deepwater Horizon accident a problem associated more with cost cutting or with a faulty process safety culture?

Opening Part 3 Case References

Campbell, H. (2008). Keep on running. BP, Issue 8, 16–23. Crooks, E., Pfeifer, S., & McNulty, S. (2010, October 7). A sea change needed. Financial Times, p. 9. Elkind, P., Whitford, D., & Burke, D. (2011, February 7). An accident waiting to happen.

Fortune, 105–132. Mouawad, J. (2010, May 8). For BP, a history of spills and safety lapses. New York Times,

p. A22.

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170 CRISIS MANAGEMENT IN THE NEW STRATEGY LANDSCAPE

Orwall, B., Langley, M. & Herron, J. (2010, July 26). Embattled BP chief to exit—American Robert Dudley to succeed Tony Hayward as head of British oil giant. Wall Street Journal, p. A1.

Sawayda, J., & Jackson, J. (2011). BP struggles to resolve sustainability disaster. In O. C. Ferrell, John Fraedrich, & Linda Ferrell (Eds.), Business ethics: Ethical decision making and cases (9th ed., pp. 342–354). Mason, OH: South-Western Cengage Learning.

Schreiber, J. (2012). Working with the CSB after a major accident. Chemical Engineering, 119 (7), 49–51.

Introduction

High-profile events such as the terrorist attacks of September 11, 2001, the Enron scandal in 2001, and Hurricane Katrina in 2005 have highlighted the importance of crisis preparedness. Most organizational crises do not receive as much attention as these examples, but they still constitute major events for the firm and the com- munity. As a result, many organizations have begun to analyze their vulnerabilities. Indeed, anticipating and preparing for crises is much less traumatic and costly than experiencing an unexpected calamity without a plan for managing it. Assuming a company will always remain free from any type of crisis is guesswork at best. For some organizational leaders, this may involve confronting “paradigm blindness,” a condition “where people are unable to see information that threatens and discon- firms their worldview” (Wheatley, 2006, p. 18).

There are countless stories about the lack of a plan causing severe or even irrepa- rable damage to a firm. Interestingly, however, there are also examples where proper planning and execution of a crisis plan not only kept the crisis under control but also resulted in positive changes for the business (Borodzicz & van Haperen, 2002). This topic of positive change is explored in depth in Chapter 9, “The Importance of Organizational Learning.”

Most crises are, by their very nature, somewhat unexpected and unpredictable. A poorly managed crisis can severely damage a firm’s reputation and profitability. As mentioned, proactive organizations should develop crisis management responses for managing an event should it occur. Some businesses encounter “smoldering” crises that start internally and slowly create problems that can be more difficult to resolve in their later stages (Institute for Crisis Management, 2011). Other crises can occur externally and take the organization by surprise. Effective crisis manage- ment requires managers to develop strategies that are integrated with the annual corporate planning process (Preble, 1997). Its effectiveness can be enhanced if managers are able to identify a potential crisis and develop appropriate strategies to prevent it, or at least mitigate its effects.

This chapter focuses on the management practices and decision-making activi- ties that should be implemented at the beginning, duration, and conclusion of the crisis event. The first part of this chapter addresses the initial response actions that are critical in the assessment of the crisis during its onset. The next part discusses key issues relating to managing the crisis. Response strategies and mitigation of the crisis are the major concerns here. In this stage, managers must make decisive deci- sions that will determine the success or failure of their crisis management efforts.

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Chapter 7. Crisis Management: Taking Action When Disaster Hits 171

The final part of the chapter discusses what happens after the crisis, including the issues of recovery, reentry, and business continuity. Ultimately, the organization must regroup and return to normal operations or its survival may be in jeopardy.

Strategies at the Beginning of a Crisis

The first step in the formal response to a crisis is to convene the crisis management team (CMT). Recall that the organization should have a preestablished team and a crisis management plan (CMP). Activating the team may be as simple as one member calling the team together. Alternatively, an employee in the organization may alert a member of the CMT to the potential or developing crisis at hand. Once convened, the team begins the process of assessing the situation.

