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The Wall Steet Journal: BP’s Next Slogan: ‘Beyond Probes’

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Peter Sutherland Faces
Tough Task at Oil Titan
After Scandal, Missteps

By CHIP CUMMINS and CARRICK MOLLENKAMP
February 7, 2007; Page C1

LONDON — For years, Peter Sutherland’s most prominent public role as chairman of BP PLC was hosting the company’s annual meeting. But after a run of oil spills, deadly accidents and an energy-trading scandal at BP, the 60-year-old former rugby player has rushed into the scrum.

Last year, the Irish politician and banker forced Chief Executive John Browne to publicly pin down his retirement date. After Lord Browne’s surprise decision last month to depart a year and a half earlier than planned, Mr. Sutherland must now buff BP’s image and manage the company’s first executive-suite transition in more than a decade.
 
Despite soaring oil prices, its shares rose just 4.5% in 2006, compared with a 36% rise by Exxon Mobil Corp. and 15% at Royal Dutch Shell PLC. Yesterday, the company reported fourth-quarter net income fell 22%, in part reflecting lower production and lower natural-gas prices.

BP, meanwhile, faces U.S. criminal probes on three fronts — corrosion and oil spills in Alaska; a March 2005 refinery blast that killed 15 in Texas; and its energy-trading practices, with federal officials alleging BP traders manipulated propane markets in 2004. BP denies manipulating markets and says it is cooperating with investigators on all three inquiries.

Mr. Sutherland’s higher profile also underscores a trend that goes beyond BP: a shift in the boardroom dynamics at many of Europe’s biggest publicly traded companies. Nonexecutive directors here have in the past been criticized for leaving too much decision-making in the hands of powerful executives. Now, many firms are moving to shore up their boards with strong and independent directors.

Until an accounting scandal rocked Shell in 2004, Shell’s British holding company had as its chairman a professor of geology. After the scandal, it recruited Jorma Ollila, former chief executive officer of Nokia Corp., as chairman. Unilever appointed an outside chairman last month to cap a restructuring at the Anglo-Dutch consumer-goods giant.

Mr. Sutherland’s mission at BP has always been to establish a “robust” and independent board structure, he said in a recent interview. After stints as Ireland’s attorney general and Europe’s competition czar, Mr. Sutherland took over negotiations known as the General Agreement on Tariffs and Trade in Geneva in 1993. There, he clinched the Uruguay Round, a pivotal trade agreement that set the stage for today’s World Trade Organization.

To get the accord passed, he sometimes kept negotiators at the table late into the night and nailed down agreements on sections of the 22,000-page document with the bang of a wooden gavel. The deal came together after seven years of negotiations, and the gavel sits on his desk at his office in London, where he serves as chairman of the arm of Goldman Sachs Group Inc. that oversees Europe, the Middle East and Africa.
 
“His big secret is combining great charm with great directness,” says fellow Irishman Charlie McCreevy, the European Union commissioner in charge of market regulation. “He can be exceptionally tough.”

In 1995, he rejoined Goldman Sachs, where he had previously worked as an adviser. Eugene Fife, then head of the firm’s London office, recruited him after they met on a London-to-New York flight. Former and current Goldman employees say Mr. Sutherland gave the bank a lift when it was trying to break into Europe.

“Peter was just ideal” for winning business away from London’s big merchant banks as well as European financial firms, says Peter Weinberg, who once ran Goldman’s European operations. He brought with him a stable of high-level contacts. He is close to Italian Prime Minister Romano Prodi. More recently, he accompanied former Goldman CEO Henry Paulson on trips to China and Russia before Mr. Paulson became treasury secretary last year.

He also helped forge a relationship between Goldman and Mittal Steel Co. That paid off when Mittal hired Goldman as lead banker in its $39 billion takeover of Arcelor SA last year.

In 1995, he joined BP’s board for the second time and became nonexecutive chairman in 1997. For years, Mr. Sutherland and Lord Browne got along well privately, say people who know the two. They share a fondness for cigars and opera. The portly and sometimes-rumpled Mr. Sutherland moves easily in London’s clubby business world. That contrasts with the more formal public style of the slightly built and immaculately tailored Lord Browne.

As chief executive, Lord Browne transformed the company through aggressive deal making, supported quietly from the sidelines by Mr. Sutherland and his fellow directors. “John Browne clearly was the guy running the company, and I was there to run the board,” he says.

But private divisions between the two over Lord Browne’s departure plans spilled into the open last year. Lord Browne had long been set to retire in 2008 at age 60, BP’s customary retirement age. Media reports speculated that he might stay on longer. Merrill Lynch at the time even said Lord Browne’s retirement posed a “potential medium-term risk” for the company.

In a meeting last July at Mr. Sutherland’s BP office, Mr. Sutherland told the CEO to put a stop to the speculation. That conversation leaked to the British press, triggering fresh speculation about a split between the two and about BP’s succession.

The following week, Lord Browne confirmed he would step down as planned at the end of 2008, but played down any rift. The two had a “good and vigorous give and take” about many BP matters, he said in a news conference at the time. Mr. Sutherland was annoyed by the July leak, but he says he doesn’t “bear any grudges.”

Once Lord Browne confirmed plans to step down in 2008, Mr. Sutherland and the board wasted little time finding a successor. In December, they agreed on Tony Hayward, a top Browne lieutenant. Shortly after, board members and Lord Browne agreed that a two-year transition was too long. Early last month, Lord Browne said he would step down this July.

In a news conference yesterday, Lord Browne said the company was learning from its missteps last year. “BP can and will emerge from this testing period a stronger and better company,” he said.

The media frenzy surrounding the succession planning was unfortunate, Mr. Sutherland says. Still, he was always clear that “the board should not be caught in a position where it hadn’t done its job,” he says.

Write to Chip Cummins at [email protected] and Carrick Mollenkamp at [email protected]

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