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Royal Dutch Shell Plc .com: BP is now in the firing line, rightly or wrongly

Nils Pratley
Friday June 30, 2006
From The Guardian

Once is happenstance, twice is coincidence, three times is enemy action, reckoned Ian Fleming. In BP’s case, three times could look like the actions of a company where corners are being cut. A fire in a Texas refinery killed 15 and hurt 500 last year; a BP pipeline spilled oil in Prudhoe Bay in Alaska in March; now come claims that BP traders tried to corner the market in propane – those canisters relied on by 7 million Americans who live beyond the reach of the US gas grid.

What is going on? Well, the hysterical explanation – a culture of profit above legal, ethical and safety considerations – looks a little too glib.
The three incidents happened in different divisions of BP and it is hard to draw direct links. Their proximity really could be coincidence. Nothing on the scale of the Texas City fire had happened at BP since a North Sea oil rig over-turned 40 years ago. The Alaskan pipeline had operated efficiently for 30 years. As for the propane price-fixing allegations (which BP denies), the charge is that the company failed to police its traders, not that it condoned their actions.

So, bad management or bad luck? Statistically speaking, even after three incidents, it’s too early to say. Unfortunately for BP, it may not matter. In the real world, sentiment, not statistics, reign, particularly when the oil industry collides with Washington politicians.

Under President George Bush, the oil giants have had a gentle time. But even Bush, a Texas oilman, has muttered that America must end its dependency on oil and gives subsidies to ethanol producers. A Democrat lobby wants more: namely a windfall tax paid from the proceeds of oil at $70 a barrel.

That is why every bad headline generated by BP and its peers could be expensive. Record profits plus leaking pipelines and exploding refineries is a hard combination to defend. Rightly or wrongly, it looks like enemy action.

Bravo and farewell

There will be tears and air-kisses galore at Burberry today as Rose Marie Bravo steps down as chief executive after nine years. Bravo did what many thought was impossible and created an international fashion success from a faded British label. The ultimate hard act to follow.

Angela Ahrendts arrives from Liz Claiborne with a mission to expand in accessories, which is shoes ‘n’ handbags to the rest of us. She’ll need to shift a lot of them to convince the outside world that Bravo hasn’t stretched the Burberry brand as far as it will naturally go.

What outsiders can see most clearly is that Ahrendts is being rewarded handsomely. She’ll get £2.2m for signing on: a basic salary of £720,000 a year, potential annual bonus of £1m, and pension contribution of £215,000. Then there’s an annual “overseas allowance” of £343,000 for five years, a potential “personal achievement bonus” of up to £2.2m over three years, not to mention the annual clothing allowance of £14,000. If she actually meets her performance targets, then there are 500,000 nil-cost share options coming her way, worth another £2m.

With a market value of £1.9bn, Burberry is hardly a colossus and Bravo has done the hard work of revitalisation. Investors would probably prefer to see more stick and less carrot in the boardroom. On planet fashion, though, different rules apply, and it looks as if the outside world is now suspicious.

The graph shows how the shares have under-performed the market for the past two years. Maybe Ahrendts has new tricks in her locker. The Bravo years were wonderful but something fresh is required.

Post Office parting

A trip to the Post Office is rarely a life-enhancing experience, which is why it is hard to share the union’s sense of outrage about plans to shift crown post office outlets into WH Smith.

These outlets are losing an average of £100,000 a year each. There is no sign they can improve on that. Selling low-margin products and services from expensive locations is commercial nonsense. Without state subsidies, going on as before is not an option.

As for the customers, well, WH Smith is not the cutting-edge of retailing, but where would you rather queue? It would be stunning if the punters kick up a fuss.

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