The Seven Sisters
The Great Oil Companies and the World They Made
Anthony Sampson
Hodder and Stoughton, 1975, ISBN 0 340 19427 8
Chapter 9 - Part 1
Sisters Under Stress
If this international institution did not exist it would be necessary
to invent one.
-- J. E. Hartshorn, 1962
By the end of the 'sixties, in spite of the opposition of OPEC and
the competition from intruders, the seven sisters were still the
dominant powers in world oil. Between 1960 and 1966 their share of
oil production outside North America and the Communist countries, had
actually gone up from 72 to 76 percent, leaving only 24 percent for
all other companies. (See Edith Penrose: The International Petroleum
Industry, London, 1968, p. 78.) Their profits, whatever their
protestations to OPEC, and despite the falling prices, were still
huge compared to most other industries. The rate of return of most of
them was higher in 1966 than it had been in 1960 (Penrose: p. 146),
and the companies were able to finance most of their exploration,
their tanker fleets, refineries, tank farms, trucks and
filling-stations, together with their expansion into the lucrative
new business of petrochemicals, out of the profits of their crude oil
abroad. The companies could and did argue with OPEC that this
expansion was essential to create a market for the oil which would
otherwise be unsellable. But the remarkable fact remained that these
seven had built themselves up into some of the biggest corporations
in history primarily through the ownership of concessions in
developing countries, and predominantly in the Middle East.
They gave every appearance of permanence and stability, with their
self-perpetuating boards and bureaucracies and their evident ability
to survive two world wars and countless revolutions across the
continents. Their engineering achievements commanded the awe of
governments and publics. Great refinery complexes rose up along the
coastlines, with their grotesque skylines of strange shapes --
spheres, towers, and cylinders interwoven with twisting pipes and
surrounded by white tanks -- which looked like giants' kitchens which
had outgrown any human fallibilities. They seemed to mark the triumph
of technology over man. The whole style of the corporations, grown
smoother and more confident over the decades, suggested a lofty
superiority to all governments. It was hard to remember, behind all
this grandeur and hardware, that they all rested, like upside-down
pyramids, on the most perilous political base.
The anatomy of these strange industrial organisms has often baffled
the economists, as well as the politicians, who looked into them. J.
E. Hartshorn, analysing them in 1962, had described how they appeared
to live on an imaginary island -- 'the Shell Company of Atlantis'.
The companies have frequently seemed to inhabit a no-man's land
between the defined areas of governments and business -- an
impression increased by the strange lifestyle of the oil executives,
who seem hardly to touch ground between their international
adventures. The detachment from national governments has, as we have
seen, been an important part of the political justification of the
companies, as the 'buffers' between nations, performing what
Hartshorn calls 'the business in between'. (J. E. Hartshorn: Oil
Companies and Governments, London, 1967, pp. 375-388.) They can make
their long-term investments across the oceans with both greater
resources, and greater insulation from political pressures, than the
national governments at both ends.
The Western governments, in Washington, London or the Hague, largely
accepted the advantages of this detachment. In Washington, as we have
seen, it suited the State Department to separate the foreign policy
of the oil companies from their own, particularly concerning Israel.
In the Foreign Office in London, the diplomats at the 'oil desk' were
told not to interfere with the commercial policies of the great oil
companies, which did such wonders for the balance of payments; and
the disaster of the Suez adventure was an object-lesson in the
dangers of governments trying to intervene without being asked. Shell
were able to point out that they were able to do business in Cairo
soon after the Suez War, while the British diplomats were still
thoroughly non grata. Likewise after the Six-Day War of 1967,
American oil executives could boast that they were still very well
received in the Arab countries, while diplomats from the State
Department were quite unacceptable. Even in Paris, where the French
government had long regarded the chief oil company, CFP, as its
chosen instrument, the oil executives became increasingly separate
from the Quai d'Orsay.
The appearance of neutrality encouraged the oil companies to treat
governments cavalierly, and to present themselves as the guardians
not only of the security of the West, but of the peace of the world.
Yet this neutrality was always illusory: as soon as they were in
fundamental difficulties, like Aramco in wartime or BP in 1951, they
would fly to their governments for help. And despite the companies'
posture as the fearless champions of adventurous free-enterprise, it
was sometimes the governments who pushed them into their exploits: as
the State Department pushed the companies into Iraq in 1920, or into
Iran in 1954.
