one director, querying why the proposed cuts had not materialised, especially at the refineries. ‘You can count on BP’s DNA to find an inspired route out of the trouble,’ countered a Horton sympathiser, only to be crushed by another director: ‘Exxon and Chevron don’t get into trouble.’ Oblivious to the storm, Horton insisted during the board meeting that BP should pay a normal dividend to please investors. ‘Could you wait outside?’ he was asked by the banker Lord Ashburton. Beyond his hearing, the reckoning was swift. ‘He’s spent too much time with ambassadors and playing politics in Washington,’ said one voice. ‘And he’s spent too little time on the details of the business,’ added another. ‘Bob is ambitious, abrasive and arrogant,’ concluded a third. ‘We need a change.’ The mood was summarised by Ashburton: ‘There’s been a build-up of small flakes which has become quite a lot of snow on the ground.’ Three weeks later the non-executive directors, including Ashburton and Peter Sutherland, met at Barings bank in the City on a Saturday morning to decide Horton’s fate.
The unsuspecting chief executive was summoned the following Wednesday. ‘Robert,’ said Ashburton, ‘the board has decided to ask for your resignation.’ ‘My God,’ exclaimed Horton, shocked that his fate was even being discussed. ‘I was brought down as laughable,’ he reflected. ‘I got a head of steam. My mistake was believing change could be done so fast. I should have shown more tenderness.’ The public announcement was stripped of any charitable sentiment. ‘Hatchet Horton’s’ decapitation matched the cultural change he had championed, except that his dismissal was interpreted by outsiders as the final collapse of a stodgy giant. BP, rival oil companies believed, would shortly be receiving the last rites.
Horton was replaced by David Simon, a trusted team player with expertise in refining and marketing. ‘This is about the style of running the company at the top,’ Simon said about his predecessor. ‘It’s not that I don’t have an ego. It’s just that it’s not terribly important to me.’ Simon, a cerebral linguist, acknowledged his limitations. ‘Look, chaps,’ he frequently smiled during meetings, ‘you know I’m not very bright, so could you explain this in simple language?’ Six weeks after Horton’s dismissal, BP halved its dividend. Horton’s intention to copy Exxon and centralise BP was reversed. Power was devolved to trusted subordinates who would be accountable to business units, an innovation introduced by McKinsey & Company, the management consultants. That suited John Browne, the head of exploration and production and the heir apparent. Although Browne’s admirers described an occasionally soft and lonely character, fond of ballet and opera and not inclined to socialise, he espoused confrontation to resolve problems. BP’s style, he believed, should not attempt to mimic Exxon’s. Hierarchies and conformity were to be destroyed, and to encourage initiative there would be informal lunches, no lofty titles, and meetings between forklift drivers and accountants. Outsiders were greeted by charm, but employees understood the ground rules of a self-styled alpha male: ‘One mistake and you’re out.’ His lesson from Sohio was the importance of consolidation and cuts.
‘I’m astute enough to know what I’m doing,’ Browne told Tom Hamilton. In 1991, after working with him for six years, Hamilton admired Browne’s negotiating skills and passion to reduce costs, but questioned his limited experience. In his early career Browne had chopped and changed between jobs, spending just nine months at the Forties field in the North Sea and the same amount of time in Prudhoe Bay, never staying long enough to see his mistakes emerge. Not only was his knowledge about operating in the mud and sand of oilfields superficial, but he lacked any taste for solving engineering problems. Working in an office filled with monitors displaying information to feed his appetite for facts, he concealed his limitations by obtaining detailed dossiers on every face and every issue in order to brief himself before meetings. Browne’s impressive ability to absorb information, Hamilton feared, produced blindness about the whole picture and an inability to anticipate what could go wrong.
