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The Sunday Telegraph: The Friday night bombshell

(Filed: 30/07/2006)

BP’s decision requiring him to step down as chief executive in 2008 came as a blow to Lord Browne. Sylvia Pfeifer describes the events leading up to the announcement and looks at the potential successors

It never gets too hot in the Andalucian mountains in southern Spain, even during the brutal summer month of August. A cooling breeze will no doubt be welcome when Lord Browne, the chief executive of BP, meets his chairman, Peter Sutherland, there next week.

Browne will be staying with Sutherland and his wife at their house. It was a holiday that had been arranged long before last week’s extraordinary events at the oil company, which saw two of the biggest personalities in British business clash. At issue was nothing less than the succession at Britain’s biggest company.
 
Peter Sutherland told Lord Browne: ‘John, you need to give people a retirement date’ 

After 11 years at the helm, Browne had been due to retire from BP when he turned 60 in February 2008. But several events had recently led to renewed speculation that Browne might want to delay his retirement from the oil company.

Ten days ago an analyst’s note had set the City abuzz with rumours that Browne did not want to leave and was keen to put back his retirement date. For Sutherland, the press coverage of the note on the Friday morning had re-opened questions that he felt had already been put to bed. He summoned Browne to his office.

When Browne arrived, Sutherland, a feisty 60-year-old who also chairs the international arm of Goldman Sachs, the investment bank, got straight to the point. According to an insider, the chairman told Browne, who was due to present BP’s interim results four days later: “John, you need to give people a retirement date on Tuesday. You need to give people certainty.”

Sutherland, who is described by people who have dealt with him as “very tough, even rough”, stressed that he was speaking with the full backing of the board.

Browne, in stature no match for the portly Sutherland, was taken aback at the aggressive tone. Regularly voted one of the world’s most admired chief executives during his 11 years in the top job, he had built BP, through a series of astute acquisitions, into Britain’s biggest company, with a market value of almost £130bn.

He was reluctant to agree, arguing that the results presentation was not the occasion to make such a statement. Sutherland pressed further. “If you don’t want to go on your birthday, you can stay till July,” he offered.

Browne agreed to think about it over the weekend. The next day, amid growing speculation among City executives over the succession at BP, he attended the wedding of Anji Hunter, BP’s communications director and a former Downing Street adviser, and Adam Boulton, the political editor of Sky News. But news of the conversation was beginning to leak out. Some of the City’s leading figures were putting in calls to board members at the oil company to try to find out what was going on.

Sunday brought more newspaper headlines about the rift at the top of Britain’s largest company. Sutherland, abroad for the weekend, was faxed the articles, only to see a report of his conversation with Browne repeated in the press. He realised that he needed to act quickly if he did not want the situation to spiral out of control.

On Monday, Sutherland put in calls to a number of non-executive directors. BP’s chairman’s committee had been handling the matter of Browne’s departure date. It was an international affair: apart from three Americans who joined with the Amoco merger – Walter Massey, John Bryan and Erroll Davis – there is Iowa-born DeAnne Julius, the former World Bank chief economist, one-time CIA analyst and ex-member of the Bank of England’s Monetary Policy Committee. They outnumber the UK contingent of Douglas Flint, HSBC’s finance director, and Sir Ian Prosser, BP’s deputy chairman and a veteran of boardrooms from Boots to InterContinental Hotels, who, together with Antony Burgman, Unilever’s Dutch chairman, make up the committee.

Despite their business backgrounds, and even though Massey sits on President Bush’s council of science advisers while Davis is on the US Olympic committee, the line-up of the non-executives has come under fire before, with leading investors arguing that it is not as impressive as it should be for Britain’s biggest company. One notable newcomer is Sir William Castell, the former head of Amersham, who is also a non-executive director of GE, the US giant.

Prosser, for one, is no stranger to boardroom disputes. Two years ago angry investors at J Sainsbury rebelled at his appointment to succeed Sir Peter Davis as chairman of the supermarket group. The shareholders, who had not been consulted, believed he had destroyed value at Bass, the brewers, by overpaying for acquisitions. Within seven days, Prosser had withdrawn.

