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Daily Telegraph: Business comment

EXTRACT: Within the past three years we have seen the damage that can be done when large energy companies go chasing short term targets. We had it with Shell’s accounting scandal over its oil reserves…

By Damian Reece
Last Updated: 12:33am GMT 13/01/2007

BP misses opportunity in not appointing an outsider

Forget his legacy as Britain’s most important businessman of the past decade, Lord Browne’s decision to quit at the end of June was the right thing to do from a shareholder’s point of view. Clarity has not been much in evidence of late at BP but his decision to go early has helped start to lift a thick fog that was enveloping the energy giant.

Generally when a company loses a chief executive, who, let us not forget, has increased earnings per share 600pc during his tenure, the share price might be expected to fall. BP shares rose by 1.7pc in the last 20 minutes of trading yesterday afternoon after the announcement was made.

I have to admit to calling for Lord Browne’s early departure in this column in recent months, if only for him to avoid the awful lame duck status afflicting his friend, Tony Blair.

As promised, BP has appointed an insider, which I think is a mistake. No business is too big to be run by an outsider but it can be too arrogant to recognise the truth. Fresh talent from time to time is crucial to improve the management gene pool. BP has missed an opportunity.

However, the company may be forced to freshen things up sooner than it thinks because those senior BP executives who have lost out to Tony Hayward, the anointed internal successor, will be looking at the exit. Another round of internal promotions to fill those gaps is simply not tenable.

Hayward himself is very much tarred by these last two years of the Browne regime but can at least assume the tainted crown when things are at their darkest.

Lord Browne can now be left to take the punishment of the next six months, starting with the publication of former US Secretary of State James Baker’s report into the BP oil refinery blast in Texas which killed 15 people in 2005.

Hayward, while not starting with a clean slate at all, is hoping the market will grant him a period of grace. It will, but it won’t be long.

BP has many operational problems that need fixing and now that Lord Browne is, in effect, out of the way it will be Hayward who the market will turn to for some urgent answers.

Hayward will be taking over at a turning point for the oil majors. Within the past three years we have seen the damage that can be done when large energy companies go chasing short term targets. We had it with Shell’s accounting scandal over its oil reserves and latterly BP’s problems, I believe, have common roots in too much short term expediency.

But the majors have also lost crucial competitive advantages in recent years in terms of privileged access to capital, technology and people compared with independent oil companies which have grown like topsy on the back of surging oil prices.

Foreign governments are now just as likely to do business with a Premier Oil or a Tullow Oil for help in exploiting valuable natural resources as they are a major — often seen by politicians as having conflicting interests.

Hayward is taking over at a time of falling oil prices and falling production. However capable, his political antennae are not those of the statesman he is replacing. BP is losing its biggest talent in difficult circumstances, circumstances which I doubt will improve for years to come.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/01/13/ccom13.xml

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