Of all the mysteries of the BP oil spill, perhaps the most baffling is: Why does BP CEO Tony Hayward still have a job? Hayward, who has been CEO of BP since 2007, was in charge when the disastrous blowout at the Macondo well in the Gulf of Mexico took place, and he's been in charge as BP has failed—and failed, and failed again—to stop the flow of crude oil into the Gulf. What's more, his (unbacked-up) reassurances and poor turns of phrase ("I want my life back") have aggravated the damage to BP's public image. Yet Hayward is secure in his job. In fact, he may have the most secure corporate seat in Great Britain.
It's not because the British are more indulgent of CEO incompetence than Americans. In fact, in some ways, British investors and the British public have less tolerance for obscene compensation and poor performance than their American cousins do. Look at the predicament of Tidjane Thiam, CEO of Prudential Plc, the giant British insurance company. Pru's stock has done fine since he took over, but Thiam is under pressure. In March, he struck an audacious, expensive deal to buy AIA, the Asian life insurance operation of AIG. The $35 billion deal, which would establish Pru as a huge player in a rapidly growing market, is a linchpin in the plan for AIG to pay back the U.S. taxpayers. But Pru's shareholders, who were asked to fund the acquisition through a rights offering, balked at the price amid rising market volatility. Thiam, responding to the criticism, tried to negotiate a lower price. But AIG held firm, and last week the deal fell apart. In other words, Thiam didn't recklessly pursue growth at all costs, and he didn't overpay for an empire-building move. And yet press reports suggest his job may be in jeopardy.
There's not a double-standard at work. In fact, Hayward's relative security is the logical result of cold calculation. Major screw-ups frequently end the careers of CEOs, especially if they cause the firm to go into bankruptcy or near it. File Chapter 11, and you pretty much relinquish your plush seat on the corporate jet. Lehman Bros. CEO Richard Fuld announced his intention to resign a few weeks after the firm went bust in the fall of 2008. But BP is still extremely solvent, and it is nowhere near bankruptcy.
As CEO, Hayward is ultimately responsible for BP's operations, and for its response to the crisis. And by any measure, the performance has been a debacle. So why is he still in the corner office? Ironically, Hayward owes his continued tenure largely to BP's unsuccessful efforts to cap the well. For better or worse (mostly for worse), Hayward has emerged as the public face of BP. When he shows up at the Gulf, or on television, he catches all the flak—for his colleagues, for those who report to him, and for those to whom he reports. As a human punching bag, he absorbs all the blows thrown by politicians, the media, and locals that might otherwise land on the corporate board or on investors. He literally owns the spill—and its consequences.
For this reason, it wouldn't be prudent to replace Hayward midstream. New CEOs—especially those who step into troubled situations—like to have a clean slate. There are a few basic narrative arcs to CEO stories—the phenomenal success story, the crash, and the comeback/turnaround. The ideal time to take over is after the company has hit bottom, when all the bad news has been absorbed by the market. That way, from Day 1, the story the new CEO tells is of cleaning up his predecessor's mess, fixing the damage, and repairing the company's image. It's possible to do this even if you're an inside candidate, promoted from within. But the timing has to be right. Investors warn of the danger of trying to catch falling knives—i.e., buying into a stock or company when it is still in freefall. The same holds with executives. Step in too early to a company in crisis, and you risk being identified as part of the problem rather than as part of the solution.
BP has expressed confidence that, regardless of the success of its various interim measures, the completion of a relief well in August will end the spill. If that's the case, and if BP really believes its own promises, there's no point in replacing Hayward until the spill is over. If the relief wells do not work as promised and a new CEO wouldn't want to be, um, tarred with the failure to stop the spill, Hayward could remain even past August.
The irony: As long as the oil is flowing, soiling birds and scaring tourists away from beaches, Hayward's job is probably safe.