Private Empire: ExxonMobil and American Power (42 page)

“It’s possible to offer small amounts of support to academics who already show some tendency to express views that [ExxonMobil] finds congenial,” the executive said. In addition, “You can sponsor workshops and so forth, but that gets tricky. For one thing, once you get to that point, you pretty much have to invite both sides.”
¹²

Eventually, ExxonMobil submitted findings from this academic work to the United States Supreme Court to support its challenge to punitive damages arising from the
Exxon Valdez
spill. The decision ultimately went the corporation’s way and made important new law favorable to American businesses. David Souter, the Supreme Court justice appointed by President George H. W. Bush, joined in the majority’s opinion. In a footnote, however, Souter mentioned the social science evidence submitted by ExxonMobil. “Because this research was funded in part by Exxon, we decline to rely on it,” he wrote dryly.

L
ee Raymond turned sixty-seven years old in August 2005. He had spent almost forty-two of those years as an employee of Exxon and had served as ExxonMobil’s chairman and chief executive for a dozen years, a long run at the top by the timelines of corporate America; he was an informal dean of his oil industry class. When he was at headquarters in Irving, Raymond often ate lunch in the subdued formality of the alcohol-free Rockefeller Room with his most senior lieutenants, including, the two who were competing to replace him, Ed Galante and Rex Tillerson. When he traveled out of Texas, he flew on the Challenger Global Express designated as One Hundred Alpha and he lingered in Hawaii, Augusta, and Pebble Beach to play golf and relax. He and Charlene, his wife, were building a new home in Palm Springs, California, and they would soon acquire another home near Phoenix. The Raymonds remained highly private. A luxurious, subdued retirement now awaited them—if the corporation’s board of directors could persuade Raymond to take it up.
¹³

Some on the board felt they had struggled since 2001 to persuade Raymond that he had to take succession and retirement seriously. Raymond felt he had done so; he had set up a contest between Tillerson and Galante over the top job, a competition that Raymond told his board was entirely genuine—a close call. “It will be a few years before you are able to figure out how good they really are,” he had said when he first appointed the pair.

By 2005, fearful of Raymond’s stalling, the board “communicated softly” with him that the directors felt that it was time to make a definitive move. The message they delivered was, “Gee, Lee, you’re now sixty-six.” Raymond understood their worry that he might become, as he quipped privately, “the next Sandy Weill,” referring to the banker who had hung on at Citigroup until he was seventy-three, finally retiring as chairman just two years before the bank nearly collapsed from imprudent bets on the American mortgage market. He assured them that he was ready to go. “Believe me, I will never be the new Sandy Weill.”

He understood that he was plugging up career movement down the executive ranks, he told the board. He was less certain, he said, about which of the two finalists for his job the board should endorse.

“Why don’t you just tell us who ought to do this?” James R. Houghton, a director who served as chairman at the international glass and ceramics maker Corning, Inc., asked at one board meeting.

“I’m not sure that’s my job,” Raymond answered. “It’s the board’s job.”

“But you’re the only guy who really knows them.”

“I accept that point, but I am interested in any perspectives any of you have—and you have an obligation.”
¹⁴

It seemed clear to some within ExxonMobil and on the board that for all of Raymond’s achievements in financial management and corporate strategy, his Dick Cheney–like bluntness had become a liability. Worldwide scientific and engineering talent recruitment and retention as well as lobbying strategy in Europe and the prospect of a post-Cheney Washington all argued for a leader of ExxonMobil, after Raymond, who could maintain the same level of financial and operational discipline, but project a gentler, quieter, more modern and inclusive voice.

