I had some difficulty, initially, adjusting to the rather rigid conventions and protocols that governed the daily life of senior managers and had evolved around lifetime employees who spent much of their lives as expatriates. In many respects it resembled the Foreign Office, with a civil service ethos, a strong sense of collective identity, and shared experiences in exotic parts. There was little sense of individual risks and rewards.
Nothing captured the spirit of the times better than the lunch-time mess for senior managers above a certain grade – almost all men and all white – near the top of the Shell Centre. Other ranks shared a cafeteria in the basement. Conversation in the mess was usually animated and always about the company. Managers talked about financial ratios and the beauties of the management matrix with a fervour that most men reserve for football. The former geologists, chemical engineers and accountants at the apex of the company generated excited, awestruck gossip as if they were pop stars. I was amazed, but also impressed, that the company could inspire such total devotion from its staff. A year after I joined, however, the mess was scrapped in a move to break down the rigid caste hierarchy, the first step towards converting ‘old’ Shell into ‘new’.
The other key element in the corporate culture was the extraordinarily complex management structure and a system of interlocking regional and functional committees through which decisions were made. While this system provided checks and balances, it generated a top-heavy, expensive layer of middle management, later to be severely culled, and an aversion to rapid, risky, entrepreneurial decisions. The coexistence of tiers of management in both British and Dutch headquarters added to the complexity and the scope for office politicians rather than entrepreneurs to dominate.
The way in which the company maintained a business dynamic was by devolving a great deal of autonomy to the operating companies around the world. The head of Shell Australia or the Nigerian production operation was an immensely powerful figure, and while decentralization allowed business talent to emerge it also generated self-contained baronies whose mistakes were difficult to counter. Some subsidiaries, like Shell Oil in the USA, were almost entirely autonomous (which became a source of embarrassment when Shell Oil joined an Exxon-led coalition to dispute the science of global warming). The experiences of the company, and of other big multinationals, in relation to localism have considerable relevance to the (often simplistic) arguments about decentralization in UK politics. The exact balance between target-driven centralization and uncoordinated decentralization is, in practice, a very difficult one to strike, and Shell agonized over it throughout my time there.
I was lucky to be given a couple of assignments that introduced me to the top management. One was to prepare a presentation for the committee of managing directors on carbon taxes, working with the then chief economist, DeAnne Julius. Two things were striking about this project. The first was that a decade before British politicians started debating environmental taxes and global warming seriously, a company located a few hundred yards from the House of Commons was anticipating how to respond to that debate. The second was that – contrary to the popular, environmentalist, depiction of oil companies as dinosaurs resisting change – the response I received was that, properly designed, such taxes were a sensible and reasonable way to change behaviour and were compatible with the company’s long-term aims, which included a switch from high-carbon coal and oil to gas and, eventually, to hydrogen.
The second task was advising the current Shell chairman, Jeroen van der Veeren, and his boss, Maarten van den Bergh (later chairman of Lloyds Bank), then both rising stars, about the future of Shell’s businesses in Africa, many of them hanging on in strife-torn countries. These two individuals epitomized the best of Shell managers: extremely bright and hard-working, with an ability to think quickly and clearly both about practical, humdrum business issues and about the big picture. There were real dilemmas. The most chaotic and dangerous countries often provided the best business opportunities, since other companies were reluctant to take the risk of operating there. There was also a tension between the wish to stick with a country in bad times and to build a reputation for reliability and loyalty to local staff, and worries that the group’s overall reputation would be tarnished by association with a brutal regime or a local partner with low environmental or ethical standards. These dilemmas were to be at the centre of work I later carried out in the group in relation to Nigeria after the execution of Ken Saro-Wiwa. My own instincts, reflected in my advice on Africa, were when in doubt to stay rather than run.
The main focus of my work in group planning was to help prepare a set of global scenarios: different stories about how the world might evolve over the next twenty years. For months our eclectic team of Shell insiders and multidisciplinary outsiders would argue and brainstorm not just about energy but about politics, economics, demographics, science and anything else that might shape the future. The freedom to think and explore ideas was remarkable: everything that universities and think tanks are supposed to be but usually aren’t. Paradoxically, a private company had managed to create, better than in any public enterprise I have encountered, a genuine collective in which a group of diverse and generally brainy people could work as a team, generating shared ideas, and in which the whole was substantially bigger and better than the parts.
For a very disparate group to gel and produce valuable conclusions appeared, superficially, miraculous, akin to assembling a troupe of monkeys and typewriters and discovering the works of Shakespeare. But there was actually method in the madness. The corporate world, and Shell in particular, has developed techniques of brainstorming that enable groups to transcend the egos of individuals and the passing ephemera of daily news. It is a pity that government and the world of politics are so resistant to the discipline of organized group thinking.
