Legacy of the BP spill: What's a reputation worth?

The BP spill in the Gulf of Mexico caused a public outcry and savaged BP's share price. Image repair won't be easy.

The leak is plugged. Six months after the Deepwater Horizon exploded and sank, unleashing the worst oil disaster in the history of the United States, BP is no longer monopolizing the top spot on the news agenda. What remains, however, is a reputation as black as the oil it pumps.

Not for the first time, a petroleum giant has run into an oil-spill disaster. The last time it happened on anything approaching this scale, Exxon was able to extricate itself from the muck in Alaska's Prince William Sound and become an organization recognized for its safety programs and so obsessive about them that analysts tell stories about Exxon canteen workers charged with taking the temperature of the lettuce so "nobody gets hurt."

Can BP pull an Exxon? Does it need to?

The value of a corporate reputation is one of the toughest issues that companies have to wrestle with. Some guard their reputations jealously. Others sell products that many find morally questionable – think cigarettes – but find no lack of profits or investors. Interest groups pressure managers to exit businesses that could hurt their reputation or start ventures that could build it. The payoff for such moves is unclear.

"When you get to the soft side of the ledger it gets very difficult," says Harlan Loeb, director of crisis and issues management at Edelman, a public-relations firm. "There's a reflexive discomfort with reputation, because it's not easy to measure."

Nevertheless, the public and CEOs are paying increasing attention to corporate reputation. For the first time in 10 years of surveying public attitudes toward business, Edelman's Trust Barometer this year found that "trust and transparency" were deemed as important as the "quality of services and products." An NYSE-Euronext survey of 325 CEOs worldwide found that three-quarters of firms had become more transparent about their risk policies.

But for BP, the road to image recovery is steep – and longer than it was for ExxonMobil. Exxon's stock endured a short-lived 10 percent dip in the aftermath of the Exxon Valdez spill in 1989. BP, by contrast, saw its stock price plunge 55 percent after the explosion aboard the Deepwater Horizon and has so far recovered only a little more than a third of that loss. It was kicked off the Dow Jones Sustainability Index and dropped by the FTSE4Good ethical index. A boycott BP page on Facebook has attracted more than 800,000 fans.

BP's string of disasters

Typically, negative public reaction fades as the media spotlight dims. But two disasters over the past five years hurt BP's image long before the Gulf spill. A 2005 refinery explosion in Texas City, Texas, that killed 15 workers was followed a year later by a 300,000-barrel pipeline leak in Alaska's Prudhoe Bay. When Tony Hayward took over in 2007, he promised to operate with "laser focus" on safety.

Subsequent events undercut that promise. On his watch, BP has been fined $87 million – the largest fine in the history of the US Occupational Safety & Health Administration (OSHA) – for failing to address problems identified after the Texas City disaster. "BP appears to have had a corporate blind spot relating to process safety," concluded a report chaired by former Secretary of State James Baker.

In recent years, the British oil giant had grown to be the largest producer in the Gulf of Mexico, pushing to deeper depths and reaping big returns. A year ago, BP announced a 500-million barrel discovery in the Gulf, the Tiber field, and saw its share price rise 4 percent in a single day. This came on the heels of another giant find, the Kaskida field, which BP had successfully drilled with Transocean, and the Deepwater Horizon.

BP's bold – some would say risky – moves in the Gulf were in sharp contrast to those of ExxonMobil. In 2005, Exxon pulled out of the Blackbeard West site in the Gulf, saying it could not be "safely continued." It had spent $180 billion and was only 2,000 feet from reaching an estimated 1 billion-barrel oil field. At the time, industry analysts and journalists lambasted Exxon for lacking "guts."

In retrospect, the Blackbeard retreat and a recent merger with US natural-gas firm XTO Energy reflect "classic long-term ExxonMobil strategy," said Paul Sankey, an analyst at Deutsche Bank, in a June report. The XTO merger turned Exxon into the United States' largest natural-gas producer – an important diversification step at a time when oil is becoming riskier and more costly to produce.

Despite Exxon's impressive safety record – one OSHA violation in the last five years – its name still leaves a bitter taste in the mouths of many Alaskans. The US oil titan led the small communities of Prince William Sound in a tightly choreographed legal dance, which ended only in 2008 and reduced a $5 billion damage settlement to $507 million. Some plaintiffs got a final payment of 6 cents.

A less forgiving environment for firms

Unlike in 1989, companies today operate in a "24/7 risk environment," says Mr. Loeb. Two key factors are behind the change: the advent of social media and the growth in influence of environmental and other nongovernmental organizations offering a "much greater check-and-balance system on corporate behavior." While social media involves risks, he added, it also offers companies "an extraordinary opportunity to break through the static of information flow to tell your own story."

BP has been successful "reactively" in controlling the narrative, but needs to work more "proactively" in the blizzard of litigation that casts the oil company as Goliath against a Gulf Coast of Davids, says a communications consultant, who asked not to be named because he is working for BP.

The importance of reputation is also key in terms of political leverage, says Mark Swanson, who has worked for the Coast Guard, Shell, and now as director of a citizen-led oil industry oversight body in Prince William Sound set up after the Valdez spill.

Time may be on BP's side. The oil industry's Washington cheerleaders are currently choosing their words carefully. But as outrage fades, they will again be reminding Congress about the importance of domestic oil production. "The court of public opinion only goes so far," says Mr. Swanson.