There were many contradictions in the life and career of Lord Browne of Madingley. He was a small man in a business that prizes scale above all else; an aesthete whose peers seemed happier in the strip clubs of Houston; and a homosexual in an industry of macho frontiersmen. But the oddest thing of all is that despite two years of mismanagement at his company, John Browne resigned as chief executive of BP in May surrounded by scandal but with a chorus of praise in his ear.
"Business genius," proclaimed the Economist. "The greatest businessman of his generation," said Peter Sutherland, Browne's chairman at BP. Other commentators rushed to condemn the allegedly homophobic culture of the City.
Some of this praise was deserved. Browne was undoubtedly brilliant—often as a businessman, sometimes simply as a showman. His command of his brief rarely slipped. And he could entertain a crowd. I remember watching him at the World Petroleum Congress in Calgary in 2000, one of the oil industry's biggest events, when a pair of protesters interrupted his keynote speech. The protestors' cause—BP's involvement in Tibet—was probably just. But Browne's response humiliated the pair in front of an audience of thousands. Those who know Browne well say that this public persona may merely have been the creation of his "executive coach," but Browne had the chutzpah to pull it off when it mattered.
The same can be said for his successes at BP. It would be hard to compare the company of which Browne became a managing director in 1991 with the one he left in May. In the early 1990s, BP was still emerging from its 1987 privatisation. It was a swollen, floundering beast of a company, with real assets only in the North sea and Alaska—a civil service launched on to the world's financial markets with little understanding of how to create value. Its turnover was less than a quarter of Exxon's.
Some of the assets and reserves in these regions came to BP in the late 1990s through two large mergers it completed, with Amoco and Arco. Taking over these companies catapulted BP into the oil and gas stratosphere—the realm of Exxon (which itself completed its own mega-merger with Mobil in 1999) and Royal Dutch/Shell, which had long been the envy of BP and its employees.
Through Browne's diplomatic skills and political connections, the company seemed to emerge stronger, even when it sailed into choppy waters. In Angola, BP risked the wrath of the host government by lifting the lid on some—though by no means all—of its financial dealings with Sonangol, the state oil company. Sonangol's executives were said to be furious with the loss of face. Transparency campaigners proclaimed BP's move a good thing; shareholders worried that the company would lose its licence to extract Angolan oil. It didn't.
But BP's biggest transformation under Browne began during a visit he made to Stanford University in 1997. His speech there changed BP and the oil industry itself. "There is now an effective consensus among the world's leading scientists that there is a discernible human influence on the climate, and a link between the concentration of carbon dioxide and the increase in temperature," he told his audience. "The time to consider the policy dimensions of climate change is not when the link between greenhouse gases and climate change is conclusively proven, but when the possibility cannot be discounted and is taken seriously by the society of which we are part. We in BP have reached that point." This speech was made six months before the Kyoto protocol was signed.
Browne's last speech as chief executive of BP was also on climate change, and also delivered at Stanford, in late April—almost ten years to the day after his groundbreaking 1997 speech. Browne, it is now clear, already knew that he would be resigning from BP four days later. The fact that he chose climate change and the energy industry's responsibilities in combating it as the themes of his valedictory address shows just how unusual an oilman he was.
Browne lived BP inside and out. Those close to him describe his "insane" working hours and dedication to company minutiae. Born an only child to a BP engineer, by the time he left the company, Browne had been an employee for 41 years. He had few, if any, real friends outside BP. Aside from several homosexual relationships, about which he was discreet, his closest companion for many years was his mother.
The reward for Browne's loyalty to and achievements at BP was, say insiders, a burgeoning cult of personality. An entourage attended to his wishes, and he was surrounded by yes-men. One BP insider, talking of Browne's affair with Jeff Chevalier, the Canadian male escort at the centre of his downfall, told me: "Someone needed to take him aside and say, 'Listen, you're embarrassing yourself here, John.' But he didn't have anyone who could do that."
That may be a personal tragedy. But for investors in the company, there were other failings—many of which shared the same roots as his successes. The Browne personality cult extended to BP's board. After Rodney Chase, one of the few who could gainsay the great man, left BP in 2003, the seats at the company's top table were filled entirely by Browne's protégés. One of them, Tony Hayward, has succeeded Browne as chief executive.
If he had legions of followers inside BP, Browne didn't have many fans in the rest of the oil industry. To those in the Houston-Riyadh oil belt, his environmental message came across as preachy and hypocritical. Critics also poked fun at BP's attempt to rebrand itself in 2000 as "Beyond Petroleum." How could the company be beyond petroleum when it promised shareholders it would increase oil production by 4 per cent a year?
But the Sun King of the energy industry should really be judged for the two giant mergers he engineered and for the ruthless way he went about slashing costs, driving profits higher despite the relatively low oil prices of the late 1990s. When BP bought Amoco for $110bn in 1998, it triggered a wave of consolidation in the top tiers of the oil business. The Amoco deal showed how you could replace reserves without bothering to drill for more oil. And although legally a merger, BP's purchase of Amoco was actually a brutal example of Browne's ability to wield the axe. The $27.6bn takeover of Arco followed a couple years later, after the oil price had started to rise, and Browne slashed away again.
By then, the running of BP had effectively been handed over to the management consultancy McKinsey. The company was divided into business units; targets (and bonuses for meeting them) began to dominate. Browne started to believe that the world's second largest oil company could be run by 100 people.
It worked for a while, as oil prices rose steadily through the early part of the century. Following the mergers, BP's new scale put it in good position to ride the wave. But we now know that BP was running beyond its own capacity, and that the Browne strategy would soon have fatal consequences. Cost-cutting was beginning to bite—not in the offices of Finsbury Circus, but on the ground, in places like Texas and Alaska. A fire at a refinery in Texas City in 2005 killed 15 people and injured another 180. BP had violated a number of health and safety regulations, it is alleged. The US's Chemical Safety Board said the company had implemented a 25 per cent cut in fixed costs from 1998 to 2000 that "adversely impacted maintenance, spending and infrastructure." Then a pipeline running from the Prudhoe bay oil field in Alaska was found to have corroded badly, forcing the company to shut down its 400,000-barrel-a-day production until it was fixed. Cost-cutting was blamed again.
Things looked even worse when BP's Thunder Horse platform, in the Gulf of Mexico, was damaged in a hurricane. By chance, passing sailors spotted it listing in the Gulf and reported it to the company that was supposed to be managing it (see picture p19). By the time BP had told the market how long it would have to wait for Thunder Horse to start pumping oil again, the company's shares had lost 20 per cent of their value. Management of the platform's installation, it later emerged, had been outsourced.
Meanwhile, the Kremlin is turning up the pressure on TNK-BP, BP's joint venture in Russia. In 1997, BP had signed a deal to buy 10 per cent of the Russian company Sidanco. Two years later, Sidanco had been deliberately bankrupted and BP's investment had to be written off. Yet Browne persisted with Russia. Now Moscow wants to oust BP's private Russian partners from the TNK-BP venture and install a state-controlled company instead. If BP lost its stake in the joint venture—or was forced out of Russia again—it would lose 30 per cent of its global oil production, and some 25 per cent of its global reserves.
Browne made his name by turning BP into the oil industry's leanest machine, but now that very policy has begun to look less like business genius and more like a liability. And even the successes have begun to look rather narrowly based—on two key acquisitions and the rise in the price of oil. The Sun King's crown had slipped even before his final courtroom undoing.
