CNBC: Flaherty Criticizes House BP Hearings

Tonight on The Kudlow Report, I discussed the appearance of BP CEO Tony Hayward before the House Energy and Commerce Committee today with Jeffrey Sonnenfeld of the Yale School of Management and psychologist Dr. Tim Irwin. Here’s a transcript:

Larry Kudlow: All right unless you are from another planet, you would know that was BP’s CEO Tony Hayward. He was offering more questions than answers today. Based on his overall performance, I guess we must ask as many others will, is it time for Hayward to go? And if so, who should replace him and will that matter at this point? So nobody knows this issue better than my friend Jeff Sonnenfeld, the founder and President of the Chief Executive Leadership Institute at the Yale School of Management. Peter Flaherty, the National Legal and Policy Center and organizational psychologist Tim Erwin, he is the author of Derailed, Five Lessons Learned from Catastrophic Failures of Leadership. Let me start with my pal Jeff Sonnenfeld. Jeff, first of all my points true. I am not exonerating Hayward or BP, I am just saying what did you expect? He is not going to say all that much. I am going to get Tim’s take in a minute. Jeff, who should replace him? Should he be replaced? Who should replace him?

Jeffrey Sonnenfeld: He couldn’t have come across as more inept and it is certainly not a cultural thing. You could imagine that Tony Blair, Margaret Thatcher or certainly Winston Churchill would have carried the day if this had been the kind of style we had when Churchill was Prime Minister, it would have become German long ago.

Larry Kudlow: Yeah, but do you think Churchill would have said all that stuff Jeff, if he were under all, if he faced the threat of criminal indictment and jail? Now come on. I don’t want to defend Hayward on any substance, but on this particular issue, this was one of these Congressional show trials – you know what I am talking about. What do you expect from the guy?

Jeffrey Sonnenfeld: The liability is already out there, everywhere. Unless he did something criminal he is not going to convict himself any more. The paper trail is there. There isn’t anything he is going to say today that is criminalize him any more or less, Larry. He had a moment to show some personal dynamism, to show some sincerity, to show some authentic contrition; instead it was like he had a sedative. He was just going through a rehearsed script. He was cold, indifferent, disdainful, unprepared and as a technical expert he had no expertise. It shows incompetence.

Larry Kudlow: All right, let me get our psychologist in here. Tim, we started this journey early this morning, you and I on this set. What did you think after watching more of it? Do you agree with Jeff Sonnenfeld who is being mean, nasty and brutish. That is the way Jeff is, he is a very exacting professor at Yale. Or do you think that Hayward’s hands were really tied for the whole Hearing?

Tim Erwin: Well Larry, for the first part, I mean is it any wonder why the public opinion of Congress is so low? You alluded to the low percentages. I mean the trial they put this guy through today was absurd. I mean the absurdity of Congressman Peter Welch lecturing Tony Hayward on what a CEO is supposed to do. I mean there were all kind of absurdities throughout the day. I think the question is timing.

Jeffrey Sonnenfeld: I couldn’t disagree with Dr. Erwin more, I thought that Congress shined. I thought they looked fantastic.

Peter Flaherty: Oh come on.

Jeffrey Sonnenfeld: They were well prepared.

Peter Flaherty: It was Congress at its worst.

Jeffrey Sonnenfeld: He couldn’t explain…

Peter Flaherty: Hey, look I am not a psychologist, so forgive me if I have an unfair advantage, but I know what I saw today. I saw a bunch of Congressmen make fools of themselves. I had no idea they were so knowledgeable about deep water drilling.

Jeffrey Sonnenfeld: Made fools of themselves?

Peter Flaherty: Tony Hayward stuck in a chair with his hands tied behind his back and a gag in his mouth. If you really wanted straight answers, if the Administration and the Democrats on the Hill really wanted straight answers from Tony Hayward, Eric Holder should not have gone down to the Gulf and announced a criminal investigation. It is quite a bit different from the tact he took when asked about the Sestak job offer matter. He said we don’t talk about investigations that may or may not be underway. So, it is one more example of the Administration making a bad situation worse. This is not leadership, it is political opportunism.

