--> Gill Blog: Brand Risk Associated with Third Party Contracts

Gill Blog

Wednesday, May 05, 2010

Brand Risk Associated with Third Party Contracts

So the casual talk around the water cooler today is that given the costs associated with the clean-up in the gulf, when everything's said and done, BP will be done like dinner. Very unfortunate once the full dynamics of the situation are considered. Many will agree that BP's brand is tarnished forever, regardless of what happens, but actually, this represents an instance where brand damage was at least in some part associated with their collaboration with of a third party contractor Transocean, who owned the Deepwater Horizon drilling rig that sunk to the bottom of the Gulf of Mexico after two days after an explosion that occurred on April 22.

It's still too early to definitively pinpoint the cause (given the rig now sits on the ocean bed 5,000 feet below the surface, the cause will likely never be determined), but regardless of the outcome, it is the case of two business partners: a large multinational energy company with a highly visible brand, and a relatively anonymous owner of drilling platforms. It doesn't matter who's at fault, from the standpoint of public perception, all the blame and risk shifted over to BP.

Over the last few years, I worked for a large financial institution, whose global headquarters were housed in a multi-story sky scraper, with prominent company signage affixed to a facade just above the top floor. The building exterior was finished in marble slabs that had been affixed during building construction in the mid-1970's. I suppose the tiles can hang only so long before wear and tear take over. Two years ago, during a fierce windstorm, one of these tiles (approximately five feet by five feet) became dislodged, and came crashing down more than 50 floors to the sidewalk below. Fortunately, this occurred at around 6:30 in the evening, and miraculously, nobody was impacted at street level.

What happened in the next few hours was telling and indicative of the risks associated with unique third party agreements. The building, and its maintenance were the responsibility of the building owner, however, from the public's standpoint, this prominent landmark with bank signage prominently displayed on top was the bank's. The next morning, the major dailies splashed pictures of the building and the bank's logo on the front page. The truth of where the fault actually lay was irrelevant; in the eyes of the public, the blame lay totally on the shoulders of the company whose banner shined prominently on top of the building.

Circle this back to BP and the Deepwater Horizon. Moral of the story? Always beware of risks associated with third party contracts.


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