5 Impacts of the BP Oil Crisis
July 16, 2010
The Gulf of Mexico oil spill is considered to be one of the worst corporate disasters in recent history. The impacts have been so wide spread and significant, that there are many experts saying the oil disaster in the Gulf of Mexico could be fatal to the 101-year-old company.
Over the last 80 days since the incident occured, there has been significant media coverage which has focused diligently on BP’s response. The organisation has been closely monitored both operationally, in the fixing of the problem, and also from a corporate perspective, by the way the organisation as a whole has presented itself to the world, and the strategic decisions it has made.
There is still much to do – not just in BPs ongoing efforts to contain the spill, but also in the clean up of the environmental damage as well as the salvage of their reputation as a responsible, profitable organisation.
In this article we take a high level look at five of the key impacts of the disaster; human, environmental, legal, financial and reputational, to demonstrate the reach of such an event, and the consequences of not being adequately prepared.
Human Impacts
Any disaster has the potential to create significant human impacts, both within the organisation, and to the broader community. In BP’s case, this impact extends beyond a local level, to that which is felt globally.
The disaster occurred on April 20 with an explosion and fire on the drilling rig Deepwater Horizon, owned by Transocean Ltd. and leased by BP PLC. The explosion killed 11 platform workers and injured 17 others. [32][34]
Since the Deepwater Horizon oil rig blew up and sank, oil spewed unabated into the Gulf of Mexico and reached land in several states. Finally on July 15, 85 days after the disaster, BP were able to control the leak by placing a fitted cap over the gushing geyser. [32][33] Now health concerns of residents and cleanup workers in the areas affected by the spill are growing.
More and more workers and residents of the coastal areas reported symptoms such as headaches, breathing problems, nausea and other more serious health problems. To date, “more than 200 exposure-related complaints have been filed with the Louisiana Department of Health and Hospitals alone.” [1]
From those directly affected from the explosion, to families living in The Gulf of Mexico suffering health problems and loss of livelihood, the impacts of the disaster are far reaching and will be experienced for generations.
Environmental Impacts
“This is probably the biggest environmental disaster we have ever faced in this country,” top White House energy adviser Carol Browner said. [31]
Despite efforts to stem the leak and contain the oil on the surface, it is estimated that “17 million to 39 million gallons of oil has now spewed into the Gulf of Mexico”. [3] Initial reports said the rig was leaking 1,000 barrels of oil a day, but the latest estimates from US Geological Survey (USGS) experts suggest it is between “35,000 and 60,000 barrels a day”. The slick has continued to spread covering at least 6,500 km2, [32] fluctuating from day to day depending on weather conditions. The oil is “threatening hundreds of species of fish, birds and other wildlife along the Gulf Coast, one of the world’s richest seafood grounds.” [22]
Crews have been working to protect hundreds of miles of beaches, wetlands and estuaries along the northern Gulf coast, using skimmer ships, floating containment booms, anchored barriers, and sand-filled barricades along shorelines.
British scientists have also revealed that the oil spill in the Gulf of Mexico is increasing the level of arsenic in the ocean. According to the study, “oil stops the ocean’s natural filtering process of arsenic, which then gets “magnified” up the food chain, as fish eat small amounts of the deadly poison and may eventually impact humans, researchers said”.
Professor Mark Sephton said arsenic, which is found in seawater, was normally filtered out of the ocean when it combined with sediment on the sea floor.
“But oil spills stop the normal process because the oil combines with sediment and it leads to an accumulation of arsenic in the water over time,” he said.
“Arsenic only needs to be a 10th of a part per billion to cause problems.” [4]
Whilst the immediate environmental issues are clear, what extent the affects of the oil spill will have over the longer term are unknown but potentially extensive.
Legal Impacts
BP face numerous lawsuits filed in Louisiana, Alabama and elsewhere accusing it of negligence over the oil spill in the Gulf of Mexico. The suits came as US government officials warned BP was responsible for clean-up of the massive slick, and the British oil giant pledged to pay for ‘‘legitimate claims’’ stemming from the disaster. [8]
“BP faces more than 225 lawsuits in 11 states across the Gulf region [7], as litigation from businesses, individuals and investors continues to increase” . Lawyers envision this disaster to become “one of the biggest class actions in U.S. history, involves billions of dollars in potential liabilities”. [9]
“Families of some of the 11 workers who died in the April 20 Deepwater Horizon rig blast have filed wrongful-death claims, and people who were injured have also taken legal action”. [9]
The company also faces lawsuits brought by fishermen, restaurants, charter boat companies, hotels and rental property owners. Gulf Coast states could also sue, as could municipalities, for lost tax revenues, and shipping companies if traffic into major ports or the Mississippi River is disrupted.