It was not obvious which of the two finalists would be the better communicator. Galante had grown up in Queens, New York, and on the South Shore of Long Island. As he rose, he managed Exxon’s massive Baton Rouge refinery and later served as Raymond’s executive assistant in the years after the
Exxon Valdez
disaster—“the most thankless job in the world,” as a former Exxon executive put it, in part because as the chief operations officer on Raymond’s staff, Galante had to decide when to wake up the boss with news in the middle of the night. “Sometimes it’s not much fun to wake Lee up at four a.m.,” the former executive noted. As the succession contest solidified, Raymond appointed Galante to run the corporation’s worldwide downstream portfolio—massive refineries from China to the Middle East to the American South. Some visitors found Galante to be affable, outgoing, and comfortable in comparison with his rival, Tillerson. A
Fortune
reporter, Nelson D. Schwartz, went so far as to offer ExxonMobil directors advice in print as they approached their decision: “If either of the candidates to succeed Raymond can address the company’s tattered image . . . it’s Galante.”

Tillerson drawled unabashedly. He was a lifelong Texan bred in its small towns, and as his wealth accumulated, he bought a ranch outside of Dallas. His office in the third-floor executive suite in Irving contained a “Frederic Remington-style sculpture of a horse,” which struck Schwartz as part of a style that “might be called masculine not-so-
moderne
.” It was true that Tillerson was not one to toss around French terms. Yet he did seem comfortable in his own skin, relaxed, willing to hear different views. He was credible in industry circles but more accessible and less defensive than Raymond when addressing skeptical audiences.
¹⁵

How important were communication skills, anyway? The board was choosing a leader at an operations-focused, highly profitable corporation in an innately unpopular industry, not a game-show host. Raymond knew that his board worried chronically about ExxonMobil’s public image. Some of the corporation’s outside directors had come to ExxonMobil from liberal university campuses or industries such as retail sales or telecommunications, where a corporation’s public reputation was fundamental to the ability to attract customers. Raymond didn’t see ExxonMobil or the oil industry as comparable.

“The facts are, with the exception of the service stations, everything we produce has no interface with the public,” Raymond told his directors at a meeting in Japan, as the internal evaluations of Tillerson and Galante neared their end. “Crude oil, natural gas, chemical products—the public doesn’t know where it comes from. The only interface we have is the service stations.”
¹⁶

The retail gasoline stations so ubiquitously visible and so familiar to Americans returned notoriously low profit margins to all large oil companies. If the goal of ExxonMobil was to have a better public reputation, Raymond continued, maybe it should consider getting out of the retail business altogether and become a lower profile, highly profitable industrial company, with visibility more comparable with a company like Dupont. The public and politicians became inflamed when ExxonMobil reported its gargantuan quarterly profits in part because many people thought those profits were extracted from their wallets at the retail gas pumps where they stopped to fill up twice a week. When they drove to and from work or to the grocery store, ExxonMobil signs blared at them from street corners, reminding them of the corporation’s presence—and of the rising price of gasoline. Rather than choosing a new chief executive whose job would emphasize the rehabilitation of ExxonMobil before that hostile public, why not just retreat from view?

This was not as radical an idea as it might have sounded, but it was not going to be the basis for the board’s succession decision.

After the succession contest was established, at the annual board meeting each October, when Raymond asked all ExxonMobil executives to leave and then spoke to the directors about Galante and Tillerson, he always framed his report by saying that he could offer his views about the men’s strengths and weaknesses relative to each other. He did not know, however, how strong a leader either of them would prove to be in an “absolute” sense, tested over many years and compared with other Fortune 500 chief executives. Raymond told the board that the most important quality his successor would require was toughness—the ability to stand up to governments, pressure groups, environmentalists, and special pleaders of all types. His advice was a projection of how he saw himself.

Galante had supporters on the board until the final decision was made. Gradually, however—one board road trip or meeting retreat after another—the weight of opinion gathered around Tillerson. Raymond finally recommended Tillerson directly. He told colleagues that he felt he owed whoever followed him a firm endorsement, so that he would not leave any lingering doubts in the minds of directors who had deliberated over the decision.

ExxonMobil ended the succession contest publicly in 2004 by appointing Tillerson as president and the sole number two. In the summer of 2005, the corporation confirmed that Raymond would retire at the end of the year and that Tillerson would follow him as chairman and chief executive.

