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BOB HORTON MAY HAVE `AMERICANIZED' BP TOO WELL
Robert B. Horton was fond of telling his senior executives that the key challenge of the 1990s was "managing surprise." By that test, the 52-year-old chairman and chief executive of British Petroleum Co. came up short. He was whipsawed by volatile oil prices and slow worldwide economic growth, leaving Britain's largest industrial company reeling. But Horton's fatal blind spot, it now appears, was his failure to realize that his closest colleagues had turned against him.
Horton's stunning resignation on June 25 was the result of a rare British corporate coup. Interviews with BP insiders reveal that Horton was ousted by a solid front of BP executives and outside directors. Like former Soviet President Mikhail Gorbachev, Horton waxed eloquent about perestroika and the "revolution" he was leading to shake up the hidebound bureaucracy at the world's third-largest oil company. Yet he failed to deliver financially. And insiders say he had an imperious manner that undermined his stated aim of encouraging dissent and initiative. Horton declined to comment.
Horton's dismissal came at the hands of a 17-member board made up of a who's who of international industry. It includes banker Lord Ashburton (formerly known as Sir John Baring); Carl Hahn, chairman of Volkswagen; and Charles F. Knight, chairman of Emerson Electric Co. The board quickly separated the functions of chairman and CEO: the former goes to Ashburton in a nonexecutive role, the latter to David A. G. Simon, who had been chief operating officer.
HIGH-HANDED WAYS? Sources say the nine outside directors were galvanized by numerous secret discussions since at least early February with Horton's fellow executives. The directors were presented with mounting evidence of morale problems, brought on by financial pressures and layoffs. The executives were increasingly agitated by, as one claims, the "unpleasant and undiplomatic" manner in which Horton would deal with them, including niggling phone calls at all hours. BP directors declined to comment.
In Cleveland, home of BP America Inc., formerly known as Standard Oil Co. (Ohio), a big round of cutbacks was announced the day before Horton quit. Recent executive departures included not just its British chairman, James H. Ross, who left for the top job at Britain's Cable & Wireless PLC, but its refining and marketing boss, John G. McDonald. In the London office, executives openly circulated memos spoofing Horton's management style, including one that referred to his desk chair as "a Napoleonic throne."
The most substantive row, say several insiders, was over Horton's insistence on maintaining the company's annual dividend payout of $1.7 billion despite a cash-flow crunch. In meetings with senior officials, Horton would routinely brush aside arguments that the dividend should be shaved in order to strengthen the balance sheet. The battering the stock has taken--down 13% since his resignation--suggests that investors now fear the dividend will be cut.
Horton's fall is a far cry from the late 1980s, when he returned to London from Cleveland. His turnaround of Sohio, coupled with earlier successes in BP's tanker and chemical units, catapulted him to the top job. Two years ago, he embarked on a radical plan, called Project '90, to wake up BP. Horton was hell-bent on "Americanizing" a head office mired in committees and paper-pushing. "We needed someone to shake us out of the doldrums," says a former executive. Horton's dream: to create no less than "the model corporation for the 21st century."
`NEW BALLGAME.' Yet what worked in Cleveland hasn't in London. Part of it is cultural resistance. "It was a whole new ballgame for BP," says Frank E. Mosier, retired vice-chairman of BP America. But critics say a big part of the problem was poor execution. "There was a lot of talk about empowerment," says one insider, "but it turned into a conflict between what was said and what was done."
Of course, BP's financial problems complicated Horton's task. BP is saddled with the legacy of a $16 billion spending spree in 1987-89. The money flowed to gain control of Sohio, purchase North Sea producer Britoil PLC, and buy back a big chunk of BP stock from the Kuwait Investment Office. For a company that is tilted heavily toward exploration and production earnings, low oil prices have been a disaster. First-quarter 1992 earnings plunged 82%, and BP's debt-to-equity ratio is an onerous 85%.
Within days of Horton's departure, BP announced new efforts to conserve cash. Ironically, many of them come from a strategic review launched earlier by Horton himself. BP is retrenching in the U.S. and may put its filling stations and two refineries outside the Midwest and Southeast on the block. Overall, capital spending is being slashed from last year's $8 billion to no more than $5 billion a year in 1993 and 1994. If oil prices rise, any extra cash will be used to pay down debt.
As with any oil company, the key is finding more oil than you are producing--something BP hasn't excelled at. With its core Alaskan and North Sea assets declining, new CEO Simon will face huge pressures to marshal his scarce resources in productive areas. The big bet now is Colombia and the deep water of the Gulf mf Mexico.
Meantime, Simon will need to buck up his troops. On June 29, he sent a message to all headquarters employees, stressing the importance of "teamwork." Horton had used the same word himself many times before. Now, Simon will have to show he means it.Richard A. Melcher in London, with Zachary Schiller in Cleveland