The basic structure of that particular global scenario exercise in the early 1990s – there have been several since – consisted of two archetypal stories about the future, neither predictions nor forecasts but plausible descriptions of the way the global business environment and energy markets might evolve: these to be used for the testing of business decisions. One of the scenarios, New Frontiers, described a post-Cold War world in which the forces of liberalization and globalization would be unleashed with unprecedented intensity. In this world, dominant new economic superpowers, China and India, would very rapidly (in historic terms) open up and become the economic centre of gravity of the world economy, balanced in part by those (mainly Anglo-Saxon) bits of the developed world that could adapt. The focus on the Asian giants now seems rather commonplace, but fifteen years ago it was counter-intuitive and rather alarming to executives with a rich-world or Eurocentric perspective. Equally uncomfortable, and also prescient, was the idea that brutal competition and global capital markets would expose all the cosy, protected, profitable businesses and relationships on which a multinational company like Shell depended for its profit.
The other story, Barricades, also described a world of globalization and liberalization, but one in which the forces of reaction would fight a strong rearguard action, bringing to the surface the politics of identity: resource nationalism in Russia and the Middle East, religious fundamentalism, and hostility towards immigrant workers and foreign investors. All of these elements are instantly recognizable today, though they were less obvious then, and they provided a basis for challenging the group’s managers with the question: ‘What would you do if …?’
Since Shell is a (mainly) oil and gas company, the real interest of the work centred on what we had to say about energy. Here, what worried the company was the challenge of continued very low oil prices: a $10 per barrel world in which oil became like coffee, superabundant with new supplies constantly driving down the price. Such a picture, which loomed large in our storytelling, may seem bizarre after a year in which oil prices passed $140 per barrel and with venerable experts talking about ‘peak oil’ and growing worries about energy security. Nonetheless
, there is a compelling logic to it which is worth resurrecting as an antidote to today’s conventional wisdom.
Essentially, markets work in the energy sector as elsewhere. A period of high prices sets in train a market-driven response, in the form of more fuel-efficient vehicles and industrial processes, and a greater emphasis on conservation. At the same time, higher prices create incentives to explore further and produce in what were formerly uneconomic areas, like the North Pole and the deeper waters off the continental shelf. Shell’s analysis showed that there were vast supplies of unconventional oils, in Canada and Venezula, which, when developed, would put a ceiling on the crude oil price in the long term. The concept of ‘the world running out of oil’, which was fashionable in the 1970s and has become so again now, was regarded as, in practical terms, bordering on the ridiculous. The only problem with the above argument is that the market processes take a long time to work through; it took a decade or so after the first oil shock in 1973/4 to reach a negative oil shock of falling prices. But it is a useful antidote to those who in current circumstances advocate energy policies on the assumption that prices will remain at high levels indefinitely. Indeed, in 2009 prices collapsed.
This immersion in the world of scenario planning took me to a variety of countries where Shell had actual or potential interests, to work with local management teams in applying this methodology to their businesses, in Brazil, Singapore, South Africa, Italy, Indonesia and, most interestingly and rewardingly, in the three big emerging economies of China, India and Russia. On the Chinese study, I was paired with a forceful Dutchman who was convinced (rightly as it turned out) that nothing could stop the juggernaut of Chinese economic expansion and that Shell should proceed at full steam to invest large sums in establishing a presence in the country. Although less informed, it was my role to be a critical foil, to point out the risks and difficulties of doing business in China. The Chinese did my work for me when they arrested a young female graduate from our Shanghai office, with whom I had been working quite closely, and charged her with espionage. After she had been in prison for several months, it was established that one of Shell’s prospective business partners – a powerful state corporation – in a proposed chemical complex at Nanhai, near Guangzhou (Canton), had used its influence in Beijing to secure the arrest and was in effect using blackmail to achieve negotiating concessions. I never found out what price was paid and in what form, but the unfortunate employee was in due course released. Such was the natural caution of senior management that it took some years to clear the Nanhai project. I am told that the business in China is now growing strongly.
I was able to play a more important role in relation to India. On the strength of my research and contacts there, I was recognized as one of the few people in Shell with any background on India at all. The perception of India among the senior management in the early 1990s was very negative. They saw the country as chaotic, corrupt, unfriendly to business and generally hopeless. These perceptions had, of course, an element of truth, though conditions were, and are, improving rapidly. The general negativity had been heightened by a recent experience in Shell’s one major venture in India, a chemicals joint venture (NOCIL) with the Mafatlal family. It was discovered that there was a large hole in the accounts, which appeared to be explained by payments to Indian politicians. Within twenty-four hours of the discovery Shell withdrew from the joint venture, reflecting the group’s puritanical approach to business corruption.
Nonetheless, an energetic, young, recently appointed Indian general manager tried to revive interest, and I was asked to prepare India scenarios. I was sent on a reconnaissance visit with a managing director, the future chairman Mark Moody Stewart. Interest in things Indian revived, helped by a substantial oil discovery in speculative exploration drilling in Rajasthan. A variety of projects – refinery, natural gas terminal, gas pipelines – were seriously discussed. However, Indian national sensitivities around the oil industry combined with Shell’s conservatism to prevent progress. But a substantial business is now being established in India. There has also been what must rank as one of the worst business decisions in modern times, when Shell sold off its Rajasthan oil well to a small Scottish exploration company, Cairn Energy. Cairn was subsequently able to realize two hundred times the value of the assets that Shell had accepted on disposal and has become a major oil company on the back of this single transaction. A mistake that would have sunk a small company went largely unnoticed in Shell.