Looking back on the history of their industry, American oilmen are
prone to use the well-worn simile 'It was like Topsy, it just
growed'. Certainly the growth of the industry was so rapid, so
unpredictable and accidental, that it was beyond the control of any
man or group of men to plan it or circumscribe it. The black fluid
seemed often to be itself the real master, spurting up and subsiding
from bleak corners of the world, teasing the West by its combination
of indispensability and maddening inaccessibility. But the companies
were not quite like Topsy. From the beginnings, when the chaos of
Pennsylvania led to the order of Rockefeller, the industry was
controlled, first by one master, then by several, taking very
deliberate decisions. And later the Western governments, though
reluctant and often incompetent, intervened at a few decisive moments
of history to change the whole balance of the business -- as they
were soon to intervene once again.
Between times, inhabiting their no-man's-land, the companies could
claim with some justification to have become uniquely
internationalised, with their world-wide affiliates, their polyglot
managers, and their consciousness of politics everywhere; Exxon could
boast of being the first multinational, and Shell of its
cross-postings between nations. But the fact remained that their
shareholders were predominantly American and British; and their
boards represented only their own country -- and a small segment of
that. They may well have believed that they were dispassionately
representing not just their own interests, but the world's; but the
whole environment in which they worked and lived was dominated by the
need for home profits, with minimal taxation. The rapidly changing
face of the developing world had found very little reflection in the
upper hierarchy of the great companies which had elected itself over
the decades. As Professor Penrose put it in 1968: 'the deeper root of
the problem is simply that international firms, including the oil
companies, have not yet found a way of operating in the modern world
which would make them generally acceptable as truly international
institutions.' (Penrose: p. 263.)
And however much the more enlightened company-men might see
themselves as carrying the burdens of the whole world, they were not
accountable to any body that could judge their performance. As
Rockefeller and Standard Oil in the nineteenth century had become
bigger than individual states of the Union, so these giant companies
had become larger and richer than most national governments. They had
romped across the world, ahead of most other multinational
corporations, and way ahead of any effective international authority
or regulation. For some observers, this simply meant that they were
the forerunners of world government. They would stimulate global
organisations as a counterweight to their own power, rather perhaps
as Rockefeller had stimulated the Federal counterweights in
Washington a century before. But such an organisation was clearly a
long way in the future. In the meantime the great companies -- if
they were serious about their unique international burden -- had a
unique responsibility to provide their own counterweights, to show
themselves honestly to the rest of the world, and to play the part of
economic statesmen, as well as pursuers of profits.
Exxon
The seven companies shared these same international opportunities and
limitations, as they had grown up together, with their network
ofjoint ventures and consortia closely interlocked. But each of them
saw the world with a different perspective, influenced by its own
needs to sell or buy oil; and each still bore the marks of its own
history, and lived partly in 'the long shadow of its founder'.
Two of the sisters, Exxon and Shell, still dominated the world's oil
as they had done for the past fifty years. In the oilfields they kept
on coming together in their global quadrille, whether in the Iranian
Consortium, or in the North Sea. But at the selling end they competed
with visible intensity, the yellow signs of Shell and the red signs
of Exxon or Esso staring at each other from filling-stations across
the world. They still in some respects had opposite outlooks, dating
back to their very different sources of oil.
-------------
World's 12 largest manufacturing corporations ranked by assets in 1972
Rank Company Assets ($000) Sales ($000) Rank
I* Exxon 21,558,257 20,309,753 2
2* Poyal Dutch/Shell 20,066,802 14,060,307 4
3 General Motors 18,273,382 30,435,231 1
4* Texaco 12,032,174 8,692,991 10
5 Ford 11,634,000 20,194,400 3
6 IBM 10,792,402 9,532,593 7
7* Gulf 9,324,000 6,243,000 12
8* Mobil 9,216,713 9,166,332 8
9 Nippon Steel 8,622,916 5,364,332 17
10 ITT 8,617,897 8,556,826 11
11* BP 8,161,413 5,711,555 15
12* Socal 8,084,193 5,829,487 14
* Indicates one of the seven sisters. Source: Fortune Magazine, May
and September, 1973.
[Search and replace 4 spaces with tabs and you should be able to
format the table properly. - KA]
The organisation that Rockefeller established a century before had
long ago expanded into a self-perpetuating managerial corporation.
The three thousand senior executives were systematically recruited
from the universities, earmarked and watched for promotion: they
climbed up through the escarpments of managers and 'co-ordinators',
towards the plateau of the Main Board, and the five-man Executive
Committee. Planning was no longer a question of hunches. Forecasts
for long-term supply and demand were compiled each year in the Exxon
Green Books. Once a year, in October, came the exhaustive budget
review, which involved more money and longer forecasting than the
budgets of most countries where Exxon operated. First the Economics
and Planning Department gave its overview, country by country. Then
the functional co-ordinators gave their budget breakdowns; followed
by the production co-ordinator, the refinery co-ordinator, the
transportation co-ordinator and the marketing co-ordinator. Finally
the Investment Advisory Committee weighed up the demands, and passed
its findings to the Executive Committee, who decided.
