ExxonMobil Corporation

ExxonMobil is a colossus. In 2010 it had revenues of $370 billion and net income of $29 billion. To put
this in perspective, it had five times the sales of Microsoft; its profits equaled the total sales of Nike. It
paid $89 billion in taxes, a sum exceeding the combined revenues of Microsoft and Nike. ExxonMobil
employs 84,000 people, most in the 143 subsidiaries it uses for its operations. Its main business is
discovering, producing, and selling oil and natural gas, and it has a long record of profiting more at this
business than its rivals.

The company cannot be well understood apart from its history. It descends from the Standard Oil Trust,
incorporated in 1882 by John D. Rockefeller as Standard Oil of New Jersey. Rockefeller was a quiet,
meticulous, secretive manager, a relentless competitor, and a painstaking accountant who obsessed over
every detail of strategy and every penny of cost and earnings. He believed that the end of imposing order
on a youthful, rowdy oil industry justified the use of ruthless means.

As Standard Oil grew, Rockefeller’s values defined the company’s culture; that is, the shared assumptions,
both spoken and unspoken, that animate its employees. If the values of a founder such as Rockefeller are
effective, they become embedded over time in the organization. Once widely shared, they tend to be
exceptionally long-lived and stable.' Rockefeller emphasized cost control, efficiency, centralized
organization, and suppression of competitors. And no set of principles was ever more triumphant.
Standard Oil once had more than 90 percent of the American oil market.

Standard Oil’s power so offended public values that in 1890 Congress passed the Sherman Antitrust Act
to outlaw its monopoly. In 1911, after years of legal battles, the trust was finally broken into 39 separate
companies.’ After the breakup, Standard Oil of New Jersey continued to exist. Although it had shed 57
percent of its assets to create the new firms, it was still the world’s largest oil company. Some companies
formed in the breakup were Standard Oil of Indiana (later renamed Amoco), Atlantic Refining (ARCO),
Standard Oil of California (Chevron), Continental Oil (Conoco), Standard Oil of Ohio (Sohio), Chesebrough-
Pond’s (a company that made petroleum jelly), and Standard Oil of New York (Mobil). In 1972 Standard
Oil of New Jersey changed its name to Exxon, and in 1999 it merged with Mobil, forming Exxon Mobil.

The passage of time now obscures Rockefeller’s influence, but ExxonMobil’s actions remain consistent
with his nature. It has a centralized, authoritarian culture. Profit is an overriding goal. Every project must
meet strict criteria for return on capital. ExxonMobil consistently betters industry rivals in its favourite
measure, return on average capital employed.

Unlike Southwest Airlines or Google, where having fun is part of the job, performance pressure at
ExxonMobil is so intense that it “is not a fun place to work.”? As Rockefeller bought competitors, he kept
only the best managers from their ranks. Today managers at ExxonMobil face a Darwinian promotion
system that weeds out anyone who is not a top performer. “We put them through a big distillation
column,” said a former CEO, and “only the top of the column stays there.” And oil industry competitors
still find it a ferocious adversary. The company says simply that it “employs all methods of competition
which are lawful and appropriate.”

Although ExxonMobil is a powerful corporation, it is no longer the commanding trust of Rockefeller’s era.
As in the old days, its power is challenged and limited by economic, political, and social forces. Now,
however, these forces are more levelling.

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Markets are more contested. ExxonMobil pumps only 8 percent of the world’s daily output of oil and
controls less than 2 percent of petroleum reserves. These figures are far lower than in the 1950s when
Exxon was the largest of the Seven Sisters, a group of Western oil firms that dominated global production
and reserves, including the huge Middle East oil fields. Now its largest competitors are seven state- owned
oil companies, often called the new Seven Sisters, whose output dwarfs that of today’s privately owned
companies.’ The biggest, Saudi Aramco, is 3.5 times the size of ExxonMobil in daily crude oil output and
has 32 times its reserves. The rise of these state-owned companies reflects a new form of nationalism,
one that rejects reliance on foreign firms to exploit natural resources.