I
n the last year of Lee Raymond’s leadership, ExxonMobil earned a net profit of $36.1 billion, more money than any corporation had ever made in history. That broke the previous record of $25.3 billion, set by ExxonMobil the year before. Even if the profits made during the late 1950s and 1960s by such postwar corporate giants as General Motors, Ford, International Business Machines, and General Electric were adjusted for inflation, none could match the size of ExxonMobil’s 2005 profit. During the span of Raymond’s tenure, from 1993 to 2005, ExxonMobil’s market capitalization—the total value of the corporation’s shares in the stock market—rose from $80 billion to $360 billion. The company also paid out $68 billion in dividends during that time. It was difficult for an oil corporation of ExxonMobil’s size and experience to fail, particularly after oil prices began to rise in 2004. Yet ExxonMobil’s performance reflected in substantial part Raymond’s relentless focus on cost and efficiency.
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Raymond’s record on behalf of the corporation’s shareholders was by now less well known than his record as a self-appointed climate scientist. As part of his transition to retirement, Raymond was in the running to become the chairman of the John F. Kennedy Center for the Performing Arts in Washington, D.C., a prestigious and visible position, but environmentalists in the Kennedy family blocked him. On Wall Street and within the industry, however, Raymond commanded considerable respect. Competitors such as Royal Dutch Shell hosted farewell dinners for him, where he was feted as one of the most accomplished leaders in oil industry history and perhaps the most effective in the United States since John D. Rockefeller himself.

Whose profits were they? Under the law, of course, they belonged to ExxonMobil’s shareholders, to be managed for the shareholders’ benefit by the corporation’s board of directors, subject to the rule of law. In political terms, however, oil profits were distinct. They arose from the sale of energy products, particularly gasoline, that the American public had no practical choice but to purchase. Some energy industry profits—those made from the sale of electric power to homes and businesses—were capped and regulated in the United States by state utility commissions whose mission expressly included protection of the public interest. It was in some respects an accident of American political history—as well as an expression of the enduring power of the largest oil corporations—that electric energy was treated as a public entitlement subject to close regulatory scrutiny, while gasoline was not. Even setting aside all ideological arguments about the costs and benefits of free versus regulated capitalism, the incentives ExxonMobil and its peers followed—Wall Street signals, competitive signals, and obligations under the law to maximize shareholder value—had practical consequences for working- and middle-class families. As
Petroleum Intelligence Weekly
put it, “What many of the companies have in common is a reluctance to sacrifice high financial returns for stronger output growth.” There were surely many efficiencies in this system, but one of its problems proved to be poor long-term performance and underinvestment by the big companies in oil exploration and production, which contributed to tighter supply and more volatile prices that occasionally socked American consumer budgets unexpectedly.

Unarguably, the margin for error in the global oil supply system was shrinking. Just a few weeks after ExxonMobil announced Lee Raymond’s prospective retirement, Hurricane Katrina gathered force over the Bahamas, crossed into the Gulf of Mexico, and came ashore near New Orleans; the storm claimed more than eighteen hundred lives and caused about $80 billion in property damage. A month later, Hurricane Rita smashed into Texas and caused about $11 billion in damage. America’s five largest oil refineries lay in the paths of the two storms. Chaos and shutdowns in the gasoline supply chain caused retail gas prices in the United States, which had been rising steadily during the previous year, to spike suddenly toward three dollars per gallon. In general, gasoline prices rose and fell in tandem with global prices for crude oil, but occasionally, as in this case, bad weather or strikes or other local disruptions could cause a spike upward. Within a few weeks, senators and congressmen responded to outraged phone calls and e-mails from angry, financially strapped constituents by introducing legislation to prevent ExxonMobil and other large oil corporations from reaping windfall profits from popular misery. It did not help ExxonMobil’s public relations position that it announced on October 25 record third-quarter profits of just under $10 billion.