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The BP oil spill papers: A case study in management failure

Who needs Harvard Business School when you've got the BP oil spill commission? Case studies are all well and good, but the presidential group's reports of what went wrong with the decision making amid the government's response read like one of the most instructive business case studies I've seen in a long time.

The working papers, released Oct. 6, reveal a poorly managed response, a delay of the release of information about the spill's worst-case scenario, and confusion about the severity of the spill. They offer a rare comprehensive look at decision-making in a crisis that is immediate, highly detailed and even harsh in its assessment. The average case study is none of those things.

Among the findings of the commission: agencies differed over how to describe the spill publicly as its immensity became better understood;studying the fate of the spilled oil was not "peer reviewed," as some officials had stated; and a "lack of regulatory guidance" contributed to the confusion.

But it is the decision-making problems that will resonate most with leaders, no matter whether they lead a corporate office, a government agency or a non-profit organization. The "Decision-Making Within the Unified Command" report places significant blame on a circumvented command structure, in which "inter-agency groups were activated but later marginalized" while top agency chiefs, who were often political appointees, "remained very involved in the response and took over addressing key issues."

While that might have helped with image management, the report notes, it injected politics where it wasn't needed. "Such involvement may have increased accountability, and helped to make controversial decision-making more transparent, but it also made the decisions more subject to criticism and delay on political grounds," the report notes.

Likewise, the established response teams became, as the working papers call them, "report-to" bodies rather than "decision-making" teams. That bypass of the traditional structure made it confusing to the public and to responders where authority lay. In the flap over using dispersants to clear the oil, for instance, political appointees who had not been part of earlier analyses were suddenly making decisions despite a lack of knowledge.

In other words, the government suffered from the classic traps of micro-management and too much centralization. As the report states, "much of the unified command
structure is designed to push issues down to the most local level at which they can be addressed. Having strong agency head participation tended to elevate decisions that might have otherwise been addressed closer to the source of the question," where, presumably, the amount of knowledge was greater.

A weakened presidency, heightened national political tensions and the magnitude of the spill all contributed to decision-making meddling from higher-ups. But any organization in crisis often faces the same risk: top executives want to look like they're taking swift action, when really the best course might be simply letting go. The temptation for leaders to wade in--no pun intended--and micro-manage during a crisis blurs decision-making structures, confuses front-line workers and slows down action as everyone waits to see what the higher-ups want now that the traditional process has been shattered.

In a crisis, leaders would be wise to remember that the best way to burnish their image as a take-action chief is to get the crisis solved. And that usually means stepping back and letting people do their jobs.

By Jena McGregor

 |  October 7, 2010; 6:00 AM ET |  Category:  Bad leadership , Decision-making , Federal government leadership Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati  
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As dismal as all of this is, it seems to me it REALLY operates (whether "wittingly" or not makes no real difference) as a diversionary deflection of attention AWAY from what is perhaps the GREATEST actual damage of the whole fiasco --- which is all the METHANE released into the environment as a consequence of the gusher that took three months to finally cap.

The "whole 'nother dimension" of this spill that DOES NOT SEEM TO HAVE BEEN “PICKED UP ON” IN THE GENERAL POPULAR CONSCIOUSNESS --- and I’m afraid that IT SURELY OUGHT TO BE. I refer to all the METHANE that PRESSURIZED the flow of this gusher to the extent of having DRIVEN that whole spill of 4.9 million barrels of oil. I have heard one figure stated that 40% of that was methane (and no, I don’t know whether that was by weight or by volume --- or whether at those pressures and temperatures it even makes any difference).

