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TheBusinessOnline: Boardroom split at BP over Browne’s retirement date

EXTRACT: Earlier this year, rival Shell relaxed rules on its retirement age to extend the tenure of Rob Routs, one of its directors, to 62.

THE ARTICLE

By Rupert Steiner
23 July 2006

A RIFT has developed within the board of BP, the world’s second-largest oil company, over the future of chief executive Lord Browne. BP chairman Peter Sutherland is attempting to force Lord Browne to retire at 60 – in line with the firm’s current policy on retirement.

The Business can reveal that ahead of second-quarter results on Tuesday, Sutherland asked Browne, 58, to make a statement committing to standing down in February 2008.

Browne is understood to have refused, believing succession is an issue for the board.

A City source, familiar with the situation, told The Business this weekend: “Sutherland is bullying John into retiring. The board has yet to make a decision over what it wants, and investors are keen for John to stay.” Some board members are frustrated that Sutherland, who is also a non-executive director of the Royal Bank of Scotland, has refused formally to discuss recent lobbying by institutional investors for Browne to be kept on after he reaches BP’s formal retirement age.

Two separate sources told The Business that two of BP’s biggest shareholders, Legal & General and Fidelity, have made informal soundings on whether BP’s retirement rule could be overturned.

It is suggested that Sutherland is worried that if Browne is kept on for another five years he would have to relinquish his chairman’s role early.

Sutherland has been chairman for the past nine years and if Browne stayed on it could create a problem if BP had to replace both positions at a similar time. One would have to go first. It is within the powers of the board to overturn the retirement age rule, forcing Browne to retire. Overturning such rules is not unprecedented. Earlier this year, rival Shell relaxed rules on its retirement age to extend the tenure of Rob Routs, one of its directors, to 62.

Also, new legislation due later this year could be used to argue that such a retirement rule is unjustified and is a form of discrimination.

One option available to the board is to elevate Browne to the chairman’s role, which would make way for a successor. This is something Sutherland would fight fiercely to resist. The battle between the men comes at a critical time for BP. The alleged propane price-fixing issue and the crisis in the Middle East have far-reaching impact on the industry.

Last week an analyst report by Merrill Lynch warned succession at BP is “an emerging issue and potential medium-term risk for shareholders”.

It said: “Major oils tend to materially under or outperform peers around significant events and we see the succession of Browne as potentially one of those events given BP’s strong relative performance under his stewardship and the company’s current premium sector rating.”

Browne has transformed the business from a £20bn (E29.3bn, $37.1bn) company in 1995 to a global giant now worth £123bn.

He is thought to be willing to stay if the board and investors believe he would continue to add value.

In an interview with The Business two months ago, Browne emphasised he has no plans to retire. “Let’s be clear,” he said. “I don’t subscribe to the concept of retirement at a fixed age. I also don’t subscribe to staying in the same job. I don’t know what I’m going to do yet, but I’m hooked on business.”

A spokesman for BP said on Saturday: “Lord Browne is appointed by the board and has the full support of the board.”

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