“You’re talking about the entire economic structure of five states and all their ancillary businesses,” said Tim Howard, a Tallahassee lawyer who last week filed one of Florida’s first class-action suits over the oil spill. [9]
It is inevitable that a disaster of this nature will have significant legal consequences for any organisation, resulting in extensive reputational and financial costs.
Financial Impacts
The financial impacts from the oil spill are extensive, from the huge response and cleanup costs, to the legal expense and most importantly the loss of market value.
The British oil giant has seen its “market value plummet from US$122 billion to barely US$80 billion” [21] since the oil started to flow into the Gulf. BP’s shares have dropped by 34% since the incident, sparking takeover concerns, Britain’s Financial Times said [28].
As of 5 July, BP’s costs over the Gulf of Mexico oil spill “soared above three billion US dollars” [12]. Estimates of the total cost vary widely. “Including the clean-up, compensation and fines, BP could face a bill of $US12 billion ($AUD14.2 billion), investment bank UBS has suggested. Jason Kenney, an analyst at ING Commercial, estimates the cost could rise to $US22 billion if the spill continues until August.” [13]
Experts now believe that the combination of the continuing leak and the prospect of high legal costs and political damage in the United States could mean a real possibility the Deepwater disaster could destroy BP, “leading to a break-up of the 101-year-old company, which employs 80,000 people, operates 22,400 gas stations and generated US$239 billion of revenue last year” [21].
Reputational Impacts
BP’s reputation has been severely damaged by the oil spill in the Gulf of Mexico. Many around the world are disappointed with the once proud London-based energy company. It is felt that their response to shareholders, the public, and especially the government was inadequate.
Seemingly aware of the damage to its public image, “BP is spending millions of dollars to minimise the negative publicity caused by the Gulf of Mexico oil spill” [19]. It “hired Anne Womack-Kolton, once press secretary to former US vice president Dick Cheney, to bolster its public relations efforts in the US” [21], but whether it is having a positive effect is questionable.
James Hoopes, a professor of business ethics at Babson College, in Massachusetts, said it was hard to imagine a worse public relations fiasco. “This has to be one of the all-time disasters for corporate reputation. The most graceful course of action for BP would be to hang its head for a very long time and admit it has some deep issues to deal with,” Hoopes said. [21]
BP devoted significant time and resources over the past few decades promoting the company to be an environmentally responsible organisation, however this crisis has put their ‘clean’ image at risk. Now in ‘damage control’, BP has a long way ahead to restore a positive image, if at all salvageable.
SUMMARY
So as questions grow about whether BP can redeem its reputation in the US and whether the company can survive as an independent entity at all, it is clear that a disaster of this magnitude has had numerous and significant impacts to the organisation. It is a good lesson for every organisation to consider the adequacy of their risk management, crisis and continuity strategies to ensure a robust and resilient organisation that is prepared for any disaster. Creating and maintaining comprehensive plans will ensure an organisation can minimise and manage the potential consequences of such an event.
