Financial Post (Canada): The many perils of losing focus

EXTRACT: At least Mr. Browne’s departure is less dramatic than that of his former Big Oil rival, Sir Philip Watts, who was defenestrated from the top job at Royal Dutch Shell in 2004. Significantly, however, Sir Philip, who was ousted for cooking the reserve books, was another great proponent of corporate social responsibility and sustainable development, the conceptual morasses into which so many well-meaning corporate executives have been lured.

THE ARTICLE

Published: Jan 19, 2007

Climate change can be injurious to both your career and your employees’ health. That conclusion emerged from a report this week by an independent panel into BP’s U.S. refinery operations. The report came just days after the announcement that BP’s chief executive, John Browne, would be stepping down 18 months early. This represents a stunning reversal for a man who just two years ago was rated by the Financial Times as the fifth most respected business leader in the world.

The panel of inquiry was formed six months after the March, 2005, explosion at the BP refinery at Texas City, which killed 15 people and injured more than 170. The inquiry’s mandate was to examine safety at BP’s U.S. refinery operations in general. It was specifically not to look at particular problems, i.e. the Texas City explosion (which is still being investigated by U.S. authorities). However, buried within the 374- page report is what appears to be a stunning indictment of BP’s CEO. “Browne’s passion and commitment for climate change is particularly apparent,” says the report. “In hindsight, the panel believes that if Browne had demonstrated comparable leadership and commitment to process safety, that leadership and commitment would likely have resulted in a higher level of process safety in BP’s U.S. refineries.”

It is hard to interpret this any other way than suggesting that if Lord Browne had been more concerned with the nitty-gritty of running the business, and less with grand posturing on the side of the environmental angels, those 15 people in Texas might still be alive.

That may be going too far. However, Browne– who will vacate his post next summer — has indeed been an extraordinary executive. The greatest coups of his 12-year reign were the acquisitions of U.S. oil companies Amoco and Arco in the late 1990s — following a global oil-price slump– to make BP the world’s second-largest public oil company after Exxon Mobil. More recently, BP has pursued more dubious strategic decisions and has experienced a number of high-profile operational disasters. Not only was there the explosion in Texas, but BP last year had to shut down the pipeline from the Prudhoe Bay oil field in Alaska because of leaks caused by corrosion. Then there were allegations of BP traders trying to manipulate markets.

Lord Browne’s biggest recent strategic gamble was in Russia. In 2003, BP announced a US$6.15-billion investment to create TNK-BP. It was seen at the time as a diplomatic coup by Lord Browne. British Prime Minister Tony Blair called it a “concrete testament” to Britain’s long-term confidence in Russia. Concrete overshoes have become more symbolic of what is going on in Russia lately. It is rumoured that the Kremlin’s chosen instruments, Gazprom and/or Rosneft, may soon wind up as the Russian partners in BP’s joint venture. This will not be good news. The greatest irony of the Russian shakedown is that it is being orchestrated under the guise of concern for the environment.

In retrospect, perhaps Mr. Browne’s other major error — particularly in the light of recent operational problems — was to “rebrand” BP, sending its proud initials into lower case and having them associated with the nebulous phrase “beyond petroleum.” The move was seen by many as hypocritical rather than farsighted, since Lord Brown himself acknowledged that the oil age probably had another 50 years to go. Nevertheless, he threw himself wholeheartedly into preaching the alleged dangers of manmade global warming when the science simply wasn’t — and isn’t — in. Meanwhile skeptical analysts and environmentalists asked if he really believed what he was saying, or was he primarily concerned that governments were going to take action on climate change, so it made sense to be leading the parade, even if it was a parade of fools?

At least Mr. Browne’s departure is less dramatic than that of his former Big Oil rival, Sir Philip Watts, who was defenestrated from the top job at Royal Dutch Shell in 2004. Significantly, however, Sir Philip, who was ousted for cooking the reserve books, was another great proponent of corporate social responsibility and sustainable development, the conceptual morasses into which so many well-meaning corporate executives have been lured.

The argument against such dangerous flirtations isn’t just that they drift into the arena of politics, where corporations have no mandate to operate (except to protect their interests, which is why all have to be seriously concerned about climate-change policy). It is that they distract from any corporation’s main responsibilities to its primary “stakeholders,” its shareholders and its employees.

Significantly, the world’s largest public oil company, Exxon Mobil, has always concentrated on running its business the old-fashioned way, and has resolutely resisted kowtowing to environmental trends or climbing in bed with environmental radicals. It is therefore the most hated of oil companies. However, its price/earnings ratio, at 11.1, is a full point ahead of that of BP, and two points ahead of Shell. Meanwhile, since the announcement of Lord Browne’s departure, BP shares have been on the rise.

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