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The Observer: Fallen idol who fuelled BP’s rise

Sunday May 6, 2007

Whatever his future, Lord Browne is the man who turned BP from a two-pipeline company into a world leader, writes Oliver Morgan

That there is no room for sentiment in the City has rarely been more starkly illustrated than by the departure last week of Lord Browne of Madingley from the chief executive’s suite at BP. ‘It makes no difference,’ said one senior fund manager. ‘From our perspective, Tony Hayward [Browne’s replacement] has been running things for some time anyway.’

Browne forfeited an estimated £15m leaving package. Not much of a send-off for a man only recently touted as the greatest businessman of his generation. Indeed, scarcely had the pictures of Browne leaving BP’s West End headquarters faded from the world’s screens than his name and picture were removed from the executive line-up on the company website and the shares went up.

But while the City may have shown its steel – a quality Browne was not short of during his 12 years at the top – friends of the former CEO said he was emotionally wrecked by the whole affair. This came to a head following the release of court papers on Tuesday relating to an injunction taken by Browne against the Mail on Sunday, to prevent it publishing allegations made by his former lover, Canadian Jeff Chevalier.
‘He is deeply hurt by it,’ says one friend. ‘He feels betrayed by someone of whom he feels very fond, who would have been known and trusted by a lot of his friends and work colleagues, and he is not happy about that.’

Browne learnt on Monday that the judgment of Mr Justice Eady on maintaining an injunction that had been in place since January would be published the following day. It did not make easy reading. In acerbic legalese, the High Court judge ran through claims made by Chevalier about Browne’s conduct during their four-year relationship, which ended last year, leaving him to adjust from ‘living in multimillion-pound homes around the world, flying in private jets, five-star hotels, £2,000 suits and so on, to a less than modest life in Canada’.

Apart from revealing details of Browne’s private life – that he was gay, which he did not actively hide, that he had a house in Venice, and so on – the Mail had proposed to publish allegations from Chevalier. These included that Browne had discussed BP strategy with him, had misused company resources by allowing him to use BP computers, and that he had involved staff in a firm that traded mobile phone ring-tones. Chevalier also learned details of sensitive discussions between Browne, Tony Blair, Gordon Brown and Peter Mandelson, sometimes by attending private dinners with them.

All this was embarrassing for a private man. But it was the fact that he had lied to the court about how he met Chevalier that caused him to resign. They met through a male escort website called Browne had told the court they met while he was exercising in Battersea Park. One friend said this was a commonplace fiction among those close to Browne. ‘It is almost comic – he should have said Hampstead Heath to be credible.’

Mr Justice Eady did not take such a light view, saying Browne had chosen to lie in court and persisted in the deception for some two weeks at the same time as trying to undermine Chevalier’s credibility. He only retractied his statement when Chevalier’s filings refuted it. Browne, said the judge, had possibly committed a criminal contempt of court.

Browne rejects most of Chevalier’s allegations. He sought the injunction in January to prevent them from coming out, and informed the chairman, Peter Sutherland, in early March, when it was clear Chevalier was accusing him of using company assets. BP says Sutherland ordered an investigation and it was concluded that there was no evidence.

Regardless of the details of Chevalier’s accusations, Browne’s is a breathtaking fall from grace. But it was not disgrace in the way other stellar business careers have ended: Kenneth Lay’s of Enron, or Bernie Ebbers’ of Worldcom, for example. That is because there is consensus that he has left a substantial legacy. ‘People will give him enormous credit for the transformation of BP from an also-ran into a world leader,’ says one fund manager. ‘His achievements are still there.’

When Browne took over in June 1995, BP was a ‘two-pipeline company’ relying on two fields: Forties in the North Sea and Prudhoe Bay in Alaska. He transformed it first by stabilising it, then using that as a platform to launch two deals in the late Nineties – buying Amoco and Arco in the US when the oil price was close to $10 – and one in 2003, setting up a 50:50 joint-venture with Russian oil company TNK, giving BP the best position in that crucial state of any of the world’s international oil companies.

According to BP, it was producing 1.4 million barrels of oil (or its equivalent) a day in 1995. Last year it produced 3.9 million. Its reserves have gone from 8.4 billion barrels to 17.7 billion. The number of countries where it produces more than 100,000 barrels per day (bpd) has gone from three to eight.

Its market capitalisation has gone from £24.4bn to £108.3bn. And, says BP, if you had invested £1,000 in the company in June 1995 it would now be worth £3,726.

Jason Kenney, analyst at ING, says: ‘Browne has a reputation and this is built on his strategy and making the strategic acquisitions. Consolidation was necessary in 1998 with $10 oil. He was very forward-looking at that moment and he did it when others were just talking about it.’

The US acquisitions allowed BP to upgrade its infrastructure of wells, pipelines and refineries, selling off the worst ones. The Russian acquisition was critical too: Russia has the world’s largest gas reserves and has among the largest oil reserves. But it also worked financially. The oil price rose and BP’s investment was repaid within three years.

However, Browne’s reputation has suffered in the past few years. In 2002 the company missed production targets three times. Analysts gave it a rough ride and official targets were dropped.

Then things went badly wrong in March 2005 with the explosion at the Texas City refinery that resulted in 15 deaths and 180 injuries. This year, two reports on this heavily criticised BP. The first, from a panel headed by former US Secretary of State James Baker, criticised BP’s safety culture, pointing the finger at executive management. The second, from the US Chemical Safety and Hazard Investigation Board, said budget-cutting had had an impact on safety management that could be linked to the blast.