But last week, according to a company insider, the BP board was unanimous in backing Sutherland’s decision that Browne should abide by the rules. Anna Mann, the headhunter, had also been brought in in recent weeks to advise them on succession.

“Sutherland talked to the non-executives. It was about Browne and the board, not Browne and Sutherland,” says one person familiar with the situation.

By Monday evening Sutherland had renewed his pressure on Browne. He offered him a compromise: the board would let him stay until the end of 2008, allowing Browne to lead BP’s celebrations during what will be its centenary year.

Browne was torn. His heart lay with BP, but he also knew that his legacy would inevitably be linked with his succession. He accepted the 10-month extension.

On Tuesday, in front of popping flashbulbs, Browne chose his words carefully. “A company isn’t about one person,” he said, echoing the words Sutherland had used in private.

He insisted there was no tension between himself and his chairman. “We discuss and debate rigorously things that we do. But we have a long-standing relationship and it’s a good relationship and I think all the speculation is misplaced.”

Browne added: “At the end of 2008 I will have been CEO of BP for over 13 years and that is quite a long time. This has been a matter of discussion for the chairman, the board and me for a very considerable time.”

It was a remarkable piece of showmanship from one of the greatest communicators in the industry, and one designed to draw a line under a dispute that had threatened to engulf the oil giant.

By the end of last week, the company had closed ranks, with insiders insisting that relations between Sutherland and Browne were back to normal.

Despite the boardroom dispute, the two men are said to be business friends. Browne is friendly enough with Sutherland to have attended the wedding of his daughter 18 months ago and has been a regular visitor at Sutherland’s home in Andalucia.

His planned trip to Spain next week is going ahead, said one insider, adding: “It’s not to talk about work, it’s to talk about life”.

Although Browne will now remain at BP until the end of 2008, the priority for the board will now be to pick the right successor. Mann has been working on succession planning for some time, benchmarking the internal candidates.

It is understood both Prosser and Sir Tom McKillop, the former chief executive of AstraZeneca who is also chairman of Royal Bank of Scotland, are heavily involved in the succession planning.

“Ian and Tom have been asking people about the calibre of the potential successors. There is a lot of concern within the company over the succession,” said one FTSE100 executive familiar with the process last night.

The company has spent several years grooming five contenders.

All already run huge businesses in their own right. They include Tony Hayward, the head of exploration and production, who is tipped as a favourite; his deputy Andrew Inglis; John Manzoni, the head of refining and marketing; and Iain Conn, who manages BP’s internal functions.

But in the past few months Bob Dudley, the head of TNK-BP, BP’s Russian venture, has emerged as a contender. Moscow-based Dudley is said to have forged a good relationship with investors who had initially been sceptical of the venture, seeing it as too risky.

Last week, leading investors said they would accept the board’s decision to let Browne go in 2008. At least two of BP’s largest shareholders had previously indicated that they would welcome Browne’s retirement being postponed.

“Our general stance is that we do not believe it is the role of investors to choose the executives. We believe it’s the role of the board,” says one leading investor.

Whoever succeeds Browne will not only have a tough act to follow but must also navigate the world’s second largest oil company through several strategic challenges.

Despite raking in record profits thanks to the soaring oil price, the world’s international energy companies are having difficulty finding new oil and gas reserves when oil-rich nations are guarding their own resources carefully. They are also facing more competition from national champions, notably from China and India, which are themselves trying to secure more reserves.

At Tuesday’s results announcement, Browne said he had put forward “more than three names” of possible successors but added that the decision was the board’s. Given what he has done at BP over the past 11 years, however, he will want to make sure that the person eventually chosen is the right one.

“BP is still a great company to work for,” said one board member of a FTSE100 company. “Your legacy becomes your succession, that’s the major issue.”

It will perhaps give Browne and Sutherland something to talk about in Spain next week.

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