BP and the Cost of Reputational Debt

BP and the Cost of Reputational Debt
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On Monday, the U.S. Supreme Court rejected BP's attempt to halt payments to affected businesses while the oil giant appeals its 2010 Gulf of Mexico disaster settlement. While legitimate questions arise about the formula used to determine payment eligibility for businesses submitting claims, BP simply does not possess reputational permission to request that payments halt while the courts sort it all out. The sheer scale of the Deepwater Horizon reputational crisis and BP's feeble response very simply have mortgaged any ability for it to make even bona fide requests for legal clarity on settlement terms.

In the same way that the public last year didn't buy BP's public campaign about fraudulent and inflated damage claims, the courts will not and cannot (yes, public opinion is a binary concern even for the Supreme Court) give BP even an inch. When a crisis strikes at the core competency of a company -- in this case, safe and containable offshore drilling -- the reputational debt created by mishandling the crisis can persist for decades. The larger the gap between public expectations and actual performance, the slower the redemption period.

GM now finds itself squarely in the midst of a similar reputational crisis. It strikes at the core of its competencies and reminds us again that past is prologue. BP and GM simply weren't equipped with the clarity of purpose at critical stages when information should have been elevated or other decisions should have been made decisively. Reputational cost and stakeholders' concerns should have been viewed as non-negotiable ballast. Whether GM makes it to the other side will be determined in the months and years ahead. The reputational debt, however, is accruing by the day at an unknown multiple.

The clarion call to large global businesses is this: Despite your complexities and scale, reputational debt can't be traded or hedged. Responsible risk governance should begin at the top and cascade down and across. As we read of the successes of companies designed for efficiency and maximum performance and how they consistently outperform market expectations, we need only to turn the page to find a CEO appearing before Congress to explain a reputational crisis. Reputation risk management is a leadership mindset that fully embraces the duty to protect core asset value. And, simply enough, it begins with a plan.

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