Written by Apeksha Srivastava, RiskLogic
REFERENCES
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[2] The Ongoing Administration-Wide Response to the Deepwater BP Oil Spill (2010) wmbb.comnews, http://www.panhandleparade.com/index.php/mbb/article/the_ongoing_administration-wide_response_to_the_deepwater_bp_oil_spill, at 13 July 2010
[3] BP Oil Spill: Worst in History: Scientists Weigh In (2010) The Fiscal Times, http://www.thefiscaltimes.com/Issues/The-Economy/2010/05/28/BP-Oil-Spill-Worst-Leat-in-History-Scientists-Weigh-In.aspx, at 12 July 2010
[4] BP Oil Spill ‘increases arsenic in ocean’ British scientists say(2010) Newscore, http://www.adelaidenow.com.au/news/breaking-news/bp-oil-spill-increases-arsenic-in-ocean-british-scientists-say/story-e6frea73-1225888249159, at 13 July 2010
[5] BP Pays $23bn to oil spill victims (2010) The Australian, http://www.theaustralian.com.au/news/world/bp-pays-23bn-to-oil-spill-victims/story-e6frg6so-1225881059641, at 14 July 2010
[6] BP(2010) Wikipedia, http://en.wikipedia.org/wiki/BP, at 9 July 2010
[7] BP Oil Spill Lawsuits Spread to States Beyond Gulf Coast (2010) Bloomberg, http://www.bloomberg.com/news/2010-06-15/bp-oil-spill-lawsuits-spread-to-states-beyond-gulf-coast-as-losses-mount.html, at 13 July 2010
[8] BP faces slew of lawsuit over oil spill (2010) The Sydney Morning Herald, http://www.smh.com.au/environment/conservation/bp-faces-slew-of-lawsuits-over-oil-spill-20100501-tzwp.html, at 14 July 2010
[9] Gulf of Mexico oil spill spawns tide of lawsuits (2010) Reuters, http://www.reuters.com/article/idUSN1219157020100513, at 12 July 2010
[10] Crisis Management Lessons from BP (2010) Corporate Executive Board, http://cebviews.com/2010/06/crisis-management-lessons-from-bp/, at 9 July 2010
[11] Gulf oil spill: Will Deepwater sink the 101-year-old BP? (2010) Guardian.co.uk, http://www.guardian.co.uk/environment/2010/jun/02/gulf-oil-deepwater-sink-bp, at 12 July 2010
[12] BP oil spill costs soar above 3 billion US dollars (2010) Brisbane Times, http://news.brisbanetimes.com.au/breaking-news-world/bp-oil-spill-costs-soar-above-3-billion-us-dollars-20100705-zxif.html, at 12 July 2010
[13] Obama calls in lawyers over BP oil spill (2010) The Age, http://www.theage.com.au/environment/conservation/obama-calls-in-lawyers-over-bp-oil-spill-20100601-wv8u.html, at 12 July 2010
[14] Oil spill may signal end of BP (2010) ABC News, http://www.abc.net.au/news/stories/2010/06/02/2915604.htm, at 9 July 2010
[15] BP faces legal action over oil spill (2010) Business Spectator, http://www.businessspectator.com.au/bs.nsf/Article/UPDATE-1-BP-shares-drop-as-oil-spill-worsens-4YLA3?opendocument&src=rss, at 14 July 2010
[16] Special Report – BP oil spill a gusher for lawyers (2010) International Business Times, http://au.ibtimes.com/articles/31767/20100701/special-report-bp-oil-spill-a-gusher-for-lawyers.htm, at 13 July 2010
[17] US opens criminal probe into BP Oil Spill (2010) Business with The Wall Street Journal, http://www.theaustralian.com.au/business/news/us-opens-criminal-probe-into-bp-oil-spill/story-e6frg90x-1225874330659, at 12 July 2010
[18] BP oil spill costs continue to mount (2010) Business Spectator, http://www.businessspectator.com.au/bs.nsf/Article/ANALYSIS-Oil-spill-costs-mount-for-US-economy-comp-55UYU?OpenDocument&src=hp13, at 13 July 2010
[19] BP Throws Cash at Minimising Reputation Damage over Gulf of Mexico Oil Spill (2010) PR Week, http://www.prweek.com/uk/news/1006898/BP-throws-cash-minimising-reputational-damage-Gulf-Mexico-oil-spill/, at 9 July 2010
[20] Florida Outlines BP Gulf Oil Spill Response for July 8, 2010 (2010) Gov Monitor, http://www.thegovmonitor.com/world_news/united_states/florida-outlines-bp-gulf-oil-spill-response-for-july-8-2010-35121.html, at 12 July 2010
[21] BP fights for its reputation and future (2010) TaipeiTimes, http://www.taipeitimes.com/News/editorials/archives/2010/06/06/2003474770, at 9 July 2010
[22] Oil from massive Gulf spill reaching L.A. coast (2010) msnbc.com, http://www.msnbc.msn.com/id/36800673/, at 13 July 2010
[23] BP’s Reputation at Risk as Much as the Gulf Ecosystem (2010) BNET Insight disaster, http://blogs.bnet.com/business-news/?p=1978, at 9 July 2010
[24] Gulf of Mexico oil leak ‘worst US environment disaster’ (2010) BBC News, http://www.bbc.co.uk/news/10194335, at 12 July 2010
[25]US oil spill ‘could bankkrupt BP’ (2010) ABC News, http://www.abc.net.au/rn/breakfast/stories/2010/2924394.htm, at 9 July 2010
[26] Economic and Political consequences of the Deepwater Horizon disaster (2010) Wikipedia, http://en.wikipedia.org/wiki/Economic_and_political_consequences_of_the_Deepwater_Horizon_disaster, at 12 July 2010
[27] BP oil spill impact will be felt for years to come – Crescent (2010) Arabian News.com, http://www.arabianbusiness.com/592009-bp-oil-spill-impact-will-be-felt-for-years-to-come—uae-official, at 14 July 2010
