The Men Who Run BP

Published in Investing on 5 July 2012

What you need to know about the oil group's top executives.

In this series, I'm assessing the boardrooms of companies within the FTSE 100 (UKX). Management can make all the difference to a company's success and thus its share price.

My first piece looked at the board of Barclays (LSE: BARC) as it was thrust into the Libor rate-fixing scandal. Today I am looking at BP (LSE: BP), which dealt with its own major crisis, the Gulf of Mexico disaster, in 2010.

As BP manoeuvres and negotiates with the multitude of interested parties over the future of its Russian joint venture TNK-BP, shareholders will need to rely on a cool and collected board. BP's interest is estimated at around £20bn or so, a quarter of the company's market cap, and it accounts for 30% of BP's production.

Here are the key directors:

DirectorPosition
Carl-Henric Svanberg(Non-exec) chairman
Robert DudleyChief executive
Brian GilvaryChief financial officer
Ian ConnChief executive, refining and marketing
Byron GroteVice president, corporate business activities

BP has four full-time executive directors, in contrast to many FTSE 100 companies which have only two: CEO and finance director. In addition it has 10 non-exec directors, making a total board of 15. It includes two women: this series is barely mis-titled as 'The Men Who Run...'

Light-weight

Carl-Henric Svanberg became chairman on 1 January 2010. He is the former CEO of Ericsson and was seen by many as a relatively light-weight appointment. His predecessor, Peter Sutherland, was a former Irish attorney general and European Commissioner with an impressive CV of international business and NGO roles.

Svanberg was also criticised for his low-key involvement when the Gulf of Mexico disaster struck, and for additionally taking on the chairmanship of Volvo in his native Sweden at the end of 2011. Some analysts though it was a sign he would ease out of the BP role.

Bob Dudley took over the reins after Tony Hayward resigned in the wake of the Gulf oil spill. Hayward was seen by many as working to fix the excessive cost-cutting and dictatorial style that characterised the era of his predecessor, Lord Browne, which was identified as a root cause of BP's poor safety culture.

Dudley has been in post just nine months, so it's too soon to assess his performance. But it looks as if his tenure will be characterised by big deals. A veteran American oil man who has worked extensively in Russia, he was credited with boosting TNK-BP's output by a third while serving as its CEO. And he wasn't shy of confrontation. In the sometimes wild and dangerous world of Russian big money, he was forced to leave the country but ran the JV from abroad for five months.

Brian Gilvary is a career BP man, in contrast to most FTSE 100 finance directors who served time in the accounting profession. The other two executive directors have similar backgrounds. The non-execs have a mixed background in business (other than oil), finance and engineering.

I analyse management teams from five different angles to help work out a verdict. Here's my assessment:

  
1. Reputation. Management CVs and track record.

Svanberg may be lightweight for the job, Dudley is impressive.

Score 3/5

2. Performance. Success at the company.

Early to judge, but Gulf crisis resolution and Russian deal looks promising

Score 3/5

3. Board composition. Skills, experience, balance

Good mix of executive oil men and non-executive variety. FD not from the profession.

Score 3/5
4. Remuneration. Fairness of pay, link to performance.

Multimillion payouts last year for 'turning around company', but generally not seen as excessive.

Score 3/5

5. Directors' holdings, compared to their pay.

Executive directors all have substantial (£1m+) holdings

Score 4/5

Overall, BP's board scores 16 out of 25 for me, which I think will put it in the top half of the FTSE 100.

The chairman perhaps doesn't have the weight, or political connections, that a global oil company needs. That could be a problem if things get sticky in Russia. And it would be reassuring to have a conventional FD. But overall the board gives the impression of being a group of people who know how to run the business.

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> Tony does not own any shares mentioned in this article.

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Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

QuantumDealer 05 Jul 2012 , 9:54am

Re: Director's holdings - did they buy their stock themselves from cash earned or was their stock awarded to them? Big difference...

atalbot9 05 Jul 2012 , 10:30am

Would be interesting to see this for EMG - cannot foresee a promising score!

tru2me 05 Jul 2012 , 1:24pm

@atalbot, trouble is EMG is now in the FTSE 250, so it is unlikely Tony will review management at the hedge fund(s) in this series?

TRhere 05 Jul 2012 , 3:02pm

QuantumDealer,

Fair point - as they're mostly long time company men, I guess holdings have mostly been built up from awards over the years.. but there's a loyalty culture in that quite distinctive from many FTSE company boards. Personally I make a bigger distinction between just upside, through options and incentive plans etc, and skin in the game with actual shares held, however they were acquired. It's comforting to know the directors will actually lose money if shareholders do - and also it means they have holdings which they might sell if they see bad times ahead....

Tony R

ANuvver 06 Jul 2012 , 5:10am

I have been critical of Dudley's adventures in Russia before. He worries me. The figurehead of a big oiler should be as much about realpolitik as the specifics of the industry.

Internationalised commercial exploitation of a nation's resources is de facto a political game of the highest importance. Dudley may have great industry experience, but I'm not sure he has the necessary diplomatic instincts.

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