The Study of Business, Government, and Society
of New Jersey continued to exist. Although it had shed 57 percent of its assets to create the new firms, it was still the world’s largest oil company. Some companies formed in the breakup were Standard Oil of Indiana (later renamed Amoco), Atlantic Refining (ARCO), Standard Oil of California (Chevron), Continental Oil (Conoco), Standard Oil of Ohio (Sohio), Chesebrough-Pond’s (a company that made petroleum jelly), and Standard Oil of New York (Mobil). In 1972 Standard Oil of New Jersey changed its name to Exxon, and in 1999 it merged with Mobil, forming Exxon Mobil.
The passage of time now obscures Rockefeller’s influence, but ExxonMobil’s actions remain consistent with his nature. It has a centralized, authoritarian culture. Profit is an overriding goal. Every project must meet strict criteria for return on capital. ExxonMobil consistently betters industry rivals in its favorite measure, return on aver- age capital employed.
Unlike Southwest Airlines or Google, where having fun is part of the job, perform- ance pressure at ExxonMobil is so intense that it “is not a fun place to work.” 3 As Rockefeller bought competitors, he kept only the best managers from their ranks. Today managers at ExxonMobil face a Darwinian promotion system that weeds out anyone who is not a top performer. “We put them through a big distillation column,” said a former CEO, and “only the top of the column stays there.” 4 And oil industry competitors still find it a ferocious adversary. The company says simply that it “employs all methods of competition which are lawful and appropriate.” 5
Although ExxonMobil is a powerful corporation, it is no longer the commanding trust of Rockefeller’s era. As in the old days, its power is challenged and limited by economic, political, and social forces. Now, however, these forces are more leveling.
Markets are more contested. ExxonMobil pumps only 8 percent of the world’s daily output of oil and controls less than 2 percent of petroleum reserves. These fig- ures are far lower than in the 1950s when Exxon was the largest of the Seven Sisters, a group of Western oil firms that dominated global production and reserves, includ- ing the huge Middle East oil fields. 6 Now its largest competitors are seven state- owned oil companies, often called the new Seven Sisters, whose output dwarfs that of today’s privately owned companies. 7 The biggest, Saudi Aramco, is 3.5 times the size of ExxonMobil in daily crude oil output and has 32 times its reserves. 8 The rise of these state-owned companies reflects a new form of nationalism, one that rejects reliance on foreign firms to exploit natural resources.
3 Fadel Gheit, a former employee and an oil industry analyst, quoted in Geoff Colvin, “The Defiant One,” Fortune, April 30, 2007, p. 88.
4 Lee Raymond, quoted in Tom Bower, Oil: Money, Politics, and Power in the 21st Century (New York: Grand Central Publishing, 2009), p. 162.
5 Exxon Mobil Corporation, Form 10-K 2009, filed with the Securities and Exchange Commission, February 26, 2010, p. 1.
6 The Seven Sisters were Exxon, Mobil, Shell, British Petroleum, Gulf, Texaco, and Chevron.
7 The new Seven Sisters are Saudi Aramco (Saudi Arabia), Gazprom (Russia), China National Petroleum Company (China), National Iranian Oil Company (Iran), Petróleos de Venezuela S. A. (Venezuela), Petrobras (Brazil), and Petronas (Malaysia).
8 Government Accountability Office, Crude Oil, GAO-07-283, February 2007, fig. 9; and Ian Bremmer, “The Long Shadow of the Visible Hand,” The Wall Street Journal, May 22–23, 2010, p. W3.
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Chapter 1 The Study of Business, Government, and Society 3
ExxonMobil is on a treadmill, constantly searching for new oil and natural gas supplies to compensate for declining production in existing fields. Output from a mature field drops 5 to 8 percent a year. To maintain profitability the company pursues new reserves wherever they are, taking political risks and abiding unrest and corruption. Iran and Venezuela have expropriated its assets. In Indonesia, govern- ment troops guard its facilities against attacks by rebel forces. In Chad, Angola, Nigeria, and Equatorial Guinea, it has paid dictators for access to oil.
