Private Empire: ExxonMobil and American Power (28 page)

Terrorists struck Saudi Arabia sporadically after the September 11 attacks. Slightly before midnight on a dark Riyadh night in 2003, a car pulled up to the security station of the Al-Hamra Oasis Village, a 404-unit residential compound favored by Western professionals. As the guards began to open the compound’s formidable gate for the car, whose driver they recognized as a resident, an unfamiliar Toyota sedan and GMC Suburban truck turned into the entrance. The vehicles were moving suspiciously fast. The guards scrambled to shut the gate, but were foiled by a spray of bullets shot from the Toyota’s windows. As the guards fell, the cars forced their way into the grounds and proceeded to the swimming pool, where a residents’ party was in progress. Four men armed with AK-47s sprang from the Toyota and mowed down as many guests as they could before continuing to the compound’s villas. The gunmen banged on doors and mercilessly shot those who emerged. “I will kill them all!” one gunman cried.

When they had restored order, officials reported at least thirteen dead and dozens injured. Among those harmed were two ExxonMobil employees and one of their wives, who was pregnant at the time.
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Raymond and the Management Committee at headquarters set up a corporate security team to assess the vulnerability of employees and assets worldwide, in light of Al Qaeda’s terrorism. Saudi Arabia was a place of obvious risk. Michael Shanklin, a former marine and Central Intelligence Agency case officer from the Watts neighborhood of Los Angeles, who now worked for ExxonMobil Global Security, traveled to the kingdom. He developed a security plan in consultation with Mohammed Bin Nayef, a powerful royal family member at the Saudi Ministry of the Interior. The local C.I.A. station relayed intelligence that Nelson himself was an Al Qaeda target. Senior executives at Irving proposed evacuating Nelson and the rest of the corporation’s staff in the kingdom; Nelson resisted. “An evacuation will kill our venture potential,” he argued. Although there were fierce internal debates over the question, most of the corporation’s employees remained.

For ExxonMobil, the big question remained whether Saudi Arabia had enough freestanding natural gas to justify the risks to employees. (“Associated” gas, intermingled with oil, was too complicated to produce for the purposes the crown prince had in mind.) ExxonMobil still had libraries full of field data from its time as an Aramco partner, before nationalization. The corporation even employed geologists and engineers who had worked for Aramco in that era. Raymond and other executives polled them and discovered that they were skeptical about Abdullah’s hopes. “Our explorers and these guys who worked in Aramco were very doubtful that there would ever be significant reserves sufficient to really support the kinds of projects” that Crown Prince Abdullah and Foreign Minister Al-Faisal envisioned, Raymond recalled. The massive industrialization they outlined would require “an enormous amount of gas. . . . Our people kept saying, ‘No, it’s not going to be there.’” ExxonMobil’s biggest prospect was a structure called Tukhman in the kingdom’s South Ghawar field. The more the corporation’s geologists scrutinized it, the more doubtful they grew.
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Raymond and Nelson eventually advised Al-Faisal that if the kingdom wanted to find enough freestanding gas to fuel the projects it had outlined, the partners would have to move into territories previously set aside for Saudi Aramco. But Abdullah proved unable or unwilling to do this. Instead, “what they wanted to do was build the kinds of projects” Abdullah had proposed “and then find the gas,” Raymond recalled.

“No way,” Raymond told his colleagues. “We are going to end up with some projects where the only financial motivation behind them is to produce the gas—and if the gas isn’t there, then we are just going to end up with a bunch of albatrosses.” For their part, Saudi negotiators felt that the midteens profit margins demanded by ExxonMobil and other corporations were too high and that the Big Oil executives were not willing to take enough risks.
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Saud Al-Faisal owned a home in Beverly Hills; one of his neighbors was the actress Drew Barrymore. As the negotiations foundered in 2003, he summoned Raymond and Al-Naimi, the oil minister, to his home.

Raymond announced: “I think I ought to pull out of this deal. There’s not enough gas to drive the process forward—it can’t work this way. You’re asking us to drive an Abrams tank with a Toyota engine.”

Al-Naimi challenged him; Saudi Arabia had plenty of natural gas, he believed, more than enough to fuel profitably the projects Abdullah had in mind. “Lee, I think your people aren’t being very honest with you.” He implied that ExxonMobil’s geologists and executives were underplaying the potential of the deal to gain an advantage while negotiating financial terms.

Raymond exploded. “Ali, you can insult the hell out of me—I don’t care what you say about me. But when you start screwing with my people, that’s another matter.”

