AMERICAN businessmen know something about executive power, and in Lord Browne, chief executive of BP, they saw a master. Fortune magazine, their bible, for years reckoned that Browne was the most powerful executive in the world outside America.
That rating will have to be revised this year. On Friday, the oil group’s board dropped a bombshell, saying Browne would not leave the company at the end of next year as planned, but much earlier. Browne, a dapper, instantly recognisable figure, whose diminutive size belies his clout at the very highest reaches of international business, will leave the company in just six months, after dominating it for more than a decade.
It has been a swift, unkind descent. He transformed BP from the weakest of the oil giants into one of five so-called “super majors” by orchestrating two American deals — the $56 billion (£28 billion) purchase of Amoco in 1998, and the $27 billion purchase of Arco in 2000.
He then risked an expansion into Russia, venturing among the oligarchs in 2003 to create TNK-BP, a joint undertaking with a Russian oil and gas company that remains one of that country’s largest energy producers and a key part of BP’s growth plans.
But this rapid expansion may have contained the seeds of his downfall. In the past two years, BP has been plagued by a series of safety and environmental problems, which will be laid bare on Tuesday when James Baker, the former American secretary of state, releases what is expected to be a hard-hitting report into the lapses.
For Browne, the mis-steps could not have come at a worse time. They scuppered whatever hopes he then harboured of extending his stay at the top beyond his normal retirement at 60 in February next year.
After a boardroom bust-up six months ago with Peter Sutherland, BP’s chairman, a compromise was agreed — Browne would go at the end of 2008, leaving time to find a successor. Many felt that the agreement was botched.
Sutherland and a small group of other non-executives including Sir William Castell, former chief executive of Amersham, who joined the BP board last July, had become increasingly uneasy about the handover.
Browne sensed a change in mood and decided to act. After returning from his Christmas break he argued that BP needed to end the uncertainty and appoint a chief executive-elect instead of an earlier plan for a chief operating officer who would be lined up for the top job.
After taking advice, he decided to go at the end of July. Browne will be replaced by Tony Hayward, BP’s head of exploration and production. Hayward, who courted controversy last month by attacking the leadership style of BP in an article on the company’s website, is thought to have edged out Iain Conn, the high-flying executive director responsible for Asia, Africa and Europe.
Browne, who is a close friend of and regular opera partner of Tony Blair, will not disappear from business life. He has agreed to join Apax Partners and will chair the private-equity firm’s advisory board. Meanwhile he is already being courted to become chairman of one international group. But he might ruefully reflect this weekend that he may finally be remembered as much for the manner of his departure as for his brilliant period in command of one of the world’s biggest companies.
Born in Hamburg after the second world war, Browne joined BP as a university apprentice in 1966. He rose through the ranks, becoming head of the exploration business in 1989 and taking over as chief executive in 1995.
When he took the top job, BP was weak. In the early 1990s there were doubts about the company’s financial position, before Lord Simon started to turn it round. Browne tidied up the business and went on the acquisition trail, buying Amoco and Arco when oil prices were low.
Browne’s stunning success earned him the sobriquet the “Sun King”. Under his leadership the company’s market value and profits rose fivefold to £106 billion and £11.6 billion. But the compliment was double edged and raised questions about his management style.
But 2006 proved to be BP’s annus horribilis after a litany of troubles in America. BP’s woes can be traced back to March 2005 when explosions ripped through its Texas City refinery, killing 15 and injuring 170.
The setbacks continued a year later when 260,000 gallons of oil gushed out of a BP pipeline at the Prudhoe Bay oilfield in Alaska. The spill was the biggest in the state’s history and led to a criminal investigation.
Then in September BP had to announce that production at its showcase Thunder Horse platform in the Gulf of Mexico had been delayed after the discovery of cracks in a key piece of equipment on the seabed.
Over the past two years, BP has also been blighted by other problems. These include allegations that its traders in propane, an important heating fuel in America, had tried to corner the market. Its trading in crude oil has also been probed.
But it is BP’s safety record that has been the focus of attention. The company has paid out hundreds of millions of dollars to settle a mountain of lawsuits linked to the Texas explosions. Browne is now accused of presiding over a culture at BP of corner-cutting and slack practices.
In October, the US Chemical Safety and Hazard Investigation Board said it believed that cost-cutting had contributed to the fatal blast at Texas City. Industry experts increasingly suggested that BP’s problems were the result of a culture of cost-cutting — a legacy of the lean times in the 1980s and 1990s when the oil price slumped to $10 a barrel.
The announcement of Browne’s early departure seems to have been carefully timed. Next week BP will face a further battering when the Baker report into the Texas blast is published. Baker, who was hired by BP at the insistence of the Chemical Safety and Hazard Investigation Board to review the safety culture and systems of BP’s American refineries, has closely guarded his findings. But the report is understood to be critical of BP. John Manzoni, the head of refining and marketing, is likely to come under most pressure and could be eased out.
After the Baker report BP faces further problems — a potentially hostile investigation by Congress and a threatened Russian probe into plans by TNK-BP to develop the Kovykta field in Siberia. Then there is the threat of the US Department of Justice bringing a criminal action.
Browne may have taken BP from a weak company to an oil super major, but its image has been battered by its recent problems. The question for shareholders now is, can Hayward fix them?
