Chief executive officers are paid to make informed decisions. The expectation is not that they will know all the answers, but that they will know how
THOMAS J. ROACH
Chief executive officers are paid to make informed decisions. The expectation is not that they will know all the answers, but that they will know how to get all the answers. To this end, they engage in a decision-making process with their staffs. The three biggest players in this process should be the chief financial officer, the head of the legal department, and the chief public relations consultant.
Because most decisions are weighed against the potential for profit and loss, the chief financial officer is generally the most influential member of the senior staff. However, if an issue raises concerns about violating the law or incurring potential lawsuits, then the otherwise obscure head of the legal department may trump the authority of the CFO. And if an issue is big enough that it could turn public opinion against the company, then the public relations consultant, perhaps an employee or perhaps supplied by an agency, may trump the advice of the attorney.
CONSIDER THE EXAMPLE of British Petroleum. Most decisions about how to manage a drilling project in the Gulf of Mexico are made by operations people somewhere in the peripheral vision of the CEO. An engineer files a report saying that the drilling rig is potentially unstable. Maybe the contractor is unreliable, or equipment needs to be replaced, or more precautions need to be taken. Chances are that if the decision to act on the report made its way to the office of CEO Tony Hayward, the most prominent consideration was profit and loss. An argument from the CFO might be, if it isn't broken, why spend millions of dollars fixing it.
If the legal department is called in, it might be argued that contracts and drilling protocols do not make BP responsible for certain levels of safety precautions. If it is ambiguous, maybe the CFO's argument prevails. If the legal argument is that the operation is in violation of the law and that the rig or others like it will be shut down, then the legal authority will probably sway the CEO.
IF PUBLIC RELATIONS expertise is brought to the table, the argument may be made that an accident could spill billions of gallons of oil into the Gulf of Mexico, destroying the fishing industry and tourist economy for thousands of miles, and that it would likely result in the worst kind of negative publicity for the company. Negative publicity on this scale would likely result in customers boycotting BP products, a decline in the stock value, intense scrutiny from regulatory agencies, and the enactment of more restrictive regulation of the industry. The public relations argument might predict almost incalculable financial losses, years of unforeseen legal entanglements and possible bankruptcy, thus trumping the arguments of the chief financial and legal representatives.
Few know what really happened at BP. Apparently, there were reports addressing the potential for the disaster. Considering recent events, it seems likely that there was no significant public relations representation when the decision was made or not made regarding taking precautions against the eventual ecological disaster.
IT IS ALSO apparent that once the disaster happened, it was the voice of the legal department, not the public relations department, that guided the company's actions. At some point the board of directors will replace Hayward and his staff with decision-makers who realize that the public relations considerations impact and outweigh the financial and legal considerations.
Hopefully for BP this will happen before the financial and legal repercussions of a bad public relations decision carry them to the bottom of the ocean with their broken oil rig.