He was so hot that they had to call a break. The ExxonMobil team stepped outside on a deck, overlooking Drew Barrymore’s yard. “I wish that hadn’t happened,” Raymond said. “Do you think I overreacted?” he asked. Still, “I couldn’t let him insult my workforce.”

They went back inside; the mood was calmer. But the Saudi gas initiative was officially dead. At a later meeting, Al-Naimi handed Nelson a letter, one he would also give to other consortia members, canceling their rights to negotiate.

Raymond eventually learned that Aramco had actually started drilling in the areas ExxonMobil had evaluated; the Saudis apparently wanted their own evidence about how much gas was really in the ground. Raymond was irate; this is not how partners operated. He blamed Naimi. “If that’s the game, you can count us out,” he told Al-Faisal.

Raymond also wrote to Abdullah to ask if Naimi’s actions truly represented the crown prince’s position some four years after the hopeful initial convening in Virginia. Naimi soon eliminated all doubt by redesigning the project and bidding it out to new corporate partners. The areas ExxonMobil said were dry turned out to be dry. Five years of effort had come to nothing.
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L
ee Raymond ruled over ExxonMobil in the manner of an emir. During the difficult years of restructuring, he had worked very closely on the Management Committee with two key aides. Harry Longwell, a garrulous southerner, ran the upstream. Rene Dahan, the Moroccan-born Dutchman, supervised the downstream operations. Dahan might have been a candidate to succeed Raymond, although he was a little on the older side of the ideal age range. In any event, he decided to retire early and return to Europe, in 2002. Longwell was essentially Raymond’s age, too old to be considered as his successor. By the time the Saudi deal fell apart, Raymond was approaching sixty-five, but showed no interest in retirement. Increasingly the outside members of the corporation’s board of directors regarded the lack of a clear succession plan with concern. Hardly anyone at ExxonMobil stayed on beyond retirement age. Lawrence Rawl, Raymond’s predecessor, had retired at sixty-four. “He wanted to stay longer,” a director remembered. “The board was a little uncomfortable with it.”

After the dust settled from the absorption of Mobil, the board had come “to a fairly clear view that, because of the merger, the people who were likely to succeed Lee” were not in position, recalled an executive involved, because these younger candidates were still out leading operating divisions and had not spent enough time at headquarters or interacting with the outside corporate directors who would be responsible for the final choice. A successor needed to be in his early fifties to have a chance to lead the company for an extended time. (There were no women anywhere near in contention for the top job at ExxonMobil.) Younger candidates “should have been brought in much, much earlier, to sit around the table,” the executive who watched the succession process recalled. But Raymond argued that he needed to keep the most talented younger leaders out in the field, to make sure that the reorganization following the Mobil merger took place properly. “The rationale was that we’d lost two years” in developing successors because of the merger.

The board had therefore agreed to extend Raymond’s tenure beyond his scheduled retirement in 2003. At the same time, the directors told him, in essence, “We need to bring these people in.”
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Raymond named two promising younger candidates, Rex Tillerson and Edward G. Galante, to coequal jobs at headquarters. Tillerson was a Texan who had spent much of his Exxon career in the upstream exploration division. Galante was a New Yorker who had risen on the downstream side. His upstream experience seemed to give Tillerson a built-in advantage, because at ExxonMobil, as a director put it, “real men—they discover oil.” A few members of the board felt, as the director recalled, “there was just no question that Rex was going to be the successor. He came from the discovery side.” Yet Raymond had spent time during his rise running downstream facilities and was not an upstream oil hunter by specialty. Other Exxon chiefs before him had also emerged mainly from downstream careers, including Cliff Garvin, Exxon’s fourteenth chief executive. (Raymond was the sixteenth.) In years past, the profitability of the upstream had subsidized downstream operations, which often struggled to break even or eek out modest returns. Raymond had insisted that the downstream businesses had to stand on their own; Galante had been part of this successful transformation. Still, because some members of the board of directors assumed Tillerson would prevail, largely because of his command of the big oil and gas portfolios abroad, they questioned Raymond’s motivations. “My concern was that it was kind of a charade to buy him [Raymond] more time,” a director said.

Once a year, on a Tuesday afternoon in October, Raymond organized a special meeting of the board. At this session, Raymond was the only ExxonMobil executive in attendance. Raymond provided reviews to the outside directors of the performance and potential of his most senior executives. “It was always the case that the possible successors were not ready yet,” an executive who heard Raymond’s briefings recalled. Raymond would tell the board, “Maybe in eighteen months or two years.” The directors would “talk amongst themselves: ‘This could go on forever.’” They made “several efforts” to raise the matter with Raymond, “and [they were] rebuffed.”
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On paper, Raymond worked for the board; in practice, he controlled his directors carefully. “The board wasn’t able to impact management very effectively,” a director recalled. “They were a group unwilling to challenge the status quo. . . . That is one of the few boards I know where the whole is less than the sum of the parts.”