That weakness, Hamilton believed, stemmed from Browne’s addiction to the wisdom handed down by McKinsey. Persuaded during his studies at Stanford in California that BP’s experts could be replaced by consultants, he appeared to become a financial executive surrounded by accountants focused on balance sheets to satisfy the shareholders, rather than harnessing engineering skills to manage a project. ‘To save money,’ Browne had argued, ‘we can buy in what we need.’ In Browne’s opinion, Hamilton did not understand the skill required to direct BP’s limited cash towards prospective windfalls. BP’s technicians, he felt, needed to be business-oriented. Making profits was his only criterion, whether by improved technology, lower costs, reduced interest payments or higher volumes. ‘The engineers in Aberdeen gold-plate everything,’ he complained. ‘They’re inefficient and wasteful.’ BP’s engineering headquarters at Sunbury, infamous for pioneering ‘space grease’ and constantly reinventing the wheel, was to be closed. Browne saw no incongruity in an oil and chemical corporation relying on hired freelance engineers. ‘If this goes wrong, John,’ Hamilton warned, ‘there’ll be no place in the world to run and hide.’
Browne’s conception of himself as a different kind of oil executive leading a different kind of oil company did not appeal to Hamilton. The final straw was an argument about cutting costs during an 18-hour flight to inspect an oilfield in Papua New Guinea. Browne’s antagonism towards BP’s traditional embrace of engineers irritated Hamilton. ‘We may have to turn back, John,’ he cautioned halfway through the helicopter flight across the jungle. ‘Cloud could prevent us landing.’ Just before they arrived, sunlight burst through the clouds. ‘So why so many problems?’ chided Browne. Hamilton resigned soon after, avoiding the profound change Browne demanded in exploration. Profits, said Browne, depended on cutting costs, especially exploration costs, by 50 per cent, from $10 to $5 a barrel, while at the same time finding enough new oil to start replacing BP’s depleting reserves in 1994.
Accurate forecasts of oil prices had become impossible after 1986. For the first time, prices were varying during a cycle of boom and bust. Conscious that the oil majors had invested too much during the 1960s, Browne pondered the revolutionisation of the industry’s finances. The new challenge was to balance the cost of exploration and production with the potential price of oil five years later. Oil companies, Browne knew, could only prosper if the cost of exploration and production matched market prices once the crude was transferred from the rocks to a pipeline. The yardstick for BP, the measure of future success, would be to equal Exxon, the industry’s most efficient operator. Exxon’s net income per barrel – the income divided by production – was about one third of BP’s. In costing all new projects, Browne ordered that regardless of whether oil prices were low or high, BP would only invest if profits were certain. With losses of £458 million in 1992, the new wisdom reflected BP’s plight. The corporation could not risk losing more money. If his plan was obeyed, Browne predicted, BP’s annual profits by 1996 would be $3 billion.
Predictions were also offered by McKinsey, which in 1992 forecast the atomisation of the major oil companies into small, nimble operators. The consultants foresaw excessive costs burdening the oil majors, restricting their operations. Too big and too expensive to run, they would give way to small private companies and the growing power of the national oil companies. By the end of the century, according to McKinsey, the Seven Sisters would shrink and their shares would no longer dominate the stock markets. Browne rejected that scenario, believing that only the majors could finance the exploration and production necessary to increase reserves. He would be proved partly wrong. Although the oil majors’ capitalisation in 2000 was 70 per cent of all quoted oil companies (McKinsey’s had predicted that their value would fall below 35 per cent in the stock markets), Browne was underestimating – albeit less than his rivals – the resurgence of nationalism. The national oil companies were increasingly relying on Schlumberger, Halliburton and other service companies and not the majors to extract their oil. But, fearful of excessive costs, he was attracted by McKinsey’s formula to replace BP’s conventional management structure. To a man interested in the dynamics of the industry but not in the minute detail of ‘what you had to do after you bought your latest toy’, the idea of establishing competing business units answerable to a chief executive was appealing. By contrast, Exxon had neutralised individual emotions and relationships to standardise the response to every problem and solution. Depersonalising employees to serve BP’s common purpose, Browne believed, would be self-destructive.