Jeffrey Sonnenfeld: The Administration as not been faultless. Today’s issue is not about Congress, it is not about the Administration. Today’s issue is about a CEO who should have been prepared and accountable. He had no answers. He couldn’t explain the five devastating decisions that his senior people made that his own competitors yesterday and the day before said that they would never have made.

Peter Flaherty: Yeah, and they are not in the dock.

Jeffrey Sonnenfeld: His own competitors said this was dangerous. They have a safety record and they have a culture here. This is a company, Greenpeace gave this company…

Larry Kudlow: Hang on. All right. Hold on. I hear you. Please. Time out. I want to go back to Tim Erwin. All right Tim, from your analysis of this, we got two different points of view. I think that Congress is always on trial when they have these tv show trials for five, six, seven hours. But, be that as it may, is Hayward lying? In other words, he is basically saying he wasn’t part of the chain of command that made this decision. And he blamed it all on the blow out preventer, which is a mechanical breakdown. On the other hand, I agree with Jeff Sonnenfeld. There were four, five or six key decisions that were made and problems. Look we have heard this from Exxon Mobil and others. So is this guy lying? When you looked at him, Tim, did you think he was lying and just trying to hold himself because the lawyers told him or do you think he actually was lying?

Tim Erwin: Well Larry, I think that the lawyers have really clamped down on this guy. I think that they had him totally wrapped up and he didn’t feel free to express his opinion. But I agree with Jeff that he missed an opportunity to convey a sense of urgency, to provide some inspired leadership and that just didn’t happen. I think you know this was not a stellar performance by either side today.

Larry Kudlow: So, he should have gotten honest and said look, there were human decisions that we could have made that we didn’t make. Judgmental decisions, issues of drilling this well in the first place. All the stuff that is out there. You are saying that he should have been honest and that would have provided some positive help for BP.

Tim Erwin: He should have. Absolutely.

Jeffrey Sonnenfeld: And he couldn’t think of anything he has learned from it all. He had no lessons to share. No wisdom. He couldn’t even diagram what safety corrections they are making going forward. He walked in completely empty handed. It was incredible. He also had learned nothing about, apparently in the North Slope of Alaska. He learned nothing about the disasters that they have had in big rigs around the world in key commodities markets. In Texas city an awful explosion with fifteen deaths. Here is a guy that was leading the company that environmentalists gave an award to as the best impression of an environmentalist. Greenpeace said, he is very cynical.

Peter Flaherty: Yeah, that’s right. Jeffrey, what do you want to do? Do you want to destroy BP? The politicians took away the dividend. They have set up this fund. They have put the CEO in front of Congress. Why don’t you just destroy the company so no claims will be paid and the taxpayer will be on the hook? If we want serious leadership we will start having people looking to solve the problems – that’s stopping the leak, cleaning up the mess and making sure this doesn’t happen again. What we have now are opportunistic politicians. Look at this fund. Just think that if this was Pemex, the Mexican oil company, instead of BP. What would the response be? Pemex had a gusher out of control in the Gulf in 1979 and 1980. It went on for nine or ten months. They paid a hundred million dollars – chump changes these days. They paid zero in compensation and asserted sovereign immunity. Do you think Obama would be vilifying Felix Calderon, the President of Mexico, his buddy, who he wined and dined at the White House? Do you think he would be trying to squeeze twenty billion dollars out of the Mexicans?

Larry Kudlow: Who knows? He needs it for the budget deficit. Jeff Sonnenfeld let me go to you. Who are your picks to succeed as the head of BP? Who do you think can replace Hayward right now?

Jeffrey Sonnenfeld: There is an ocean of fantastic people out there. The experts in this space are actually Shell. Shell were the pioneers of the deep Gulf explorations and Phil Carroll who was the CEO of Shell US, is an excellent guy. He went off leaving a very successful career. He has had government service. He was advising us on the rebuilding of the Iraqi oil industry. He has led the Department of Commerce energy reorganization plans. Phil Carroll is excellent. There is also a guy named Roger Hemminghaus who led Diamond Shamrock and built it into Valero. You know a hundred and nineteen billion dollar business. These are people who are honest. They are very smart. They are trained a physicists and engineers. They also know how to communicate and solve problems.

Larry Kudlow: Now will they be honest? When you say they are honest, this is a very important question to me because look, I think that BP is just dreadful for what they have done. This is a catastrophe.

Jeffrey Sonnenfeld: It is. When you look at Mattel, the CEO of Mattel didn’t act this way…

Larry Kudlow: They have to fess up. Let me ask my question Jeff. Just hold on a second for God’s sakes. Will anyone who steps into Hayward’s shoes get honest as Tim is suggesting? That is what they have got to do. They have got to acknowledge their mistakes. They have got to acknowledge all the things that the members of their own industry have accused them of doing. Do you think, Jeff Sonnenfeld, any of these other guys would do it any different than Hayward?

Jeffrey Sonnenfeld: They definitely would. I think they would show authentic contrition. They would acknowledge where mistakes were made. They are already laying out twenty billion dollars of liability. They don’t need to worry about the liability issues right now. They need to try to figure our how to fix the problems, what lessons they have learned, show by honest contrition you have to acknowledge you have made mistakes and also show some personal dynamism. Show that you are going to get people excited about a cure, a fix instead of constant misstatements and lost credibility.

Peter Flaherty: Yeah, but Jeff you are making it sound like it is just a PR problem. It is a lot more than that.

Larry Kudlow: There is a hundred billion dollar liability out there, maybe more than that. I mean, Tim Erwin, I am going to give you the last word…

Jeffrey Sonnenfeld: The company is in distress. I mean Mattel, Tylenol, Jet Blue, Toyota. Companies eventually learned when they have had problems you forge a shared fate. You get the rest of the industry to join with you. Nobody wants to touch this guy. He is poison. What does that tell you?

Larry Kudlow: That is a good point. What Burke did over at Johnson and Johnson over Tylenol was absolutely incredible. Tim Erwin, I will give you the last word. You agree with Jeff Sonnenfeld that a new straight shooter can do the trick?

Tim Erwin: Jeff is right that there is a lot of great talent out there. But in my opinion this is not the time to pull that trigger. I think that when you are crossing rapids, it is not the time to change horses. This changing CEO would take tremendous focus off the problem. I think the Board can look at this some months out, but not now.

Larry Kudlow: I mean, Peter let me ask you in all honesty, I know you like to support BP and good for you.

Peter Flaherty: Now, wait a minute, wait a minute, Larry. In 2007, I appeared at the Goldman Sachs annual meeting to oppose the reelection of Lord John Browne, the BP CEO then, who was running for reelection to the Goldman Board, so I was on this before anybody.

Larry Kudlow: All right, you were there, before anybody. Let me ask you, isn’t BP’s real issue right now, to cap the spill.

Tim Erwin: Yes.

Larry Kudlow: If they have any redemption possibilities whatsoever, don’t they have to cap the spill?

Peter Flaherty: Why hasn’t President Obama set up a commission of technical experts who could advise him on the technical aspects of this so that when BP comes to the White House and says they are going to do this and that, it can be critically evaluated? Instead he set up this commission of activists, political activists.

Larry Kudlow: I agree, I totally agree. I wish some grown ups were in the White House to advise Obama. Maybe I wish Obama were a grown up. But the reality is BP’s second drilling operation is close to fruition. They reported today, Hayward reported that the spill rate is slowing down. Isn’t that where the rubber meets the road Peter? That is BP’s great challenge, yes or no.

Peter Flaherty: Yes. Let’s keep our eye on the ball. Our eye should be on stopping the well and not political kangaroo courts in the Congress of the United States. What an embarrassment today.
Jeffrey Sonnenfeld: We just did a survey. Eighty percent of CEOs say he should leave office.

Larry Kudlow: All right well then they must be all right. Jeff Sonnenfeld thank you very much. Peter Flaherty, thank you very much. Tim Erwin, thank you very much.


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