Private Empire: ExxonMobil and American Power

by Steve Coll

  Cohen’s public affairs colleagues digested the 2030 analysis into a series of PowerPoint slides and texts. After 2004, the forecast became the predominant topic of speeches and briefings delivered by ExxonMobil executives and managers around the United States and in Europe. ExxonMobil systematically scheduled private briefings with policymakers, background sessions at think tanks, talks at universities and colleges, presentations to Wall Street analysts, and speeches at economic clubs and chambers of commerce. The rollout had all the automated, charmless tone of other O.I.M.S.-influenced campaigns by the corporation—a tsunami of color-coded pie charts, bar graphs, and global maps, read out unemotionally by executives wearing dark suits. By placing ExxonMobil’s presentations, speeches, and lobbying briefs in a dense vernacular of statistics and economic forecasting, the 2030 campaign sought to reposition the corporation by eschewing political and ideological arguments that often provoked instant and emotional resistance from opponents. Instead, the corporation would let the facts, as ExxonMobil’s analysts conceived them, speak for them. “Realistic” and “reality check” became two of Lee Raymond’s favorite phrases as he presented and analyzed the 2030 forecast in public appearances.

  “I note that Raymond is no longer seeking to gainsay the science behind climate change,” Andrew Warren, director of the Association for the Conservation of Energy in Great Britain, wrote in frustration after sitting through one of the chief executive’s presentations in London, early in 2005. “Instead he simply predicts an endless rise in the demand for the fossil fuels his company sells, and maintains that there is nothing that can be done to alter that.”8

  This was, in crude summary, the judgment ExxonMobil sought to infuse through its elite-targeted education campaign. Hardly anyone outside of the industry truly grasped the gargantuan scale of global energy production. Titanic changes in the patterns of energy use over decades would be required to create even modest changes in fuel consumption patterns. ExxonMobil’s analysts did not downplay alternative energy’s prospects. They projected that solar, wind, and other rising alternative sources would grow very rapidly until 2030—by more than 10 percent per year. Yet, because of the concomitant increases in worldwide economic activity and population, at the end of the forecast period wind and solar would still make up only about 2 percent of total supply.

  Growth in oil consumption was inevitable, ExxonMobil’s analysts held, because the movement of large numbers of poor people into wealthier lifestyles was also inevitable, particularly in Asia. Did anyone seriously expect middle-class Chinese or Indians to fashion their lifestyles and buy cars any differently from how Japanese, Koreans, Germans, or Californians had done? The oil industry’s growth patterns would shift toward Asia, but the industry’s expansion and profitability seemed assured.

  ExxonMobil’s 2030 exercise suggested, by implication, the distinctive role that climate policy would play in oil’s medium-term future. The essence of the forecast’s message was that the development of the global economy and population ensured that oil production would rise. By midcentury, some breakthrough in battery technology or solar panel arrays might reduce the costs of those energy sources so radically that they could compete economically with oil and coal in free markets, but ExxonMobil’s in-house scientists did not believe such a breakthrough was conceivable before 2030. Until then, there was only one unexpected development, one “black swan” intervention that could shift the curve of rising global oil demand: a decision by governments to limit greenhouse gas emissions by heavily taxing or capping the use of carbon-based fuels.

  The ExxonMobil forecast numbers suggested that to make an impact on oil demand, the world’s governments would have to reach a unified conclusion that climate change presented an emergency on the scale of the Second World War—a threat so profound and disruptive as to require massive national investments and taxes designed to change the global energy mix. European governments had come closest to attempting such a policy, and ExxonMobil’s forecasters had figured Europe’s carbon pricing policies and alternative energy subsidies into the 2030 numbers. To reshape the global oil industry, however, the governments of China, India, the United States, and many other countries would have to adopt similar or even more aggressive carbon taxing policies. ExxonMobil’s planners concluded that this was highly unlikely, if not all but impossible; they predicted, therefore, that CO2 emissions would rise by an additional 30 percent worldwide between 2005 and 2030.