The chemical engineers still came up through the refineries to join
the board or become chief executives, in a steady progression. Monroe
Rathbone gave way in 1965 to another engineer, Michael Haider, and
Haider gave way in 1970 to Ken Jamieson, the Canadian from Medicine
Hat, who was now really an honorary Texan. The rule of the engineers
was not surprising in an industry which invested so hugely in
hardware -- rigs, platforms, refineries, pipelines. But their
overwhelming predominance on the Exxon boards -- as on other oil
boards -- was also a reflection of the distorting effects of
taxation. Ever since the oil companies had achieved their relief from
U.S. taxes in 1951, on top of the earlier relief through the
depletion allowance, they had adjusted their internal accounting to
take as much profit as possible 'upstream' -- from producing crude
oil abroad -- on which they paid no U.S. taxes; rather than
'downstream', from selling oil products to customers. And they were
easily fooled by their own accounting into supposing that downstream
did not matter.
Selling oil was regarded less as a source of profits, than as a
problem of finding 'outlets': the attitude was revealed in the word
itself, and in the multiplication of filling-stations, duplicating
themselves along the freeway ('they seem to be born in litters',
complained Harold Ickes). The indifference to 'downstream' profits
was reflected on the board, where the marketing men lost caste over
the engineers, with much less say on policy decisions (as in the
disastrous 1960 decision to reduce the posted price). The ascendancy
of the engineers seemed assured so long as the profits from crude oil
were secure. But once they were threatened by OPEC, the imbalance
became very dangerous; for the companies desperately needed to find
profits downstream, with little expertise to help them. It was one of
the oddest facts about these giants, with all their resources and
commercial instincts, that they were not very good at selling oil.
But the more serious and evident weakness of the Exxon engineers was
their lack of international perspective. Only one member of the
board, 'Pete' Collado -- who had been Acheson's economic adviser at
Bretton Woods -- had experience of international diplomacy; and after
the retirement of Howard Page in 1970 Exxon had no real oil
statesman. The self-perpetuation of the board, their separation from
their shareholders -- including the Rockefellers -- made the
possibility of adapting more difficult. Their character -- as Richard
Funkhouser had warned twenty years before -- was becoming dangerously
like a dinosaur's. As Exxon became more exposed to politics, both in
the Middle East and Washington, so its lack of world outlook became
more evident. As one former Exxon executive, now in government, put
it to me: 'they won't solve their problems until the Rockefellers or
the Chase Manhattan intervene, to put in a chief executive who
understands world politics.'
Exxon, like many other multinationals, is full of the rhetoric of
global responsibilities; it likes to stress that it serves not only
its American shareholders but all the nations where it operates. In
some respects an international outlook is forced upon them, for the
heads of their big subsidiaries abroad, of Esso Europe or Esso Japan,
have considerable bargaining power. But their global outlook is
severely limited, not only by their shareholders, but by the
narrowness of their board, and their ultimate sense of dependence on
the U.S. government. Exxon have seen themselves as spreading American
ideals, as they revealed in a famous passage in their annual report
in 1962: 'the public statements made by our managements, our written
communications, and our advertising, seek to emphasise the benefits
of free competitive enterprise and private international investment.'
Exxon were still inclined, when in trouble abroad, to look for help
to Washington, to wield the 'big stick'. Their clumsiest blunder was
in their dealings, not in the Middle East, but in Peru. Their
subsidiary there, called the International Petroleum Company, or IPC,
had been in dispute with the Peruvian government ever since 1918,
when they cut off oil supplies through their tankers to enforce their
terms. By the 'sixties, with the new government of Belaśnde, the
argument became more bitter, with the Peruvians insisting on a share
in the company and back payments of taxes. Exxon stood firm, and
invoked the support of the State Department, who in 1964 began
withdrawing aid from Peru for two years to exert pressure. Washington
later relented, but in the meantime the IPC issue had become more
explosive, taken up by the left-wing opposition. When eventually in
1968 Belaśnde announced a settlement over the IPC question, the issue
helped to trigger off a military revolt, and the coming to power of
the new junta, which swiftly nationalised the IPC properties. Exxon's
alliance with Washington had done nothing to help their own
interests; and had served to discredit the Peruvian elite. (A.J.
