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The Times: Come in No1, your time is up

EXTRACT: BP shares have outperformed the FTSE 100 index. since 1995 but so equally have those of Royal Dutch Shell, which has not been much admired.

January 20, 2007
GRAHAM SEARJEANT, PERSONAL INVESTOR
 
All political careers are said to end in failure. This is a warning to the arrogant not to prolong their tenure of power by living off past successes. It is also comforting for all those who are kicked off the greasy pole before they get to the top, those who are defeated in elections or who end up scorned by a nation that ought to be grateful for their years of devotion ordering us about.

Like many generalisations, the failure rule is not wholly true. Exceptions are instructive. They tend to include people who came to power late, such as Nelson Mandela, or those few American presidents who reach their limit of eight years before the public gets fed up with them. If Mr Mandela had come to power at the same age as Robert Mugabe, he might have become an appalling old tyrant rather than a role model of benevolence. 
 
Business is less brutal but similar tendencies apply. This week Lord Browne of Madingley, chief executive of BP since 1995, agreed to retire a year early. Not long ago many City investors wanted the BP board to abolish its archaic compulsory retirement age so that he could keep running the company for ever. The board offered an extra six months, to dovetail with centenary celebrations. The official line now is that, a successor having been chosen, 18 months was too long a handover period.

An alternative explanation is that the Baker report into a refinery explosion that killed 15 people blamed failings in BP’s operational systems. London’s most valuable company cared a lot about individual employees’ safety but lacked effective group-wide systems to protect safety processes, for instance against cost cuts.

Were it not for this report, and the events that spawned it, Lord Browne might be preparing elegant replies to centenary tributes to the man who put BP back into the top league of world oil. Instead, Achilles has an arrow stuck in his ankle. Yet he is the same executive who was repeatedly voted most admired manager, not simply for the strategically perfect takeovers of Amoco and Atlantic Richfield. Investors and Lord Browne’s peers also admire his ability to grasp trends and issues, such as environmental concerns or the potential of Russian oil, and to tackle them effectively to BP’s advantage.

These virtues have not faded. But no one is perfect. As Lord Browne’s era of dominance at BP passed the decade mark, his operational weaknesses became apparent, in production delays, maintenance and safety culture.

BP shares have outperformed the FTSE 100 index. since 1995 but so equally have those of Royal Dutch Shell, which has not been much admired. Global comparisons are hard but BP’s shares appear to have lagged Exxon Mobil and Total. BP has made up a lot of ground on Shell in terms of sheer scale but has only kept pace with the bigger Exxon, while the formerly much smaller Total has closed the gap with BP.

The first half of Lord Browne’s 11-plus years as chief executive delivered the main exceptional returns to shareholders. But he is in good company. Lord Weinstock ran GEC, once Britain’s biggest industrial company and exporter, for more than 30 years. Yet the great value-creating mergers with AEI and English Electric were completed within six years. There were plenty more good years to come, but calculated daring was gradually replaced by extreme caution, valued only after his successors destroyed the company. Tiny Rowland, boss of the old African group Lonrho, ran out of steam after seven years but was backed by shareholders four years later after being damned by his board and the prime minister of the day.

Like-minded teams can last longer because they combine different strengths. But decline can be rapid, as at Kingfisher, when the team drifts apart. Some great entrepreneurs can keep up the momentum over decades, though usually not continuously. For most chief executives, however, ten years is more than enough. To forestall later embarrassment, perhaps they should reach the top when they are a bit older.

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For more investment articles visit www.timesonline.co.uk/invest
 

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