The response to the onset of a crisis depends on the nature of the event. Some crisis situations, such as an industrial accident, the sudden death of a senior executive, the notification of a government investigation, or a chemical spill, can occur quickly and often with little or no warning. Others, such as a hostile takeover, union labor unrest, a consumer boycott, or corporate embezzlement, develop over a longer period of time. The length of time managers have to react to a crisis is related to its impact on the organization and its stakeholders. Having a CMP makes it possible to think and act expediently during the first few hours of a crisis. The CMP is a key strategic organizational tool responsible for initiating the crisis decision-making process by helping to frame the problem, determine the parties responsible for implementing various actions, and develop justifications for the decisions that are made.

Leadership of the CMT

Effective leadership is necessary during a crisis, both by the leader of the CMT and by top management (Wooten & James, 2008). This team is responsible for making and implementing decisions that help the organization resolve the crisis. Three components of the CMT that must be present for crisis leadership to be successful are (1) the right leadership, (2) the structure and resources necessary to accomplish crisis response and containment, and (3) broad public support for the organization (Cavanaugh, 2003).

In a crisis response, CMT members should not only be knowledgeable about their own roles on the team but also willing to accept suggestions presented by members who are experts in other areas. The CMT leader must have an array of both leadership and management skills. Drawing from the experience of the mili- tary and the emergency services sector, Crichton, Lauche, and Flin (2005) identified the following skills needed for the CMT leader:

■ Situation assessment : Being able to identify the problem accurately ■ Decision making : Deciding what the CMT should do ■ Team coordination : Getting the CMT and affiliated stakeholders to work

together

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172 CRISIS MANAGEMENT IN THE NEW STRATEGY LANDSCAPE

■ Communicating : Deciding how to receive and deliver relevant information ■ Monitoring : Keeping abreast of key developments ■ Delegating : Assigning tasks to individual CMT members ■ Prioritizing : Determining the importance of incoming information and

what should be done next ■ Planning : Taking part in the planning process and encouraging task completion

The CMT leader should utilize these competencies by taking charge of the situ- ation, assessing the level of crisis seriousness, determining the level of resources needed, and then making the decisions that will resolve the crisis (Cavanaugh, 2003). Simultaneously, the leader should be in frequent communication with his or her team members to implement the crisis plan. Within the context of this role, the leader must recognize and implement these actions while remaining visible and available. Admiral Thad Allen of the U.S. Coast Guard led the incident command efforts for the Deepwater Horizon oil spill in the Gulf of Mexico in 2010. During the crisis, his visibility and availability demanded that he spend half his time in Washington, D.C., briefing members of Congress, the rest of the administration, and the media. The other half of his time was spent on board Coast Guard boats in the Gulf. He commented, “If you’re not visible to your people out on the boats who are trying to pull a boon in Barataria Bay in 110-degree heat, then you’re not a credible leader, because you don’t understand what they’re going through” (Berinato, 2010, p. 78).

The leader must have the ability to remain calm and focused on the crisis man- agement process while making decisions under significant pressure. In fact, the CMT leader may be required to make decisions without certain desired informa- tion, because a crisis is characterized by high levels of ambiguity and stress (Baran & Adelman, 2010). Moreover, those involved in the crisis are having their assump- tions about reality challenged (Pearson & Clair, 1998). Recall that some crises take the CMT to places they have never been before in terms of experiences, what man- agement scholar Karl Weick (1993) labeled as “cosmology episodes.”

All crises create tension and stress. Acute stressors for the CMT can include cha- otic events, communication problems, time pressure, consequences and account- ability, fear of failure, dealing with the media, and information problems including overload, missing, and/or ambiguous information. Maintaining control allows the leader to sustain an objective perspective and see the way through complex and confusing scenarios. Hence, the leader must present an objective perspective quickly and methodically for all stakeholders (Rolston & McNerney, 2003).

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