Is Bob Dudley the Guy Who Can Remake BP's Culture?

(Editor's note: Early on Tuesday, July 27, BP officially announced that Bob Dudley was taking over as CEO from Tony Hayward.)

Assuming that BP (BP) is set to oust current CEO Tony Hayward and replace him with Bob Dudley, the American who's now running the BP oil spill cleanup in the Gulf of Mexico, the question is: Why Dudley? The answer appears to be that the executive shuffle reflects a strategic decision by BP's board to change the oil company's culture in a fundamental way.

Hayward is perhaps most famous for -- and earned massive derision for -- saying "I'd like my life back," as the spill in the Gulf of Mexico wore on. Now, it's being widely reported that Dudley will replace the often-misspoken chief effective Oct. 1.

Why might Dudley be the right person for this job? I happened to write about him in my book Capital Rising: How Capital Flows Are Changing Business Systems All Over the World. Starting in 2003, Dudley ran a Russian-BP joint venture dubbed TNK-BP. But a few years after the Russian side received BP's multibillion check for a 50% interest in the venture, the moguls who controlled it began in 2008 to push out Dudley and his colleagues, by denying their visas.

Running Afoul of Russian Authorities

Some observers have cited Dudley's departure as a sign of weakness. But in my book, I noted three example of Western companies and their executives who got burned by the Russian legal system, which the Russian businessmen used to force out the Western executives.

These examples included Dudley at TNK-BP, William Browder at hedge fund Hermitage Capital and Gary Johnson of electronics manufacturer Sawyer Research Products. You can read more about Browder and Johnson in Capital Rising -- but in general what happened is that they invested in Russia, built successful businesses and then mysteriously ran afoul of authorities. They were then given offers (that they couldn't refuse) to leave Russia, fortunately in good health but with their pockets far emptier than they thought was fair.

Let's look more closely now at what happened to Dudley. In 2003, BP paid $7.6 billion for a 50% interest in TNK-BP and installed Dudley to run it. Then Prime Minister Vladimir Putin personally approved the deal. But by 2006, Putin began taking control of such joint ventures via so-called oligarchs -- a collection of shadowy Russian billionaires. BP tried to fight Putin by attempting to entice a state company, Gazprom, to buy out the oligarch's interest in the venture.

When that failed, the oligarchs used their power to turn down visas for Dudley and his Western colleagues who left with their lives but not their jobs at TNK-BP. Now, in an ironic twist of fate, Hayward may have a chance to reprise Dudley's role in an unspecified new job at TNK-BP.

Cost-Cutting Was More Crucial Than Safety

A source who worked closely with Dudley at BP in Russia, who requested anonymity because he's not authorized to speak officially, recently told me that BP's board selected Dudley to replace Hayward as the face of BP's Gulf cleanup effort because he's seen as capable of helping BP solve both the short-term problem of getting the leak stopped and the long-term project of transforming the corporate culture.

This source says BP has for too long put an emphasis on cost-cutting at the expense of safety -- despite BP's claims to the contrary. The source says Dudley's straight-arrow mindset is an outlier within the BP culture, which is why he was picked to to run such side projects as TNK-BP.

In this way, the move to replace Hayward with Dudley signals a desire for a thorough overhaul of BP's culture. While extremely difficult, making such a change is possible. Witness how different a company Exxon Mobil (XOM) became after the 1989 Valdez spill. According to this source, Dudley is the best person within BP to execute such a transformation.

Imposing Outside Standards

The 54-year-old Dudley was born in New York but grew up in Mississippi, in the very Gulf Coast region now suffering extreme environmental and economic damage from the spill. Dudley joined BP in 1999 after it bought Amoco, and he ran BP's exploration and production in a variety of countries before taking over TNK-BP in 2003.

The New York Times reports that during Dudley's tenure, TNK-BP increased production 25% and generated the "highest financial returns in the Russian oil patch," but he was seen as trying to impose his standards on Russians. Specifically, Dudley used town-hall style meetings "to emphasize safety in a country where it had long been a low priority," the Times reports.

Mikhail Fridman, one of the so-called oligarchs who may have been behind the efforts to oust Dudley, wrote in a 2008 Financial Times op-ed that BP "refused to engage meaningfully with any of the proposals we have made in recent years." The Russians may not have liked Dudley's somewhat evangelical attitude toward safety, but that's just what BP needs now if it's to rebuild its reputation around the world.