If the 11 human fatalities, billions of dollars of damage, and incalculable ecological devastation caused by the 2010 Deepwater Horizon oil spill failed to draw near-universal censure for BP, then-CEO Tony Hayward’s response certainly ensured it.
In a regrettable series of gaffes that exacerbated a terrible situation and cast BP as a corporation cut-off from reality, Hayward at first said that the environmental impact of the disaster was very modest.
Eventually, after being pressed for an on-camera apology, he added, "There’s no one who wants this thing over more than I do. You know, I’d like my life back."
Navigating a disaster of this magnitude unscathed is certainly not an easy task, but BP’s failure is a powerful reminder for all companies that they face competition and pressure not just from their own market, but also from the nonmarket—that is, the political and social environments in which they operate.
While BP lacked a well-designed strategy or structure for addressing both market and nonmarket pressures in a conscious, deliberate, and well-coordinated manner, it’s sobering to remember that this is also the case for most companies.
During a study I and my colleagues Jonathan Doh and Tazeeb Rajwani conducted, we found was that most companies approach nonmarket strategies from two distinct, separate perspectives: a legal and regulatory stance and a community relations and public affairs one, which were often poorly coordinated.
A much better strategy, we find, is for companies to create a second CEO C-Suite-level role that marries those perspectives: we call this executive the Chief External Officer.
Firms that focus and synchronize their corporate strategy, political activity, and social responsibility give themselves a competitive edge by achieving more effective and strategic actions and policies while also engendering goodwill.
Look at the example of Coca-Cola, who faced a potentially devastating PR situation when trace amounts of pesticides were found in its Indian operation soft drinks at the same time the company was accused of depleting local water tables.
Instead of self-destructing the way Tony Hayward did, the company instead took a more nuanced approach, utilizing insights from its local subsidiary as well as the global experience of its headquarters operation to launch a broad-based partnership. The result, a global freshwater conservation initiative, has helped redefine Coke’s image—and brand.
Employing this fully aligned approach for a company can take a variety of forms, too: one company may benefit more from close partnerships with governments or other stakeholders as part of core business strategy, while another may choose to collaborate more loosely with outside organizations or individuals.
The best way to differentiate a company’s unique needs for collaboration is to locate where along the political orientation and social responsiveness spectrum it falls.
An airline or pharmaceutical company, for example, would most likely have a stronger political orientation, since their business is intertwined with political and regulatory issues. An engineering or construction firm, on the other hand, might have a stronger social responsiveness orientation since sustainability and development are key to their business. Of course, most companies fall somewhere in-between.
No one has perfected this balancing act better than Lufthansa, the largest airline in Europe, who recognized more quickly and cleverly than almost any company the importance of a transnational approach transcending short-term political and social objectives.
Much of the credit is due to Thomas Kropp, who went from managing Lufthansa’s government and regulatory affairs office in Brussels to becoming Senior Vice President and Head of Group International Relations and Government Affairs at Lufthansa’s Frankfurt headquarters, effectively serving as the company’s Chief External Officer.
With energetic visionaries like Kropp entrusted with this role, companies benefit enormously, although it must be stated that these roles require a proactive element so that the Chief External Officer may create and maintain the necessary relationships as well as weave as much goodwill as possible.
There are several companies who have done exceptional jobs of this as well, including the French food products giant, Groupe Danone, which has been working with NGOs, local citizen groups, and governmental bodies to provide yogurt drinks and other nutritional products to help malnourished children in Southeast Asia.
Danone has been working to provide these at a very low cost, and in return, they’re earning goodwill at the political and social levels while also gaining brand recognition and market access.
Ideally, having a Chief External Officer is a win/win for all involved, yielding increased stakeholder engagement and positive, brand-enhancing, world-improving externalities. This role—or at least the strategic and structural engagement that accompanies it—also empowers companies to respond better and more proactively in the face of tragedy.
Companies who choose to turn a blind eye to the changing requirements of a changing world, however, run the risk of exacerbating the already-terrible impact of these tragedies.
Going back to the BP example, the cost of human life and ecological damage was already much too high when a tone-deaf Tony Hayward further fanned the flames. Because of BP’s lack of alignment, both the CEO and the company paid a high price, too.
—Thomas C. Lawton, PhD, is a Visiting Professor of Business Administration, Tuck School of Business at Dartmouth College.