Governments are more active and relations with them, ranging from high-level diplomacy to mundane regulatory compliance, are more complex than in the past. In 2003 the company engaged in a high-stakes game of political intrigue trying to pur- chase Yukos Oil Company. Yukos was a technologically backward Russian company that controlled oil and gas deposits in Siberia so huge they would double Exxon- Mobil’s reserves. ExxonMobil wanted it badly and offered $45 billion to the Russian capitalists who owned it. Their leader was billionaire Mikhail Khodorkovsky, a political rival of Russia’s President Vladimir Putin. Khodorkovsky promised ExxonMobil that he would use his political influence to clear the deal, but when its top managers met with Putin he was guarded and said, “These details are for my ministers. You must deal with them.” 9 Soon, Khodorkovsky’s private jet was mysteriously delayed from taking off at a Siberian airfield and boarded by masked police, who arrested him on charges of fraud and tax evasion. He has been in jail ever since. Yukos soon merged with a state-owned oil company managed by one of Putin’s close allies.
In more ordinary ways, webs of law and regulation dictate ExxonMobil’s opera- tions in each country where it does business. In the United States alone approximately 200 federal departments, commissions, agencies, offices, and bureaus, only a hand- ful of which existed in Rockefeller’s day, impose rules on the company. If the founder were alive, he might find this tight supervision unrecognizable—even incredible. For example, in 2009 the company paid a $600,000 fine to settle charges that 85 migra- tory birds in five states died of hydrocarbon exposure after landing in production and wastewater ponds. It agreed to a $2.5 million bird protection program. It will put nets over ponds and install electronic systems that turn on flashing lights and noisemakers when they detect incoming flights of birds. 10
ExxonMobil also faces a demanding social environment. As a leader in the world’s largest industry, it is closely watched by environmental, civil rights, labor, and con- sumer groups—some of which are actively hostile. For years the company agitated environmentalists by rejecting the scientific case for global warming. Alone among major oil companies, it refused to make significant investments in renewable energy. Its former CEO called such investments “a complete waste of money.” 11
In 2006 a new CEO, Rex Tillerson, tried to blunt criticism by granting publicly that the world is warming. But he made no changes in strategy. A group of John D. Rockefeller’s heirs, believing that ExxonMobil no longer represented the “forward- looking” spirit of its great founder, wrote to Tillerson, welcoming him as the new
9 Quoted in Tom Bower, Oil: Money, Politics, and Power in the 21st Century, p. 10.
10 United States Attorney’s Office, District of Colorado, “Exxon-Mobil Pleads Guilty to Killing Migratory Birds in Five States,” press release, August 13, 2009.
11 Lee Raymond, quoted in “The Unrepentant Oilman,” The Economist, March 15, 2003, p. 64.
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4 Chapter 1 The Study of Business, Government, and Society
leader and requesting a meeting .12 He would not meet with them. Subsequently, 66 Rockefeller descendants signed an initiative calling on the company to convene a climate change task force. The company refused to talk with the family members, who held only 0.006 percent of its shares. 13
Besides using ethanol blends in gasoline, ExxonMobil’s major investment in alternative energy is a $600 million research project to make biofuels from algae. 14 That investment pales in comparison with its $27 billion in capital and exploration expenditures in 2009 and a $30 billion project nearing completion to liquefy and ship natural gas from Qatar.
As a corporate citizen ExxonMobil funds worldwide programs to benefit communi- ties, nature, and the arts. Its largest contributions, about 50 percent of the total, go to education. Other efforts range from $68 million to fight malaria in Africa to $5,000 for the National Cowgirl Museum in Fort Worth, Texas. In 2009 ExxonMobil gave $196 million to such efforts. This is a large sum from the perspective of an individual. However, for ExxonMobil it was seven-hundredths of 1 percent of its revenues, the equivalent of a person making $1 million a year giving $7 to charity. Does this giving live up to the elegant example of founder John D. Rockefeller, the great philanthro- pist of his era?
The story of ExxonMobil raises central questions about the role of business in society. When is a corporation socially responsible? How can managers know their responsibilities? What actions are ethical or unethical? How responsive must a corpo- ration be to its critics? This book is a journey into the criteria for answering such questions. As a beginning for this first chapter, however, the story illustrates a range of interactions between one large corporation and many nations and social forces. Such business–government–society interactions are innumerable and complicated. In the chapter that follows we try to order the universe of these interactions by introducing four basic models of the business-government-society relationship. In addition, we define basic terms and explain our approach to the subject matter.