  The corporation’s forecasters assumed, essentially, that the world’s governments would lack the political will to tax fossil fuels heavily enough to force any big shift away from oil. The issue here was not whether the world had the technologies to forswear oil; it was whether governments, panicked about climate change, would intervene to change price incentives to favor clean energy, knowing that such an intervention might curtail overall economic growth, at least for a time. In August 2004, the Princeton University scientists Robert Socolow and Stephen Pacala published an influential article in Science that declared, optimistically, “Humanity already possesses the fundamental scientific, technical, and industrial know-how to solve the carbon and climate problem for the next half-century. A portfolio of technologies now exists to meet the world’s energy needs over the next 50 years and limit atmospheric CO2 to a trajectory that avoids a doubling of the preindustrial concentration. Every element in this portfolio has passed beyond the laboratory bench and demonstration project; many are already implemented somewhere at full industrial scale.” However, Socolow estimated that the technologies he and his coauthor had in mind—solar, wind, and nuclear power, among them—would require a carbon tax of about $100 per ton to be economically competitive fast enough to stabilize emissions before midcentury.9 For world governments to enact such a tax, or set equivalent caps on greenhouse gas emissions, they would have to be galvanized by deep fears about a warming world.

  Raymond continued to fund advocacy groups that promoted skepticism of mainstream climate science; he considered such funding just another example of the corporation’s possessing the courage of its convictions when others lacked them. ExxonMobil traded spots from year to year with Walmart as the largest corporation in the United States, by revenue, and its reach and influence continued to exceed that of many of the world’s midsize governments. Its employees, retirees, shareholders, and customers numbered in the millions. Lee Raymond did not believe, however, that ExxonMobil’s scale required it to act as some sort of consensus-building institution on matters of public policy.

  The criticism he received for funding anti-Kyoto groups was exaggerated, Raymond told a reporter. “The facts are you don’t have to spend a lot of money to aggravate the proponents” of greenhouse gas limitations. “We think we have a responsibility. If we think people are about to make some bad policy decisions that are going to have a big impact for a long period of time, somebody’s got to say something.”10

  William Freudenburg’s work as a sociologist at the University of Wisconsin touched upon environmentalism, law, and society. He had earned his doctoral degree at Yale University and had published over the years in academic journals on subjects such as risk assessment. “A funny thing happened to me one day when I picked up the telephone,” he recalled in an essay published in Sociological Forum in March 2005. “I learned something new about the mechanisms of corporate influence in science.”11

  As ExxonMobil appealed the punitive damages verdict imposed against the corporation by Alaskan jurors in the Exxon Valdez oil spill case, it funded a complex, quiet campaign to bolster its prospects. The effort unfolded in tandem with Ken Cohen’s 2030 forecast campaign and the corporation’s residual attempts to seed doubts about climate science. Freudenburg’s experience was distinctive in part because it offered a rare, contemporaneously documented account of the strategic analysis that undergirded ExxonMobil’s most subtle forms of campaigning to shape policy and ideas.

  One of the corporation’s executives telephoned Freudenburg to explore whether he mig
ht accept funding to develop an article about the impact of punitive damage awards on American society. “Naturally, we have a range of expert witnesses and so forth, but we find that it’s also helpful to have people working on articles that come out in academic publications,” the executive explained. “We’ve often worked with economists, for example. A lot of them feel that punitive damage awards are very inefficient, compared to other approaches such as regulation. . . . That’s a perspective we’re quite comfortable in supporting. But we’re exploring whether we might want to work with professors in publishing things from a few other perspectives, too.

  “Basically, what we’re exploring is whether it’s feasible to get something published in a respectable academic journal, talking about what punitive damage awards do to society, or how they’re not really a very good approach,” the ExxonMobil executive continued. “Then, in our appeal, we can cite the article, and note that professor so-and-so has said in this academic journal, preferably a quite prestigious one, that punitive awards don’t make much sense. . . .”

  Freudenburg scribbled notes; he decided that the details of corporate influence strategy he was absorbing might ultimately be more interesting than the commissioned consulting work ExxonMobil had in mind. He decided to string out the offer, not to undertake it, but to study its purpose.

  His handler continued: “Or maybe it could be something along the lines of how difficult it is to prevent these kinds of things [accidents like the Valdez wreck] under any circumstances. It’s a little like the Challenger. . . . The people involved weren’t really all that venal.”