There was very little free-flowing discussion at board meetings. Raymond’s remarks, presentations by other senior executives, and votes on board resolutions were written down well in advance and read out from sheets of paper. Board committee meetings could be a little looser. Even there, ExxonMobil executives listened carefully if outside directors asked hard or challenging questions and then reported back to Raymond—the offending director would soon be smothered with attention, to deflect the concerns he had raised. Once, after a director spoke up to defend one of Raymond’s policies during a committee meeting where Raymond was not present, the chairman approached him to say, “I’m really glad you spoke up in that committee.” The director was taken aback: “I was just amazed that he had that kind of intelligence; it was very revealing to me.”

The approach was a throwback to the way board meetings often had been run in corporate America during the 1960s and 1970s. “The world had changed, but they had not,” the director recalled. As oil prices rose, the corporation’s financial and operating performance was so strong that there were few big issues that the directors felt they needed to intervene about. “That was a little bit of the board’s problem,” an executive recalled. “The company was so successful, it was kind of hard to argue. There was a little bit of a prisoner’s dilemma.”

On the question of Lee Raymond’s successor, about all the board could accomplish was to push Raymond to bring Tillerson and Galante to more board meetings, to show off their skills to the directors. They each made presentations at the board’s retreat in Scotland in June 2003, in the midst of Raymond’s intensifying, failing negotiations with the Saudis. Gradually board members got to know the pair better. The formal presentations they made during meetings were heavily scripted and revealed little, but afterward, at lunches and dinners, the two would sit with outside directors and engage in more informal banter. Also, the corporation periodically organized board field trips to ExxonMobil divisions or operating sites, travel that also allowed Tillerson and Galante to interact with directors spontaneously. At the personnel review sessions with the board each October, however, Raymond’s message did not change: “We need more time to see them perform.”
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Ten

“It’s Not Quite as Bad as It Sounds”

R
aymond had promoted Ken Cohen to vice president of public affairs at the time of the Mobil merger. His predecessor, Tony Atkiss, had been “a workmanlike hand, but I think the perception was that we needed to have a little different view,” an executive involved recalled. At the time, Cohen was a forty-eight-year-old in-house lawyer with no direct professional background in lobbying, media, or public relations. “There wasn’t a long list of candidates,” the executive remembered. “Being the head of public affairs for Exxon is probably not viewed as one of the more desirable jobs in the world. . . . The Exxon culture just doesn’t generate a lot of people who would a) be very good at it and b) like it. . . . The perception was that Ken was reasonably articulate and would bring a different view.”

Exxon in-house lawyers had founded the public affairs department; the corporation was heavily regulated in the United States and abroad, so its lawyers often had the most direct knowledge of the public policy issues that affected the bottom line. Still, Cohen did not possess an obvious background for corporate image management. In his previous position, he had served as a senior lawyer at Exxon Chemical Company, a division that litigated continually with regulators and environmental campaigners. Cohen had been conditioned to think that anything he or other Exxon executives said in public could be used against them in a court of law. He inherited a public affairs department whose core media strategy was to say “no comment” in fifty different languages, as an in-house joke had it.

Cohen kept a black notebook binder on a shelf in his second-floor office on the Irving campus. He distributed copies to members of ExxonMobil’s Management Committee and other senior executives. The first page carried the title “Public Policy Issues.” A list of about two dozen subjects followed, from climate change to energy pricing to alternative fuels. The Management Committee updated and approved the list annually as part of ExxonMobil’s Srategic Planning process. Cohen’s aides wrote a summary of the current policy debate under each subject heading and then a description of ExxonMobil’s position. Cohen also reviewed the notebook’s contents with a special public policy committee of the corporation’s board of directors, which met nine times each year.

If the corporation’s management ever changed its thinking about a public policy matter, the change would be vetted through the Strategic Planning process and then inscribed into Ken Cohen’s notebook and reviewed with the board committee. “Issues managers” and “issues teams”—some in Irving, some in Washington, some in Fairfax, and some in Houston—monitored and updated the listed public policy debates throughout the year, reporting to Cohen and, through him, to the Management Committee. The issues managers ensured that the language used worldwide to describe ExxonMobil’s position on any policy question was consistent. The language on PowerPoint slides presented to Chinese Communist Party functionaries in Beijing about, say, the regulation of ethanol was essentially the same as the language on PowerPoint slides left behind in the offices of first-term congressmen in Washington. ExxonMobil lobbied the same way it ran refineries—it employed a top-down, Global System, vetted at the highest levels of the corporation, and it expected all of its managers to follow that system exactly.