The third exercise, on Russia, was the most challenging. Russia has vast reserves of gas and substantial reserves of oil, though much recent production has been wasted, feeding the energy-greedy heavy industry of the Soviet Union, and capacity has been badly degraded by communist management methods and lack of access to modern technology. The collapse of the Soviet Union and the prospect of a democratic Russia emerging under Yeltsin raised the possibility that Russia’s gas and oil reserves might be opened up, an opportunity that whetted even the most jaded appetite among upstream oilmen. But the anarchic conditions in Russia were forbidding. I visited Moscow several times to meet Russian politicians and the new generation of liberal economists – Chubais, Illarionov, Yasin – who were trying to create a capitalist economy from scratch, and I consulted Western Kremlinologists, like my former head of department in Glasgow, Alec Nove, who had spent a lifetime analysing the weaknesses of the Soviet system. In trying to get a sense of the potential economic trajectory of the former Soviet Union, I looked at other catastrophic collapses like the fall of the Austro-Hungarian empire after 1918, and in the event this proved remarkably similar to what has happened in Russia. From such a tenuous basis and similar guesstimates of production, my colleagues and I were able to construct a picture of future Russian oil and, more particularly, gas exports, which has proved remarkably accurate, although it seemed implausible at the time. We constructed stories about the future of the former Soviet Union based on different assumptions about the relative strength of centripetal and centrifugal forces. Out of this work emerged a strategy, reasonably resilient to a range of uncertainties. Compared with BP, Chevron and others, Shell moved cautiously. The aim was to concentrate on peripheral regions like Sakhalin Island where the reach of central government was least likely to be felt. In the event, however, even this strategy offered no protection once Putin’s increasingly self-confident and nationalistic government had started to flex its muscles.
The work, while interesting, was not all-absorbing and I was able fight the 1992 election in Twickenham without testing the patience of my Shell colleagues too badly. After four exhilarating years at Shell I had come to the end of my contract; and at Chatham House I was able in under two years to distil into print a large volume of work based on ideas developed at Shell and earlier: a book on globalization; another on China and India; a paper trying to capture the international dimensions of the rapidly evolving telecoms industry and the Internet; and numerous papers on trade policy and regional integration issues. Chatham House was not particularly well run and had the feel of an institution that had known better times. But it was a pleasant place to work: marvellously well connected, full of interesting people, and operating in the interesting terrain connecting academia and the world of policy. I became a minor celebrity in the field of international economic policy and, having accepted that I was unlikely ever to make it into Parliament, or to the top of any career ladder, I settled into an agreeable way of life, writing, reading, conferring and spending as much time as I could with Olympia.
I also made time to produce a pamphlet on the politics of identity for the new Demos think tank founded by Martin Jacques, the former editor of Marxism Today. Martin was a stimulating companion and encouraged me to write regularly for the Independent, of which he was deputy editor. He and Geoff Mulgan, the first director of Demos, were among the best and most creative political brains around at a time when an intellectual framework was being created for what all assumed to be a certain change of government. At Martin’
s house I met Tony Blair informally for the first and only time, his exuberant manner and easy charm making deep inroads into the assembled group, which I judged to be in varying stages of conversion from revolutionary socialism. A few days later I was invited to a meeting with Blair and the New Labour insiders and I had the Third Way explained to me, rather as if I was attending an Alpha course as a born-again social democrat. Unfortunately I was recognized as a Lib Dem, and when it was established that I was not there as a penitent convert, invitations ceased.
Out of the blue I received an invitation to go back to Shell as chief economist, and although Chatham House had been good to me, it took me only a few seconds to agree. Although the Shell job was not academically prestigious, it offered a unique opportunity to work on economic problems with the top management of one of the world’s largest companies. I had developed a flair for communicating complex ideas simply and seeing the links between economics and the practical problems confronting business managers, and they would make good use of me.
I made an early impact with a monthly note I was required to prepare for the external board, executive managing directors and other senior staff, tackling the issue of the ‘curse of oil’. There are some straightforward explanations for the fact that resource-rich countries so often fail economically. Their real exchange rates become overvalued, choking off other export and import activities. The economic ‘rent’ from resources is easily dissipated. With a few exceptions – Canada, Australia, Norway, Malaysia, Botswana – most resource-rich countries have wasted their wealth. What I thought to be rather obvious was shocking and alarming to colleagues whose lives were devoted to producing oil and gas. I think the ensuing debate helped persuade some of them to think more deeply about the policy environment of the countries in which they operated, and not to take refuge in protected physical and psychological enclaves. Nigeria was a test case.
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