Does BP Also Stand for Board Preoccupied?

BP’s Deepwater Horizon rig explosion is a disaster. Simply, unequivocally and without a doubt. But it has happened and what we have now is a situation requiring decisiveness and action. Tony Hayward as CEO of BP has been the face of the company and thus viewed as the culprit in this catastrophe. However, he alone cannot be responsible for the decisions and strategic direction of this $246 billion behemoth.
 
BP has a senior leadership team consisting of numerous experienced and presumably qualified individuals. It also has a thirteen person board of directors.  Six of these directors are insiders and thereby hopefully fully engaged in the running of their businesses and the response to the tragedy. However there are seven other directors that we have not heard much about. Where has this Board of Directors been in all that is currently going on? Where were they when BP continued drilling in spite of the Deepwater Horizon rig missing 16 inspections in the years leading up to the April explosion? Or when the company made decisions to operate unsafely and failed to react to early warning signs of the rig problem?
 
Finally on Friday someone aside from Hayward came forward with a statement. Board chairman Carl-Henric Svanberg stated that Hayward would no longer be responsible for the Gulf response. This action, while applauded by many is but a small effort to guide a company going through catastrophe.

Given the industry and the recent near obsession with risk and risk management at the board level, the board of BP should have been consistently assessing and focused on its business risk. In fact the board does have a Safety, Ethics and Environment Assurance Committee (SEEAC). One of the main tasks of this committee is:

Monitoring and obtaining assurance that the management or mitigation of significant BP risks of a non-financial nature is appropriately addressed.

This committee consists of five outside directors that held a total of seven meetings over the course of the year. Incidentally only two of these five individuals attended all of these meetings. The others missed either one or two. The members of the SEEAC are all very accomplished CEOs with experience in large multi-nationals with complex businesses. However none of these individuals has the true environmental, sustainability, and/or geological experience one would hope to see in such an important committee. These individuals are commercially driven business operators successful largely because they have run profitable companies. I think the shareholders of BP and in fact the people of the United States would have been better served by having at least one environmental expert on this committee. If for some reason this was not possible a true expert in risk management would have complemented the thinking of this committee.

Once again, the limitation of a company’s governance goes not to the level and experience of its board of directors but rather to the lack of heterogeneity and diversity. While we hope that this environmental catastrophe will quickly stabilize, in the midst of all the finger-pointing surely one of the lessons that can be learned is that corporate governance is best carried out by experienced but more importantly a variety of experienced individuals who can challenge the status quo and each other. All this in a constructive and productive way so that the very best ideas and thinking can percolate and seep through the organization.

As a final point, unfortunately the current outcry ignores a larger and more serious issue. While the demand for oil remains insatiable, companies such as BP will continue to look for solutions and often make desperate choices.