Pinelo: The Multinational Corporation as a Force in Latin American
Politics, New York, 1973, p. 18.)
In the Middle East, Exxon had come to be regarded as the leader of
the American companies or, when the consortia were in dispute, as the
mediator between them: Ken Jamieson saw himself in a more
conciliatory role than his predecessor, Michael Haider. Exxon had now
been involved in the Middle East for fifty years, had seen Kings and
Sheikhs come and go, new countries invented, economies transformed.
With their continuous history, and their great resources, they were
in a unique position to take the long view of the future, to prefer
long-term stability to short-term quick profits. But in the events in
the following chapters there was little sign of such statesmanship.
When they saw the age of concessions coming to an end, they could not
resist hanging on to them till the last moment, with their huge
profits. When threatened, they ran once again to Washington.
Mobil
The old Rockefeller companies are still sometimes called by their
critics 'The Standard Oil Group'; and the Rockefeller family still
owns shares in the three Standard sisters: 2 percent in Exxon, 1.75
percent in Mobil, 2 percent in Socal. But they have each developed in
different directions.
Mobil was for long regarded as Exxon's little sister, dependent on
her bigger rival both for advice and for oil -- for Mobil had always
been hungry for crude. In the pre-war years their association was
close: for thirty years from 1930 the two companies had a joint
subsidiary called Stanvac which sold oil in fifty countries abroad,
until it was broken up by anti-trust action in 1960. But since then
Mobil has become apparently independent, and in 1966 it dropped the
last hint of its Standard Oil origins, changing its name from
Socony-Mobil simply to Mobil. And it has emerged as the most
aggressive, and in many ways the most sophisticated, of the American
sisters; proudly associated with New York, much concerned with
communications and image, subsidising the TV 'Masterpiece Theatre'
and advertising relentlessly about the problems of oil.
In 1969 Mobil acquired a chairman and chief executive, Rawleigh
Warner, who was determined to assert Mobil's independence. He is an
aristocrat of oil, with the looks of an old-fashioned film star and a
Princeton education. His father was the head of an independent oil
company, Pure 011, and he first joined another independent,
Continental, when it was expanding abroad, before he moved over to
Mobil. He astonished the oil world by appointing as President a man
from right outside the old Wasp tradition of the oil boards; a
lawyer-accountant called Bill Tavoulareas, the son of a Greek-Italian
butcher from Brooklyn, whose name few oilmen could pronounce. 'Tav'
was already a phenomenon within Mobil; an irreverent, fast-talking
numbers-man who had the crucial Rockefeller talent for lightning
mental arithmetic. Like other Greeks in the oil business he had an
instinctive global awareness. (The Greeks had traditionally been the
diplomats in the old Ottoman Empire, dealing with Arabs on behalf of
their Turkish masters.) He was a forthright Brooklyn boy, outspoken
and impatient with the slow style of the company. As Mobil became
more dependent on the Middle East consortia, particularly Aramco, so
Warner decided that there was only one man in Mobil who could really
understand the accounting well enough to hold his own with the Exxon
expert, Howard Page: he thus promoted Tavoulareas to be Middle East
negotiator. Tav would then explain to his Mobil colleagues, when
battling with Exxon: 'this is what they want, this is how they'll try
to get it, and this is how we'll stop them'; and he did.
Tavoulareas is now widely regarded as the ablest of the major oilmen.
He sits in shirt-sleeves, talking at top speed, blinking, twitching
and staring, running to the telephone like an imp let loose; saying
gimme and lemme, whadda ya want. In the Middle East, Tav was
determined to increase Mobil's share, and was much more prepared to
consider new partnership arrangements, which antagonised the other
sisters, but also brought him closer to the producers; and he formed
a close friendship with Yamani in Saudi Arabia. But Mobil was always
in the minority, and while it was more open-minded than most, more
inclined to explain its problems, it lacked any really far-sighted
policy about the future of oil.
Gulf
Over in Pittsburgh, the headquarters of Gulf convey the unique
character of the company, a huge self-contained family firm. The
great stone skyscraper with its high lobby in the grand style of the
late 'twenties, like a tomb, evokes a sense of calm permanence.
Beside the entrance is an office of the Mellon Bank, and all round it
other skyscrapers have risen up -- the aluminium tower of Alcoa, the
black cross-cross shape of U.S. Steel, the palace of Koppers -- all
Mellon companies. The word Mellon is blazoned round the city, from
banks, from a gallery, from a university -- while on the freeways the
orange Gulf signs outnumber all other names. The scene makes the
point; that Pittsburgh, Gulf and the wealth of the Mellons have grown
up together, since the family first financed Gulf seventy years ago.
