Royal Dutch Shell Group .com Rotating Header Image

The Sunday Telegraph: Sunday business comment: BP should find a way to keep Browne

EXTRACT: Precedents have been set recently. In May arch-rival Royal Dutch Shell relaxed its retirement age for one executive director and many believe a similar decision will allow Jeroen van der Veer, the company’s 58-year-old chief executive, to stay on beyond 60.

THE ARTICLE

By Sylvia Pfeifer, Deputy City Editor
(Filed: 23/07/2006)

City fears mount on successor to Browne

‘When did you last see the word ‘old’ used as a positive attribute for anything other than works of art or bottles of alcohol? This is an issue of prejudice against individual men and women whose active, useful lives are brought to a premature, and wholly unnecessary, end. The waste is shocking, and the prejudice is intolerable.”

That is what Lord Browne of Madingley, the chief executive of BP, said in a passionate speech about mandatory retirement ages in London earlier this year. The speech struck a chord with many people because his attack on “the cult of youth” in Britain’s boardrooms seemed so at odds with the stated policy at his own company. The oil major’s mandatory retirement age of 60 means that Browne, a youthful 58, is due to leave the post he has already occupied for 11 years in February 2008.

Browne has been careful not to connect his personal views about age discrimination to his own situation. In a recent appearance on Desert Island Discs he made it clear that he thinks there comes a time when it is right to hand over to a younger generation. Publicly, BP also maintains that nothing has changed in its succession planning. A new chief executive – chosen from five internal candidates – will be at the helm by February 2008.

But although it would be unprecedented for BP to change its mind at this late stage, I am not so sure the current situation is in the best interests of its shareholders. In his stewardship of BP, Browne has repeatedly set the industry agenda and kept his rivals on their toes. He forged the merger with Amoco in 1998 and is among the few Western oil executives to have achieved real success in Russia, through the company’s TNK-BP joint venture.

More important, however, is the sense of unfinished business at the oil giant. At a time when the industry is at a strategic crossroads – among other things, oil majors are under pressure to find more reserves and seek alternative sources of energy – BP needs someone with real leadership and conviction. To be fair to Browne’s five potential internal successors, it is not easy to shine when working in the shadow of a chief executive of his calibre. Even so, it is difficult to imagine any of them filling his shoes today.

Time is also beginning to run out: if BP wants to give a CEO-in-waiting the chance to work himself into the job, BP will have to announce Browne’s successor six to 12 months before the handover date. In other words, this time next year we should know who will take the helm.

Like all executives at BP, Browne is on a one-year rolling contract, so if the board were minded to act, it could do so. If it needed a reason for the change of heart, it could point to new age discrimination legislation that comes into force in October and will ban enforced retirement before 65.

Precedents have been set recently. In May arch-rival Royal Dutch Shell relaxed its retirement age for one executive director and many believe a similar decision will allow Jeroen van der Veer, the company’s 58-year-old chief executive, to stay on beyond 60.

Last year a special chairman’s committee of non-executive directors decided to keep on BP’s chairman, Sir Peter Sutherland, for a further three years, until 2008. By that time he will have been chairman for 11 years. The move was billed as an attempt to ensure an orderly succession at the top of the oil company. The extension did not contravene corporate governance guidelines because they do not stipulate the length of tenure for chairmen.

Some of BP’s leading shareholders are understood to be receptive to the idea of Browne staying on but they are unlikely to take the lead on an issue of this scale.

No board should adhere to convention for the sake of it. Directors must consider their fiduciary duty to do the best for their shareholders, and if that means allowing Browne to extend his retirement age, then surely the board can come up with enough reasons to explain why holding onto the services of its successful chief executive is the right thing to do.

royaldutchshellplc.com and its sister websites royaldutchshellgroup.com, shellenergy.website, shellnazihistory.com, royaldutchshell.website, johndonovan.website, shellnews.net and shell2004.com are all owned by John Donovan. There is also a Wikipedia article.

Comments are closed.

%d bloggers like this: