Do it by the book

BP management: BP's board must pre-empt its chief executive and chairman plotting against each other. The oil major needs change at the top to restore confidence. But does that mean firing CEO Tony Hayward, chairman Carl-Henric Svanberg or both? While the answer is uncertain, each man has an interest in saving his own skin.

The dynamics in a company which has suffered a major disaster — and where neither chairman nor CEO has covered himself in glory — can so easily become destructive. In such cases, both bosses typically conclude that there will have to be a sacrificial lamb to appease shareholders. But they normally also argue that it would be foolish to get rid of both men simultaneously. Each then often pushes his rival to fall on his sword, hoping to enjoy a stay of execution — and possibly even get the chance to be rehabilitated — as the surviving boss. This is what happened last year at Lloyds Banking Group, after its catastrophic takeover of HBOS. Eventually, Victor Blank, the UK lender's chairman, was ousted by the government, its leading shareholder. Eric Daniels, the CEO, has survived for now — although his longevity is still in question.

Sometimes, of course, chairmen and CEOs stick together through adversity. But this doesn't always save their skins. Think of Royal Bank of Scotland following its near life-threatening acquisition of parts of rival Dutch bank ABN Amro. Fred Goodwin was ousted by the government in the midst of the financial crisis despite the strong backing of his chairman Tom McKillop, who then stepped down a few months later.

There are also cases of chairmen and CEOs falling out — but not because they have been involved in a disastrous common enterprise. A classic case concerns the previous bosses at BP — chairman Peter Sutherland and John Browne, the CEO. Their relationship descended into open warfare. Sutherland eventually prevailed. Going back to the 1990s, David Young and James Ross -- respectively chairman and chief executive of Cable & Wireless -- fell out spectacularly. In that case, both men had to step down.

BP on Monday needs to turn a new leaf. Neither of its top men has handled the Gulf of Mexico crisis well. Hayward made a series of public relations blunders.

Svanberg meanwhile made a mistake in keeping too low a profile early on — and in not leading the board to axe the dividend before BP became a political football in Washington. Ideally both men should go.

That leaves the question of timing. Governance 101 says that it is normally best to start with a new chairman, who can then assess the CEO and decide whether to replace him.

There is no obvious reason to deviate from best practice in this case. A chairman is needed urgently not just to review Hayward but also BP’s serially failing board, which let Browne stay on too long.

Paul Anderson, former CEO of miner BHP Billiton and a U.S. citizen, is the obvious internal candidate to take over. Further afield, candidates could include Jac Nasser, BHP’s current chairman, or even former UK premier Tony Blair.

A variation on the theme could involve Hayward being removed from his post simultaneously given his lost authority. The best solution then would probably be to appoint Bob Dudley, who has taken over long-term control of the Gulf of Mexico situation, as acting CEO while a formal search was initiated.

Whatever is decided, the one thing the board needs to ensure is that the relationship between Hayward and Svanberg does not descend into warfare. This is the last thing the company needs as speculation swirls that some other oil group — the latest name in the frame is ExxonMobil — might try to buy BP on the cheap.

The prime responsibility for ensuring this doesn’t happen falls to Bill Castell, the senior independent director. With the leaking well likely to be capped shortly, he and the rest of the board should resolve the leadership question rapidly.