I point out to people that methane (CH4) is a VERY "EFFICACIOUS" GREENHOUSE GAS! (meaning, of course, that IT TOO, just like the CO2 about which many folks now generally understand, operates like a "blanket" that "holds in" the energy of electromagnetic radiation from the Sun, photons of which EASILY PASS THROUGH the atmosphere COMING IN, but then interact with the atoms of the Earth that they eventually strike and end up driving “rebound” re-radiation of LOWER FREQUENCY photons of INFRA-RED energy. To THESE, such gases are OPAQUE, so that the resulting "heat" energy CANNOT THEN RE-RADIATE FREELY BACK OFF OUT INTO SPACE --- so it "PILES UP", and THE EARTH GETS HOTTER!)

But CO2 is NOT THE ONLY such "greenhouse gas"; METHANE is evidently MUCH WORSE than CO2! Furthermore, lest people imagine that it too (like the OIL) has been dispersed into the water, BE ADVISED: METHANE IS NOT WATER-SOLUBLE! Presumably however much of it has been released I WOULD THINK MUST HAVE BUBBLED UP THROUGH THE WATER AND, except for perhaps 10% or so of everything that was “burned off”, MUST HAVE NOW GONE OFF INTO THE AIR!!

"We" LONG ago already realized that this stuff (being FLAMMABLE, and indeed EXPLOSIVE) needed to be "disposed of". And years ago one would see FLARES burning in the vicinity of oil refineries --- which at least served to "convert" methane into carbon dioxide, which IS NOT flammable and explosive. We don't do THAT any longer (at least not on LAND, in "developed" countries); rather "we" CAPTURE the stuff. (It is USEFUL AS A FUEL!) And indeed, nowadays every lousy LANDFILL is outfitted with a system of gas-collection wells to CAPTURE the methane that is inevitably given off in the course of the decomposition of complex organic material. (I have seen one figure suggesting that where methane IS FLARED to CO2 the relative benefit vis-à-vis the greenhouse effect is as much as 96%. So do the math! With respect to computation of a “tons of CO2 emitted EQUIVALENT”, the “efficacy ratio” MUST BE ABOUT 25 TO 1!!)But EVIDENTLY NOBODY EVEN BOTHERS TO THINK ABOUT THAT!

Posted by: BirdsAbound | October 10, 2010 5:13 PM

The oil drilling catastrophe in the Gulf of Mexico brought to us by BP has overshadowed its central role over the past century in fostering other disastrous events.

BP originated in 1908 as the Anglo-Persian Oil Company—a British corporation whose name was changed to the Anglo-Iranian Oil Company. With exclusive rights to extract, refine, export, and sell Iran's rich oil resources, the company reaped enormous profits. Mohammed Mossadeq, the prime minister signed legislation, to nationalize the Anglo-Iranian Oil Company.

The British government was horrified and imposed an economic embargo on Iran. When this failed to bring the Iranians to heel, the British government sought to arrange for the overthrow of Mossadeq.

The CIA was placed in charge of an operation, including fomenting riots and other destabilizing activities, to overthrow Mossadeq and advance oil company interests in Iran. http://hnn.us/articles/128147.html

BP & CIA overthrew a democratically elected leader in Iran, then put a tyrant in his place who imprisoned and tortured, finally killing civilians in the streets (Shah) which paved the way for Islamic revolution.

Posted by: kkrimmer | October 10, 2010 1:07 PM

The reflex need to politicize what happened in the Gulf is one more example of how as a country we've become so tribal. Start with the simple truth that the government at every level is not prepared to deal with the sort of event we saw in the Gulf. Why? To have those assets available would have required taxing energy companies and we know how that would have worked: not at all. Unlike the Katrina fiasco, government was not charged with being the responder to the Macondo spill. Was the administration superb in how it did respond? No, but there isn't a simple check list to follow in such situations. As for the deal struck with BP, of course it has its benefits for BP, but that does not mean that it did not give those with claims some traction in how they will be compensated. I'm weary of all this enemy-finding. Why can't we figure out that we are all in this together and just argue about real differences of how to improve our nation rather than ranting at each other?

Posted by: gratianus | October 9, 2010 4:00 PM

It is tough for the liberals ....Obama took more money from BP, as a Senator, than any other politician...