ExxonMobil is on a treadmill, constantly searching for new oil and natural gas supplies to compensate for
declining production in existing fields. Output from a mature field drops 5 to 8 percent a year. To maintain
profitability the company pursues new reserves wherever they are, taking political risks and abiding unrest
and corruption. Iran and Venezuela have expropriated its assets. In Indonesia, government troops guard
its facilities against attacks by rebel forces. In Chad, Angola, Nigeria, and Equatorial Guinea, it has paid
dictators for access to oil.

Governments are more active and relations with them, ranging from high-level diplomacy to mundane
regulatory compliance, are more complex than in the past. In 2003 the company engaged in a high-stakes
game of political intrigue trying to purchase Yukos Oil Company. Yukos was a technologically backward
Russian company that controlled oil and gas deposits in Siberia so huge they would double ExxonMobil’s
reserves. ExxonMobil wanted it badly and offered $45 billion to the Russian Capitalists who owned it.
Their leader was billionaire Mikhail Khodorkovsky, a political rival of Russia’s President Vladimir Putin.
Khodorkovsky promised ExxonMobil that he would use his political influence to clear the deal, but when
its top managers met with Putin he was guarded and said, “These details are for my ministers. You must
deal with them.” Soon, Khodorkovsky’s private jet was mysteriously delayed from taking off at a Siberian
airfield and boarded by masked police, who arrested him on charges of fraud and tax evasion. He has been
in jail ever since. Yukos soon merged with a state-owned oil company managed by one of Putin's close
allies.

In more ordinary ways, webs of law and regulation dictate ExxonMobil’s operations in each country where
it does business. In the United States alone approximately 200 federal departments, commissions,
agencies, offices, and bureaus, only a handful of which existed in Rockefeller’s day, impose rules on the
company. If the founder were alive, he might find this tight supervision unrecognizable—even incredible.
For example, in 2009 the company paid a $600,000 fine to settle charges that 85 migratory birds in five
states died of hydrocarbon exposure after landing in production and wastewater ponds. It agreed to a
$2.5 million bird protection program. It will put nets over ponds and install electronic systems that turn
on flashing lights and noisemakers when they detect incoming flights of birds.

ExxonMobil also faces a demanding social environment. As a leader in the world’s largest industry, it is
closely watched by environmental, civil rights, labor, and consumer groups—some of which are actively
hostile. For years the company agitated environmentalists by rejecting the scientific case for global
warming. Alone among major oil companies, it refused to make significant investments in renewable
energy. Its former CEO called such investments “a complete waste of money.”

In 2006 a new CEO, Rex Tillerson, tried to blunt criticism by granting publicly that the world is warming.
But he made no changes in strategy. A group of John D. Rockefeller’s heirs, believing that ExxonMobil no
longer represented the “forward-looking” spirit of its great founder, wrote to Tillerson, welcoming him as
the new leader and requesting a meeting. He would not meet with them. Subsequently, 66 Rockefeller

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descendants signed an initiative calling on the company to convene a climate change task force. The
company refused to talk with the family members, who held only 0.006 percent of its shares.

Besides using ethanol blends in gasoline, ExxonMobil’s major investment in alternative energy is a $600
million research project to make biofuels from algae. That investment pales in comparison with its $27
billion in capital and exploration expenditures in 2009 and a $30 billion project nearing completion to
liquefy and ship natural gas from Qatar.

As a corporate citizen ExxonMobil funds worldwide programs to benefit communities, nature, and the
arts. Its largest contributions, about 50 percent of the total, go to education. Other efforts range from $68
million to fight malaria in Africa to $5,000 for the National Cowgirl Museum in Fort Worth, Texas. In 2009
ExxonMobil gave $196 million to such efforts. This is a large sum from the perspective of an individual.
However, for ExxonMobil it was seven-hundredths of 1 percent of its revenues, the equivalent of a person
making $1 million a year giving $7 to charity. Does this giving live up to the elegant example of founder
John D. Rockefeller, the great philanthropist of his era?

The story of ExxonMobil raises central questions about the role of business in society. When is a
corporation socially responsible? How can managers know their responsibilities? What actions are ethical
or unethical? How responsive must a corporation be to its critics?

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