The Ghost of John D.
"I get the feeling that the five of you are like Saudi Arabia," Sen. John D. Rockefeller IV (D-W.Va.) fumed to the CEOs of the world’s five largest oil companies on Capitol Hill on May 12. "You’re caught up in your profits, you’re highly defensive, and you yield on nothing. You’re deeply and profoundly committed ...
"I get the feeling that the five of you are like Saudi Arabia," Sen. John D. Rockefeller IV (D-W.Va.) fumed to the CEOs of the world's five largest oil companies on Capitol Hill on May 12. "You're caught up in your profits, you're highly defensive, and you yield on nothing. You're deeply and profoundly committed to sharing nothing."
"I get the feeling that the five of you are like Saudi Arabia," Sen. John D. Rockefeller IV (D-W.Va.) fumed to the CEOs of the world’s five largest oil companies on Capitol Hill on May 12. "You’re caught up in your profits, you’re highly defensive, and you yield on nothing. You’re deeply and profoundly committed to sharing nothing."
So it continued at the hearing on a Democratic proposal to repeal tax breaks for the oil industry, a venerable ritual in Washington at times of high gas prices. Democrats on the Senate Finance Committee railed about Big Oil’s outsized profits, tax breaks, high prices, and failure to contribute to society. Republicans defended the companies just as fervently, arguing among other things that the proposed legislation would worsen the country’s economic malaise. None of it was new, save for a certain poetic symmetry: The hearing took place almost 100 years to the day after the Supreme Court handed down its decision in Standard Oil Co. of New Jersey v. United States, the ruling that created the oil industry as we know it today and set the tone for the climate of paranoia and suspicion that has hung over Big Oil ever since. And there was no small irony in Rockefeller’s turn as inquisitor: His great-grandfather, the most famous oilman of all time, had been at the center of the dispute — and on the opposite side of it.
In its May 15, 1911, opinion, the court wrote that Standard Oil had come by its hegemony "not as a result of normal methods of industrial development, but by … excluding others from the trade, and thus centralizing in the combination a perpetual control of the movements of petroleum and its products." Such a judgment was a long time in coming for Standard, the company that John D. Rockefeller, a Cleveland refinery owner and former produce trader, had built over the space of four decades into the world’s first gigantic multinational company. Anger had built for much of those years over his underhanded attempts to drive rivals out of business and capture 90 percent and more of the U.S. market. But it finally came to a head after a 24-month investigative series by a writer named Ida Tarbell in McClure’s Magazine starting in 1902. Tarbell’s stories described kickbacks that Rockefeller arranged with railroads, effectively forcing his rivals to subsidize Standard’s business. Almost as soon as he took his oath of office, President Theodore Roosevelt ordered a government investigation of the company. In 1906, the government filed restraint-of-trade charges against Standard.
The Supreme Court ruling forced Standard to break itself up into 34 companies, producing today’s Exxon and Chevron and no-longer-extant companies such as Mobil, Amoco, and Unocal. But in a sense, the breakup came too late: The basic DNA of the industry had already been set. Alone among the personalities and industrial creations of the Gilded Age, Rockefeller and Standard Oil have continued to loom over their industries, and the global economy, into the 21st century. The most successful among Standard’s heirs — ExxonMobil — routinely reports the highest profit of any commercial enterprise on the planet, a feat it has achieved by explicitly observing many of Rockefeller’s practices: the accumulation of big cash reserves, highly disciplined spending, centralized and methodical decision-making, and brilliantly engineered and executed complex projects. The public, meanwhile, has largely forgotten the Supreme Court case, along with the specifics of the charges, but not the sentiments underlying the decision. Simply put, Americans are wary of oilmen — as are people in nearly every other corner of the Earth to which the industry has spread in the past century. "There’s a legacy of distrust," Paul Sankey, an oil analyst with Deutsche Bank, told me. "The industry was born of a PR disaster [and] has never shed the image."
Such a disaster was perhaps inevitable, given how widely Rockefeller’s views diverged from the U.S. government’s when it came to his business. Although memorialized as an archcapitalist, Rockefeller believed that Adam Smith’s invisible hand was nonsense, a creation of "virtuous academic Know-Nothings about business." The unbridled free market was a "sinking ship," he told his biographer. Rather, he believed in "cooperation," as he called his collusion with railroads and like-minded oilmen. In general, Rockefeller believed that flat-out capitalism was fatally chaotic and acted accordingly, variously buying out and crushing his rivals to the best of his ability.