The financial management that had integrated the US operations into the BP group successfully, and for which Browne had been praised, was now seen as contributing to one of the worst industrial accidents in modern times.

Other misfortunes arose. BP’s flagship, Thunder Horse Platform in the Gulf of Mexico, was damaged by hurricanes in 2005. BP has already missed deadlines for bringing it back on line. Half of BP’s Alaska production was shut off last summer following an oil leak and discovery of corrosion in pipelines there. And last year US authorities announced an investigation into members of BP’s gas trading team for trying to corner the market in butane. BP, and Browne, have suffered damages to their reputations. One investor says: ‘He did a good job initially but in the past three to four years there has been the sense that control at the centre has not been so good.’

There are financial ramifications too. As Kenney says, Texas City, which was taken off-line after the explosion, contributes $1.5bn a year to the company when operating at its 400,000bpd capacity. ‘Tony Hayward’s priority must be to get Texas City up to 400,000 by the end of the year, get Atlantis [another critical Gulf field] up by the end of the year, and Thunder Horse by the middle of next.’

Underperformance in the past five years is shown by Kenney’s calculations of total return to shareholders in dollars per year over that period. BP gave the lowest return – 4.8 per cent – in the oil and gas sector, which averaged 9.7 per cent. Among its peers, Exxon returned 12.1 per cent, Total 16.2 per cent, Chevron 11.5 per cent, and Shell 6.8 per cent.

BP would argue that on a per-share basis it fares better because it has bought back millions of shares in the period.

For Browne, however, all this is in the past. His concern will be looking ahead. He is reported to have plans to get into private equity. He is a non-executive director of Apax, which supports him. He is also a non-exec at Goldman Sachs, but for how long is now questionable.

The City is divided over whether lying in court should preclude him from holding office again. ‘I think it is difficult, but I don’t know the details of the situation,’ says one investor. Another says: ‘He should spend a long time out of the limelight.’

Pirc, the corporate governance watchdog, said: ‘Lying to protect one’s private life is understandable, if not excusable, and not in itself a substantive governance concern for investors. However, if the CPS [Crown Prosecution Service] decides that there is a public interest in prosecuting Lord Browne, and a conviction for perjury ensued, we would need to reconsider our view of his ability to fulfil the duties of his other directorships.’

That such a thing could be said of a man who has been voted the most respected businessman in Britain more times than any other is a sign of how hard his fall has been.

Downwardly mobile

The latest annual return at Companies House shows that Swissplace, the company Lord Browne helped Jeff Chevalier set up, was formed in January 2004 and changed its name to Txist six months later. It had Dave Allen, BP group managing director, as well as Richard Balzer, a BP consultant, and Browne himself as directors. The directors’ report states: ‘The principal activity of the company will be the sale of traditional mobile content. No sales had been made at the period end.’

Allen, Balzer and Browne each held 8,500 shares in the company, which in the year to January 2005 made no sales and ran up £31,856 in expenses. The company’s accounts are prepared on a going concern basis because the directors have agreed to meet the liabilities. They have put up £25,500 by subscribing to the shares, leaving net liabilities of £6,356. The accounts are signed Browne of Madingley.

How brilliant men can be undone by power

Lord Browne resigned because he lied to a court about a trivial thing: the manner of his meeting Jeff Chevalier – a terrible error of judgment for a man in whom 97,000 employees and 1.2 million shareholders placed their trust. Why did he do it?

Psychologists point to several possible reasons: the isolation experienced by leaders at the top of big organisations; the pressure they are placed under; the effect of holding power in one’s hands and the lack of restraining influences.

Browne was known as the ‘Sun King’ of the oil industry, a reference to Louis XIV of France, an absolute monarch who surrounded himself with fawning courtiers at the palace he built at Versailles. Like Louis, Browne was known at the highest levels in the capitals of Europe. Browne was also well received in the US and the UK, where he was on terms with the Prime Minister close enough to allow BP to be dubbed ‘Blair Petroleum’.

But he was reputed, also like Louis, to be a man to whom it was unpleasant to take bad news.

Emma Farnsworth, an occupational psychologist from Blue Edge Consulting, a company that advises executives from big companies on leadership, says: ‘People heading organisations like this are hugely self-confident and intelligent. They are very much in control of their own lives. They have a hunger for power and they want ever more power.’ This, she says, can lead to problems.

‘If this is reinforced by people around them then it becomes a vicious circle. He [Browne] is in a position where he had contacts with Tony Blair and President Putin. He is in a position where it might appear to him that he can do what he likes. That could have an effect on his judgment, where he comes to think it is perfectly acceptable to lie in a court of law.’

Rob Yeung, a director at Talentspace, a leadership consultancy, says: ‘The type of judgment you are asked to make changes as you move up an organisation. Low down an organisation, you are given much more discrete, less ambiguous problems to deal with. As you move up, there are fewer right and wrong answers.’

So what causes someone capable of dealing with these complicated decisions to make such an obvious error of judgment? Farnsworth says: ‘There is huge pressure if you are in the role of leader. The more successful you are, the more you expect from yourself – and the more others expect from you.’

There were few who seemed outwardly able to cope with this better than Browne in his heyday. But Yeung says: ‘However much we delude ourselves to the contrary, the truth is that human beings are animals. We have quite ancient parts of our brains that control instincts like fight or flight. When things are going well, you make rational decisions, but the moment you are under pressure your dark side can come out.

‘ Lord Browne was a very private individual. His private life was very sensitive and it caused him to think irrationally rather than rationally.’,,2073229,00.html and its also non-profit sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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