[28] BP’s reputation tarred by oil spill (2010) Ria Novosti (Russian Newspaper), http://en.rian.ru/business/20100607/159330585.html, at 12 July 2010
[29] BP Oil Spill to Hit Charitable Giving (2010) Pro Bono News, http://www.probonoaustralia.com.au/news/2010/07/bp-oil-spill-hit-charitable-giving, at 13 July 2010
[30] Louisiana Reports Oil Spill Illnesses (2010) News Inferno, http://www.newsinferno.com/archives/21624, at 12 July 2010
[31] Factbox: Gulf oil spill impacts fisheries, wildlife, tourism (2010) Reuters, http://www.reuters.com/article/idUSTRE64T23R20100530, at 13 July 2010
[32] Deepwater Horizon oil spill (2010) Wikipedia, http://en.wikipedia.org/wiki/Deepwater_Horizon_oil_spill, at 9 July 2010
[33] No Oil Leaking into Gulf from Busted Well (2010) CBS News, http://cbs11tv.com/local/bp.OIL.LEAK.2.1806934.html, at 14 July 2010
[34] Memorial services honors 11 dead oil rig workers (2010) USA Today, http://www.usatoday.com/news/nation/2010-05-25-oil-spill-victims-memorial_N.htm, at 9 July 2010
Leading the Way. Building a business continuity culture in your organisation
July 9, 2010
“Embedding BCM in the organisation’s culture” forms the outer edges of the BCI’s Business Continuity Management Lifecycle1. It encompasses all the steps required to implement a business continuity program. Rightly so. It’s probably the most difficult and arduous requirement of any business continuity program, but it is an essential element. An organisation’s ability to respond to, and its capacity to recover from, a business disruption is directly linked to the level of business continuity understanding and experience within the organisation.
In this article, I draw on my experiences working with companies, such as London Underground, to implement and maintain business continuity programs. I discuss why it is so important to take heed of the BCI’s advice, and suggest ways in which you can strengthen business continuity capability in your organisation.
Too often the driver for implementing a business continuity plan (BCP) is the need to meet the requirements of a regulatory body or the demands of clients and stakeholders. The plan is created. Check. There is an annual review. Check. A test of some kind. Check. Boxes are ticked. But when that disaster occurs, be it a temporary denial of access to a building or a much greater event where life is lost, and infrastructure is destroyed, will a plan that ticks all the boxes be enough? Will your organisation be able to respond appropriately?
The idea of embedding business continuity into an organisation’s culture is by no way unique to this discipline. Significant work has taken place in the field of incident response over the last decade, and can be evidenced by the speed in which many organisations that conduct high risk activities deal with emergencies.
Response to the London bombings
Having witnessed the London Underground response to the London bombings, I can attest that the effort spent creating robust procedures, educating the workforce, and developing specific in-house skills to respond to such an event, pays off.
On 7th July 2005 after a series of bombs had been detonated across London’s transport system, I watched as an entire organisation immediately respond to a horrendous incident, and then quickly focus its attention on the recovery of its core business – running a train service. As images of injured people appeared on the internet and television, all levels of the organisation were immediately assessing the impact to our customers, our staff, ourselves and our organisation. There are heroic stories of train operators saving lives and helping survivors. I witnessed an entire organisation feel great pain and then, despite the hurt, resolve to respond as best it could, and to recover its services as quickly as possible.
Why was the level of response so great? Certainly the intensity of the incident itself affected everyone at a very human level and so it was natural that people felt a strong desire to assist in every way possible. But I cannot ignore the influence of the organisation’s culture on the way it responded. Throughout London Underground there is a certain pride associated with the history of the organisation. This includes the delivery of the train service, as well as an innate understanding of the importance of that service to London as a whole. Of course there were many other factors that drove the organisation’s response – government direction, executive leadership, rehearsed plans, a robust command and control structure and trained responders. However, without that motivation and without the people to take direction, to follow plans and to respond quickly and deliberately, the outcomes for London Underground may well have been quite different.