The Mellons kept much bigger holdings than the Rockefellers, and they
still rival the Rockefellers in wealth. By 1973 the Mellons still
held over 20 percent of the shares in Gulf -- an astounding chunk of
the tenth biggest American corporation -- and there were two
representatives on the board: Jim Walton, a grandson of William
Larimer Mellon, and Nathan Pearson, the family's investment adviser.
The Mellon influence may have been critical in achieving Gulf's
biggest coup, when Andrew Mellon helped to get half the oil from
Kuwait. Andrew's nephew, Richard King Mellon, 'the General', later
dominated Pittsburgh and kept a close eye on the companies (when
asked what he did for a living, he said 'I hire Company Presidents').
But his sons are not interested, and Paul Mellon, now the head of the
family, long ago fled to Virginia, where he hunts and collects
English water colours.
Gulf still has many Pittsburgh qualities, including its proud
conservatism. But the real roots of the company management are not in
Pennsylvania but in Texas: in Gulf too the top executives have nearly
all come from the South West. E. D. Brockett, who became chairman in
1965, began as a roughneck in Crane, Texas; Bob Dorsey, who succeeded
him, was a chemical engineer at the University of Texas; Jimmy Lee
who became President under him, began his career at Port Arthur. And
the sources of the company's great wealth has been first Texas and
second Kuwait. Since Gulf first struck oil in Kuwait in 1937 they
floated to greater and greater profits on its oil, hectically trying
to find new outlets for the flood. The Pittsburgh executives could
never quite come to terms with this strange alliance with a tiny
territory at the other end of the world. They took most of their
political advice from their partners BP, who gave them patronising
lectures on how to deal with the Arabs. They tried to escape from
their perilous dependence. They invested heavily in Angola, only to
find it a much more dangerous territory, a battleground between black
and white. They moved into coal and nuclear energy; they bought an
insurance company (CNA), an industrial centre in Florida, and a whole
new town outside Washington called Reston. But they never had another
bonanza to compare with Kuwait, and in the meantime, as we will see,
they were caught up in political scandals over their bribes to
foreign governments.
Socal
Two of the American sisters, Socal and Texaco, have remained
bracketed together in the minds of the others for the past forty
years, as the outsiders of the industry, the terrible twins, the
people who always say no. Their close association began when Socal
invited Texaco to join them in their Saudi-Arabian adventure in 1936,
and they formed a joint marketing company called Caltex, to transport
and sell the oil through the world -- until in 1967 the joint company
was broken up in most of Europe. The two companies, with their long
experience together and with their Far-Western attitudes, still have
much in common, most of all a stubborn resistance to change: though
like many hawks, as we will see, they have tended to switch suddenly
from total intransigence to total capitulation.
Over in San Francisco, Socal makes a positive cult of conservatism:
'this', one of the officials boasted to me, 'is a very stuffy
company.' On the eighteenth floor, the directors are served by
reverent black flunkeys and timid secretaries: it is only in the last
few years that Socal has allowed women secretaries. The board has
been peopled with engineers from California and Texas, and much of
the company's business has always been done by the local law firm of
Pillsbury, Madison and Sutro, whose former senior partner, James
O'Brien, an anti-trust expert, now sits on the board. An important
influence on the company, too, has been the former head of the CIA,
John McCone, a shareholder in Socal, whose relationship with
government has been shrouded in mystery. The chairman from 1966 was
Otto Miller, a chemical engineer from Michigan who had planned the
great Ras Tanura refinery in Saudi Arabia, and later took charge of
the Eastern Hemisphere. A stolid Republican and backer of Nixon, he
was always suspicious of the liberals in the East.
Behind all the confident Californian facade, the company's prosperity
has been built on a single country 10,000 miles away. Ever since it
first found oil in Saudi Arabia, its dependence has steadily
increased, so that by the 'seventies half its oil came from its share
in Aramco. Once it flowed, the main problem was to find outlets, and
to minimise taxes by intricate arrangements of transfer pricing
within its subsidiaries, at which Socal is specially expert. In all
its dealings abroad, it has been obsessed by this Arabian jackpot,
reluctant to share it with any new partner, whether from the West or
the East. In the late 'sixties George Ball, the former Democratic
Under-Secretary of State who became a director of Socal, advocated
that in view of the political dangers of the all-American ownership
of Aramco, European companies should be permitted a share. But Miller
would not consider it, and soon afterwards Ball -- who was also very
critical of President Nixon -- was not reappointed a director.
[continued: Texaco]
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