But much of the legacy of distrust was baked into the character of Rockefeller himself, and the unflattering — though not entirely unjust — caricature of the contemporary Big Oil CEO owes plenty to him. In The Prize, oil historian Daniel Yergin describes him as "solitary, taciturn, remote, and ascetic." Before his late-life turn to philanthropy, Rockefeller seemed all but unknowable — he was visionary, granite-willed, and fanatically exacting, but he was also a sphinx in his public and private dealings, possessing a manner that revealed little of his thoughts. John Hofmeister, the former president of Shell’s U.S. subsidiary, suggests that one reason that the legacy of Rockefeller’s less appealing aspects tends to dominate in the public mind is the solitary characteristic of which Yergin spoke — "a lackadaisical attitude or sustained remoteness toward the consumer and general public," Hofmeister says.
When it came to BP’s then-CEO Tony Hayward, it was the suggestion of a Rockefellerian mien that made the oil spill in the Gulf of Mexico last year a bigger PR disaster for the company than it had to be — the company was going to have to answer for the images of befouled beaches and wildlife no matter what it did, but not the images of Hayward at the yacht races or whining about wanting his life back. The attitude intertwines with another Rockefeller trait — stubborn self-assurance: "the sense conveyed by oil companies that it’s ‘my way or the highway’ when they set out to do things," Hofmeister says. How oil CEOs got this way is understandable enough — in a tough industry doing business in tough neighborhoods, "it has to do with oil companies being tough negotiators, especially over very high stakes," Hofmeister says. But such rough detachment plays differently in the 21st century from how it did in the late 19th.
Rockefeller would recognize plenty of his management style, too, in Exxon, the descendent of Standard Oil that most closely resembles its predecessor — and often explicitly goes out of its way to do so. Decisions at the company are made by a five-executive "management committee" and must be unanimous in order to go forward — a Rockefeller invention. "It’s the way John D. Rockefeller ran the company 125 years ago," Exxon Senior Vice President Michael J. Dolan told Yergin in 2009. "We still run the company that way." When one brings up the subject of Exxon over a beer with oilmen from other companies, it is usually met with a mix of anger and awe — anger at the arrogance often perceived in Exxon’s employees, and awe at their ability to outperform virtually everyone else in the game. These oilmen openly despise Rockefeller’s creation, but secretly crave to be part of it.
Big Oil’s Rockefellerian legacy has hurt it elsewhere in the world as well — and shaped much of the geopolitics of oil as we know it today. It was Chevron geologists who discovered oil in Saudi Arabia and neighboring Bahrain in the early 1930s, igniting the Middle East oil boom. The company and its peers grew into titans over the following three decades by riding the boom in Middle East production, and the CEOs of the companies began behaving accordingly. They traveled the world like leaders of countries, and were often received as such. These self-appointed sheikhs treated the actual leaders of these countries like lackeys; they also pursued negotiations with them by the winner-take-all Standard Oil playbook, setting the price that they would pay rather than bargaining with the resource owners equally. It was a recipe for seething resentment, and it came to a head in the 1970s, starting with the 1973 war between Israel and its neighbors. OPEC’s reaction to the war was to clamp an oil embargo on the United States. The cartel also initiated unilateral oil price increases and forced the oil companies to renegotiate ownership of their operations in the member countries. The end result was outright nationalization; Big Oil, which had pioneered the Middle East petroleum industry, was almost entirely frozen out of it.
Today, Big Oil has direct access to barely a tenth of the world’s known oil and natural gas reserves. The rest is controlled by the ministries and government-owned companies of the world’s petrostates, such as Saudi Aramco, the Saudi Arabian company that assumed control of the kingdom’s production once the foreigners were expelled. As a management style, Aramco adopted the Rockefeller model — tight management, the accumulation of cash, control of expenses — and earned a reputation as the cream of the crop of such state-owned companies. The oil majors, meanwhile, have been left scrambling for the crumbs; but for the nationalizations of the 1970s, Big Oil might not be pursuing risky prospects such as the extremely deep water of the Gulf of Mexico, where BP went disastrously wrong last spring.
Big Oil complains justifiably about this state of affairs. They say that state-owned companies will not drill as much oil as the market needs, but instead how much they need to sell in order to support their governments; most of the companies do not have cutting-edge technology or state-of-the-art efficiencies. There’s a certain justice, however, to the current geopolitics of oil. The oil industry may no longer be shaped primarily by Rockefeller’s heirs, but it is very much the world that they made. The state-owned oil companies are the new Rockefellers — and if they are unreasonably ruthless in their dealings with Big Oil, it’s because they learned from the best.
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