A closer look at business continuity planning
So let’s return to BC planning. Do you have a valid BCP in place within your organisation? Do the people in your organisation understand what’s in the plan and how that plan will work in the event of a disruption? Do your staff know what you expect of them during this time? Are your staff capable of responding to the potentially chaotic and stressful environment of a disaster, where the availability of information is sporadic, and the outcome unknown?
The more your staff (at all levels of the organisation) know and understand your BC arrangements, the more efficient their response, and thus your recovery, will be. If individuals are aware of what a disruption might feel like, and the discomfort it can create, they may be more able to adapt if a real disruption occurs. If your people know the basics, they will be able to respond creatively, yet appropriately, to the situation at hand. They will know who will be making decisions. They will understand why the decisions are being made. They will feel empowered to respond in the right way.
People and change
If we were to dissect and analyse a business disruption we could simply call it “change”. Of course it is, typically, change that we don’t want nor expect. When change is implemented across an organisation it is usually planned and communicated. When organisational leaders decide to effect change, considerable time is spent preparing people for what the change will look like and explaining why it is so important. Understanding levels of resistance and creating ways of enabling staff to cope and embrace that change drives the methods in which it is delivered. Understanding how your organisation will respond to unplanned change should drive the approach you take to implement a BC program throughout your organisation.
The reaction of staff to a disruption can be similar to the way they will respond to organisation change – especially when it is not wanted. People will move through all the emotions and reactions that we know occur (e.g. denial, frustration, anger and resistance). Eventually, depending on the nature of the event, there will be acceptance. New routines will be created and applied. People will adapt to new environs, or return to old ones. The quicker people get to this point of familiarity, the easier managing your recovery will be.
Business disruptions, no matter how big or small, will create stress in your organisation. We know that stress can significantly impede our comprehension levels, our decision making and our relationships. As uncertainty and fear of the unknown can contribute to anxiety levels, take the time to educate your staff about your BCP. Provide opportunities for people to understand their role during a disruption and you will potentially minimise the impact on their ability to continue to perform by negating that ‘unknown’ factor and reducing some of the stress that is inevitable.
Empowering leaders
Demonstrating the importance of the plan – leading the organisation through the BC process is an essential step. Organisational leaders need to set an example to the rest of the business. Your leaders exist at all levels, across business units and in each department. Build their capability and knowledge so they will be better placed to provide leadership throughout a disruption. According to a study of the response to Hurricane Katrina by the Centre for Creative Leadership2, crisis leadership does not just come from the top of the structure, or from within formal structures, it also emerges informally. Given the vast range of skills to be a crisis leader, it makes sense to harness and develop this capability in all parts of the organisation. As a leader you will set the direction for the organisation, and, as in your day to day business, you will need others to carry the mantle and implement those objectives.
Identify individuals who have the ability to take all the positive attributes of a leader and be able to effectively apply them under the intense pressure of a crisis. Provide them opportunities to hone these skills through training and experience-based learning. Empowered leaders who understand the plan and have enough knowledge and understanding to process ever changing information; to delegate; to listen; to motivate; to adapt and to encourage flexibility in others, will help smooth the transition that a disruption requires.
Conclusion
As BCM for London Underground, I was responsible for implementing BC across the corporate sector of the organisation. During my time there we had to respond to, and recover from, a wide variety of disruptions: gas leaks, fires, water ingress, supplier failure. From these experiences, I realised that if the organisation and its people didn’t understand their BCP and what it was trying to achieve then the recovery from business disruptions would be more painful and difficult than it needed to be.
Many organisations that I work with now will, I’m sure, agree with me. By engaging all levels of the organisation, by delivering regular communications, testing and training, and through the experience of rehearsals and real disruptions, they have witnessed a change to the way in which their organisation responds: with speed, with confidence and to great affect.
Just having a business continuity plan in place is not enough. People require education, support and information. They need to see leadership support for the BC program and they need to know as much as possible about the experience of a disruption. As people understand the logic behind BC and they can see its enormous benefit to the organisation they will demand more. More testing. More knowledge. More understanding. Thus ensuring a greater level of preparedness and thus a greater capacity to recover when the time comes.
Written by Jodie Wentworth
Senior Consultant, Business Continuity, RiskLogic
1. The Business Continuity Institute Good Practice Guidelines 2010, BCI
2. Stepping into the Void, Centre for Creative Leadership, 2008