The issues management system, as it was known, displayed ExxonMobil’s signature internal discipline, but it could also be as rigid, slow, and inflexible as a Soviet five-year agricultural plan. The specific policy positions that emerged in the final draft of the annually updated black binder were sometimes vague and abstract, and might be of limited use to a former senator under contract to the ExxonMobil K Street office to sway votes in a Capitol Hill legislative conference. Legislative deal making was a fluid, adaptive process, involving more improvisation than Exxon’s engineering-led culture often knew how to manage. Public affairs dispatched an internal newsletter on the fifth of every month describing what political and policy developments it had been monitoring since the tenth of the previous month; its analysis was often out of date. In the lobbyist’s art, personal relationships and spontaneous compromises shaped success, not prepackaged analysis.
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Ken Cohen had grown up in a placid Midwest community in the postwar era as one of four sons in an achievement-oriented, education-driven family. His grandfather had fled anti-Semitic pogroms in Ukraine and immigrated to the United States; the relatives on which he relied drew him to Illinois. He settled in iconic Peoria and opened a dry goods store. Cohen’s father attended Northwestern University and became a medical doctor. Ken also enrolled at Northwestern, but left after his third year and enrolled at Baylor University’s law school, in Waco, Texas; Baylor was one of a relatively small number of law schools willing to accept students who had not finished their college degree. Cohen loved the law, particularly its pedagogy, but he concluded that he should practice before taking up a teaching career. He joined Exxon in 1977, at twenty-six, and never left.

He was a mild-looking man of modest height with a full head of salt-and-pepper hair, which he parted near the middle, a choice that gave him a slightly old-fashioned air. He owned a condominium in the upscale Turtle Creek area of Dallas. He was married to a former colleague from the Exxon public affairs department, Darcie A. Bundy, who in midlife entered into the interior home design business in Dallas and in the town where the couple summered, Kennebunk, Maine. Cohen did not think of himself as possessing a political ideology, but as he stayed and rose at Exxon, he adopted the corporation’s official skepticism toward regulators and its preferences for free-market policies. He was quiet and calm, professional, but intensely competitive. He could master a new subject quickly and he organized concise briefings about public policy issues for his colleagues in management. Like many in the corporation’s upper ranks who had lived through the post-
Valdez
years, Cohen had developed a defensive posture. The attitude he and his colleagues projected came across as arrogance, but if it was that, it was conditioned by mistrust of outsiders, especially of environmental campaigners and journalists. “We’ve had our hearts broken so many times,” Cohen told his colleagues.
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Each year, Lee Raymond held a private retreat for ExxonMobil’s most senior executives. At the first such conference after the merger, Raymond told the assembled, “ExxonMobil is different than either Exxon or Mobil—it will occupy a different position in the economy and the industry.” Raymond was referring obliquely to his intention to use the merger to reinvent Exxon. It would have been easiest for Raymond to have managed the absorption of Mobil by just taking the acquired company apart and then bolt the pieces onto Exxon’s existing divisions, while seeking cost efficiencies. Raymond had rejected that approach. He intended to use the merger to restructure Exxon itself. “Everybody is going to have a new job,” he announced. As the merger proceeded, more people from Exxon than from Mobil departed or were let go, accounting for their relative size before the deal. With his withering inquisitions and his relentless push for financial excellence, Raymond managed to some extent by using insecurity as a motivation tool. It was up to the senior department heads to interpret his dogma about ExxonMobil’s being different from either of its predecessor companies; Raymond would judge the result. In public affairs, Cohen understood the chief executive’s edict as an invitation to rethink the corporation’s brand position.

ExxonMobil spent very little money on advertising or image building for a company of its size. Typically, in previous decades, oil companies had mainly invested their advertising and marketing budgets in their highly competitive retail gasoline businesses. Exxon’s version of this marketing campaign had centered on the “Put a tiger in your tank” slogan, until Kellogg’s, the corporate home of Tony the Tiger, of Frosted Flakes renown, persuaded Exxon to drop the tiger as part of a trademark infringement settlement. (The Greenpeace protesters in tiger suits were out of date.) The truth about gasoline, however, was that it was basically all the same. Each of the major oil companies blended in a few unique chemical additives to improve the fuel’s performance and then spent large sums of money on ads promoting the supposed superiority of its magic formula. Convenience stores, credit cards, and membership point schemes later enhanced these campaigns for retail market share. “We’re drivers too” was the bland slogan that ExxonMobil adopted after it lost its tiger.

