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The Daily Telegraph: Few winners as Browne gets extra months

EXTRACT: Talk of a deal with Royal Dutch Shell, for instance, has been floating around for a while. But crashing two oil giants together doesn’t solve the oil majors’ biggest problem, which is how to replace reserves. A BP-Shell merger would strip out a layer of costs but simply magnify the reserves problem.

THE ARTICLE

Business comment
By Damian Reece, City Editor

(Filed: 26/07/2006)

Browne: I’m staying on at BP

Lord Browne was going to leave his post as BP chief executive age 60 at the end of February 2008. Now, however, he is staying nearly another year until the end of 2008 – as long as he possibly could without undermining the authority of the board.

Meanwhile the chairman, Peter Sutherland, will stay on longer as well, pushing his tenure into 2009 before handing over to a new chairman who will take up the reins with a new chief executive (identity of both yet to be decided). Confused? Well Lord Browne gets his way by being thrown a fig leaf by the board allowing him two and a half years before he has to go rather than 18 months, while the non-executives can still claim their original decision that Lord Browne should stand down in 2008 has been adhered to, even though the company has always previously made clear it was supposed to be February rather than December.

I still believe it is better for a new chief executive to be chosen by a chairman who is going to be around for a while rather than a chairman, as in the case of Sutherland, who immediately then retires as well. Reputationally, Lord Browne probably comes off worse from this episode. At least Sutherland has re-established the principle of primus inter pares at BP – a temporary leader required to instill order. Some sense of decorum has now been established again.

The internal candidates vying for Lord Browne’s job are probably the happiest with this outcome. They know their man is leaving and when. The question now is, will they resurrect the merger that Sutherland supposedly kiboshed in December?

Talk of a deal with Royal Dutch Shell, for instance, has been floating around for a while. But crashing two oil giants together doesn’t solve the oil majors’ biggest problem, which is how to replace reserves.

A BP-Shell merger would strip out a layer of costs but simply magnify the reserves problem. Better deals exist in expanding in the Middle East and Russia where there are still reserves to exploit. Mega-mergers between oil majors may well be a thing of the past but corporate governance arguments will rumble on forever. Companies, no matter how big or sophisticated, just never seem to learn.

 

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