Posts Tagged ‘Gulf’

Finagle’s Law and the Gulf Oil Crisis

November 3, 2010

Yesterday’s admirable piece by Michael Skapinker in the Financial Times about BP’s crisis in the Gulf got us to thinking about what really good reputation risk management looks like.  Skapinker rightly recommends that boards of directors pay careful heed to what Bob Dudley, the new CEO of BP had to say about the Gulf disaster at a Confederation of British Industry conference this week.  Perhaps, but they will need to re-read carefully the passage in which he talks about “a series of interlinked failures” as the cause of the spill.  If they do so, they might begin to apply “Finagle’s Law,” the gold standard of disaster prevention.

Finagle’s Law, an elaboration of Murphy’s or Sod’s Law states that “if anything can go wrong, it will go wrong, at the worst possible moment.”  It is hard to reconcile a complete understanding of this principle with the way most companies practice crisis prevention today, with their reliance on fail safes not themselves failing.  In fact, Murphy himself or rather Air Force Colonel Stapp who coined the phrase in the 1940s, understood that Murphy and Finagle were not simply articulating a fatalistic point of view but recommending a critical series of thought experiments — imagining the worst case scenario for every sequence in a chain of events and the failure of its back-up, in order to engineer effective safeguards.

With apologies to Mr. Dudley, “low probability event” and “unimaginably devastating” are not quite the same thing.  We’ll talk tomorrow about how companies can stress test their entire value chain in order to uncover hidden risks.

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Social Responsibility and “Pubic” Embarrassment

August 24, 2010

Professor Karnani’s essay in today’s Wall Street Journal perfectly illustrates the fuzzy thinking on both sides of the debate about corporate social responsibility.  He clearly doesn’t like CSR but the reader searches without much success for the reason why.

 The rise of the term “stakeholder” has indeed deluded some people into believing that there is an abstract ethical obligation on corporations to balance profits and the public good, but Dr. Karnani has erected a convenient straw man here. The main stream view is that no-one expects for profit corporations to take actions adverse to the long term interests of shareholders.  Social responsibility is and should be, as he says, a financial calculation for executives just like any other, designed to protect their companies’ license to operate.  Companies that correctly identify the consumer appetite for sustainably produced and transported goods will also make money by marketing that commitment to social responsibility. Companies that fail to keep up with changing consumer opinion in this area will expose themselves to the Journal’s orthographically apt “pubic embarrassment.”

So, other than attacking the fringe that believes that companies should sub-optimize their profitability without any balancing benefit, what exactly is Dr. Karnani’s problem with CSR?  In one paragraph (and a sidebar), he asserts that “a focus on social responsibility will delay or discourage more effective measures to enhance social welfare in those cases where profits and the public good are at odds.”  He adduces no evidence, even anecdotal, for this argument.  Presumably, he would not have the audacity to argue that “Beyond Petroleum” rather than lax regulatory enforcement led to the Gulf oil spill.  In fact, there is at least as much evidence that commitments to social responsibility goals by large corporations are likely to increase the eventual public good and assure their  continued license to operate, surely a shareholder benefit.

 There may indeed be an argument that the relationship between corporate behavior, regulation and self-regulation is currently off balance, but that requires a different discussion.  That is a discussion about finding the equilibrium between public goods such as jobs, growth and innovation and other public goods such as pollution control and the management of natural resources.

Opacity Redux

July 29, 2010

Two separate but parallel discussions recently have caused us to revisit the issue of transparency and its bad-tempered twin, opacity.  Back in the early 2000s, we helped pioneer something called the Opacity Index which measured the extent to which a country’s sovereign borrowing costs and levels of foreign direct investment were impacted by levels of corruption, regulatory capriciousness, administrative speed, judicial transparency and a number of other factors.  In this index, opacity was bad and transparency good.  Similarly, in the fraught field of crisis communications,  the gold standard of crisis response has been ever higher levels of transparency.  Stakeholders, in this theory, are kinder to companies that are quickly and comprehensively disclosive.  And then we looked at Apple and BP.

In response to early complaints about signal strength and dropped calls with its latest IPhone, Apple was at first unresponsive, then petulant, before finally offering customers a “bumper” to put around their phone.  BP, by contrast, almost instantly flew its CEO to the Gulf, and while there have been many spoken gaffes, it has apparently been completely transparent and disclosive throughout the long unfolding of  the well capping process.  In spite of its sour behavior, Apple has sold boatloads of the new phone.  In spite of its attempts to be transparent in real-time, BP’s reputation continues to sink to new lows.

We are not suggesting a return to the evasive stonewalling at Three Mile Island in the 1970s, but is there, in fact, a lesson about corporate transparency to be learned from the Apple/BP contrast?  We’re not quite sure what it is, but it is telling that some of the most unfortunate moments for BP involved comments from Hayward and Svanberg about their feelings and the least appealing aspect to the IPhone story was the emotional disdain expressed by Steve Jobs for the media.  In the era of social networking, corporations are striving to find a voice that suits the intimacy and informality of the new medium.  This is proving more difficult than some had hoped.  Having a strong brand helps, but when the chips are down, people want corporations to get things right, not express their feelings.  The “get it” factor may be over-rated.