Given the corporation’s business performance—it returned to the top of the Fortune 500 in April 2001 and earned $15 billion in profits that year, more than any corporation in America—it was not obvious what strategy of image building ExxonMobil required. After the merger with Mobil, Raymond cut about twenty thousand jobs and reduced operating costs by a further $8 billion after initially promising investors that he would save only about $3 billion. The extra $5 billion in savings partly reflected what Raymond had believed all along: that it would be possible to achieve more cuts than he had advertised publicly when the merger was announced. After the deal closed, Raymond told his top two executives, Harry Longwell and Rene Dahan, that he wanted the combined company, within three or four years, to be no larger than Exxon had been before the merger, without counting the additional people who would be necessary to run new refineries or chemical plants. Raymond’s goal reflected his long-standing conviction that Exxon’s management was underutilized and had the capacity to take on harder problems.

Raymond’s financial strategy was clear, but it was less obvious how spending on public policy, image advertising, and lobbying could help. Raymond had made up his mind about global warming policy and environmental policy, and he was not about to revisit his thinking on those issues to appease activists or uncompromising Democrats. In any event, big, highly profitable oil companies were not likely ever to enjoy wide enthusiasm in the populist-influenced United States—or anywhere else, for that matter. Worldwide, Cohen’s private opinion surveys showed, ExxonMobil enjoyed a top reputation among oil companies in only one country: Singapore, a tiny, authoritarian, free-trading state where the corporation was a big investor, and a country whose top-down conformist culture resembled that found in Irving.

Ken Cohen and his public affairs team researched the history of Standard Oil and successor companies’ ad campaigns during the twentieth century and they reviewed the public opinion results those campaigns achieved. The numbers fluctuated between terrible and tolerable, but Cohen’s group could find no evidence of a golden age of oil company popularity.
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ExxonMobil could not afford to accept low public esteem as a given, however. Engineering and scientific talent in the United States was in high demand. The corporation competed with other super-majors to recruit the most talented geophysicists and geologists at the world’s top schools. Scientists who agreed to join entered a two-year training program—a kind of free graduate school in which ExxonMobil invested tens of thousands of dollars to advance their skills in applied settings. The children of the baby boomer generation had been reared during an age of environmentalism, and it would be difficult to recruit and retain the best and brightest of them if working at ExxonMobil seemed a morally compromised choice. “There’s a big population of liberal young folks in the company,” a former manager recalled. These left-leaning employees wrestled among themselves with how they could be liberals and still work at ExxonMobil. Some of them pushed for paternity benefits and nursing rooms at the office—and succeeded. But these were incremental achievements and the ambivalence remained.

The difference between excellent and mediocre geologists could be the difference between finding oil and failing to do so. Scientists could be an independent-minded lot. Young ExxonMobil geologists often received “poaching” recruitment offers after four or five years of employment. Salaries at ExxonMobil were modest by industry standards, except for the very best performers, who were well rewarded. British Petroleum’s pay scale, for example, meant that it could often offer significant raises to geological scientists, $20,000 or more annually. After the merger, ExxonMobil became concerned about unusually high attrition rates in these talent wars; the corporation seemed to have particular difficulty holding on to women. Senior management organized “listening post” meetings with invited groups of department leaders and asked them, “Are you proud of your experience” at the corporation? “What do we need to do to keep you here?” Some of the rising managers were frank: “Look, we have a really bad reputation as a company.” Informally, “the employees talked about it all the time,” a manager who participated recalled.
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There were other measurable costs to being despised. Late in 2000, an Alabama state jury deliberating a civil fraud case handed down a $3.42 billion punitive damages verdict against ExxonMobil for allegedly cheating the state out of natural gas royalties. Ken Cohen and other lawyers at the company were adamant that the verdict would be thrown out on appeal (and it was), but the case offered a reminder, if one was needed after the
Exxon Valdez
jury trial, that public skepticism toward the company could easily present itself in a courtroom in the form of hostile jurors.

Cohen’s group commissioned public opinion surveys, opinion leader focus groups, and other elaborate research endeavors designed to map the ways in which ExxonMobil was hated. Engineers ran the company, and only numbers could persuade them. Even so, some of the corporation’s executives, including Raymond, received the insights from these “scientific” surveys and focus groups with undisguised skepticism about their usefulness.