The Real Scandal at BP

Forget lifestyle. Lord Browne acted against his professed corporate principles

Lord John Browne's exit in disgrace from BP last week was blared in bawdy headlines that effectively read "gay affair exposed." The debate since has focused on whether his private life was fair game and relevant to his public life as CEO. That isn't the real issue here. This brilliant business titan's fall likely is due to the conflict between how he actually managed the company and the public principles he claimed were the essence of BP's corporate character. Tragic mishaps in safety, environmental lapses, and questionable competitive maneuvers—not his lifestyle—eroded the company's self-righteous advertising image and Browne's legitimacy to lead.

Browne himself set the bar high. In addition to acquiring Amoco and Arco, he launched BP's $200 million image campaign with the tagline that BP stands for "Beyond Petroleum"—embodying principles such as "delivering performance without tradeoffs" in areas ranging from worker safety to the environment. But two years ago, examining actual expenditures in alternative energy, Greenpeace gave Browne an award for the "Best Impression of an Environmentalist."

That skepticism seems to have been well-placed. Browne's post-merger cost-cutting was cited in a probe as a cause of the refinery explosion in Texas City, Tex., killing 15 and injuring dozens of others. Regulators and BP (BP) employees charged this was just the latest in a series of deadly incidents where BP had not met safety standards. Two big oil spills last year at its Prudhoe Bay oil fields in Alaska had serious environmental impact. Again, outside investigators found poor post-merger integration led to negligence in corrosion prevention. On top of this, the aggressive culture resulted in questionable manipulation of the crude-oil and propane markets, leading to indictments and heavy fines.

On the BP Web site, Browne proclaims: "Our reputation, and therefore our future as a business depends on each of us, everywhere, every day, taking personal responsibility for the conduct of BP's business." Where was that responsibility in his case? It was hard to find a college campus or a TV camera where Browne did not race to recite his "Beyond Petroleum" pitch. Yet after each catastrophe, a newly anointed local manager was thrust blinking into the media spotlight—with Browne nowhere to be found. It took court subpoenas for that "taking personal responsibility" to occur in his case.

Failure of Boards

The board knew all this when it first set, then accelerated Browne's retirement to this summer. Still, last week, BP Chairman Peter Sutherland said it was "a tragedy that he should be compelled by his sense of honor to resign in these painful circumstances." But the tragedies were last year. The time for honor has passed, and the board missed its moment.

Painfully, we have seen other boards sit by when the actions of once revered but now underperforming CEOs do not match their rhetoric. Consider when Home Depot's (HD) board last year suspended their judgment when CEO Robert Nardelli stopped reporting core retail metrics like same-store sales, dismissed wilting customer loyalty and employee morale, and even recommended directors skip the annual meeting.

In other meltdowns of Hewlett-Packard's (HPQ) Carly Fiorina and Morgan Stanley's (MS) Phil Purcell, boards were slow to act. Now, pious condemnations of Browne's lying about his lifestyle abound, but more-relevant indicators of a need for board intervention were blissfully ignored.

Of course there are times when lifestyle can be a legitimate matter for public debate, such as when Reverend Ted Haggard, who lobbied against gay rights, admitted to a relationship with a gay escort last November. But leadership lapses are more apt to be the issue. Think of Boeing (BA) CEO Harry Stonecipher's 2005 ousting for having an affair with a female employee after a spate of military procurement scandals. And World Bank President Paul Wolfowitz is currently under fire not just because he has a girlfriend in the shop but because, critics claim, he bypassed procedures in order to enhance her compensation and career. Likewise, Browne's open-secret gay relationship probably wasn't the issue; possible misdirection of corporate resources and his admitted lying in court was. Over the last decade, the presence of gays in corporate life has become far less shocking. CEO underperformance, misuse of corporate funds, and professional dishonesty, however, have not.

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