BP makes an environmental mess in the Gulf but the Obama Administration has to downplay the event due to Obama's culpability in enabling BP

Ever emotional, the left is not allowed to get too loud about an environmental disaster in which Obama is so intertwined ...

.....it might focus too much attention on their Failure-in-Chief

Posted by: georgedixon1 | October 9, 2010 3:29 PM

The Obama Administration's handling of the worst ecological castrophe in history was the worst case scenario. Obama placed his entire Administration at the disposal of the bloody British propaganda machine.

The Keystone Kop Brigade was led by Coast Guard Adm. Thad Allen. Allen made former FEMA Director Michael Brown look like a genius and the hero of Katrina, with help from Lisa P. Jackson of the EPA, Ken Salazar of the Dept. of the Interior and Jane Lubchenco of NOAA.

The working papers, released Oct. 6, do not reveal a poorly managed response, a delay of the release of information about the spill's worst-case scenario, and confusion about the severity of the spill.

This was the worst political cover-up since Watergate. Shortly after the well explosion killing 11 oil workers, BP began applying vast quantities of chemical dispersants. By mid-July, BP had released almost two million gallons of the deadly dispersant Corexit with the blessings of the EPA.

Posted by: alance | October 9, 2010 2:29 PM

H. R. Miller wrote this and circulated it over the Internet on Saturday, June 19, 2010. Other CPAs have checked the math. It is abridged to fit this space.

“When I first learned of the "settlement" BP agreed to this morning at the White House, I couldn't believe any Company would agree to the terms, particularly the agreement to compensate rig workers laid off because of the Obama ban on drilling. But then I learned that the $20 billion escrow fund will be funded over 4 years with only $7 billion paid out in 2010. Since Oil Companies focus principally on cash flow, I started analyzing the cash flow aspects of the settlement. I feel quite certain the BP's US operations are conducted through a US subsidiary which files a US tax return for operations conducted under this legal umbrella.

“First of all, based on the announcement, BP's funding of the escrow account is voluntary. There apparently is no legal basis for enforcement. However, generally accepted accounting principles (GAP) requires BP to book the $20 billion accepted liability in the year incurred - 2010. As such BP can claim a $20 billion deduction on its US 2010 tax return and collect refunds from the US government of some $7 billion in 2011, either on its 2010 tax return or through loss carry backs to 2005 through 2009, obtaining tax refunds paid in those years.

“BP will pay no quarterly dividends for Q2 - Q4 2010 saving some $7.5 billion in cash flow. About 40% of these dividends are paid to US residents or some $3 billion. If this income is distributed to taxpayers, the US government revenues will be reduced by at least 15 to 35% of the taxable amount.

So let's analyze the cash flow impact on BP in 2010:
Escrow funding ( $ 7,000,000,000)
Dividend savings 7,500,000,000
Tax savings/refunds 7,000,000,000
Net BP favorable 2010 cash flow $7,500,000,000

Meanwhile the US government's cash flow will look like this:
Reduced tax receipts:
From BP Corporation ( $7,000,000,000)
From BP shareholders up to ( $1,000,000,000)
Net unfavorable cash flow ($8,000,000,000)

“So now BP is going to be in a net favorable cash flow position until sometime in 2012 when it should be clearer what its exposure is, putting it in a good position (i.e. without any net cash outflow) to decide whether to fold its US operations through a bankruptcy. The liability for the balance of the escrow will be unsecured with no preference over other creditors, so the balance of the $20 billion may never be paid. In the interim you can believe that there will be no advances to or investment in the US opoperations by its parent and every opportunity will be taken to
repay any amounts owed to the parent. In the meantime, BP can claim credit for being a responsible Corporate citizen and will have put a stop, albeit perhaps only temporarily, to the daily pillorying by the media and politicians.

Posted by: rjodaniel | October 8, 2010 11:23 AM

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