  A few days later, Freudenburg spoke again with his ExxonMobil contact. He asked questions about how the corporation constructed its influence campaigns. He found that the ExxonMobil executive assigned to him “doesn’t come off at all like an ogre.” He was always careful to stress the corporation’s “interest in a rational approach.”

  Freudenburg asked how publication of an essay in an obscure academic journal that hardly anyone read could be of any help to a corporation as large and well resourced as ExxonMobil. The executive admitted that such work “wouldn’t do much good” with trial juries, who tended to reach their verdicts on a “nonfactual” basis. Once a case was appealed to panels of judges, however, the prospects to shape their thinking improved. ExxonMobil would submit a copy of the academic journal article with its legal briefs. “The judges themselves don’t usually read them, but often their clerks will read them . . . and quite a few of the clerks, nowadays, are pretty open to these kinds of arguments. . . . Quite a few of them now come out of a law and economics program or something like that. . . .

  “It’s possible to offer small amounts of support to academics who already show some tendency to express views that [ExxonMobil] finds congenial,” the executive said. In addition, “You can sponsor workshops and so forth, but that gets tricky. For one thing, once you get to that point, you pretty much have to invite both sides.”12

  Eventually, ExxonMobil submitted findings from this academic work to the United States Supreme Court to support its challenge to punitive damages arising from the Exxon Valdez spill. The decision ultimately went the corporation’s way and made important new law favorable to American businesses. David Souter, the Supreme Court justice appointed by President George H. W. Bush, joined in the majority’s opinion. In a footnote, however, Souter mentioned the social science evidence submitted by ExxonMobil. “Because this research was funded in part by Exxon, we decline to rely on it,” he wrote dryly.

  Lee Raymond turned sixty-seven years old in August 2005. He had spent almost forty-two of those years as an employee of Exxon and had served as ExxonMobil’s chairman and chief executive for a dozen years, a long run at the top by the timelines of corporate America; he was an informal dean of his oil industry class. When he was at headquarters in Irving, Raymond often ate lunch in the subdued formality of the alcohol-free Rockefeller Room with his most senior lieutenants, including, the two who were competing to replace him, Ed Galante and Rex Tillerson. When he traveled out of Texas, he flew on the Challenger Global Express designated as One Hundred Alpha and he lingered in Hawaii, Augusta, and Pebble Beach to play golf and relax. He and Charlene, his wife, were building a new home in Palm Springs, California, and they would soon acquire another home near Phoenix. The Raymonds remained highly private. A luxurious, subdued retirement now awaited them—if the corporation’s board of directors could persuade Raymond to take it up.13

  Some on the board felt they had struggled since 2001 to persuade Raymond that he had to take succession and retirement seriously. Raymond felt he had done so; he had set up a contest between Tillerson and Galante over the top job, a competition that Raymond told his board was entirely genuine—a close call. “It will be a few years before you are able to figure out how good they really are,” he had said when he first appointed the pair.

  By 2005, fearful of Raymond’s stalling, the board “communicated softly” with him that the directors felt that it was time to make a definitive move. The message they delivered was, “Gee, Lee, you’re now sixty-six.” Raymond understood their worry that he might become, as he quipped privately, “the next Sandy Weill,” referring to the banker who had hung on at Citigroup until he was seventy-three, finally retiring as chairman just two years before the bank nearly collapsed from imprudent bets on the American mortgage market. He assured them that he was ready to go. “Believe me, I will never be the new Sandy Weill.”

  He understood that he was plugging up career movement down the executive ranks, he told the board. He was less certain, he said, about which of the two finalists for his job the board should endorse.

  “Why don’t you just tell us who ought to do this?” James R. Houghton, a director who served as chairman at the international glass and ceramics maker Corning, Inc., asked at one board meeting.

  “I’m not sure that’s my job,” Raymond answered. “It’s the board’s job.”

  “But you’re the only guy who really knows them.”

  “I accept that point, but I am interested in any perspectives any of you have—and you have an obligation.”14

  It seemed clear to some within ExxonMobil and on the board that for all of Raymond’s achievements in financial management and corporate strategy, his Dick Cheney–like bluntness had become a liability. Worldwide scientific and engineering talent recruitment and retention as well as lobbying strategy in Europe and the prospect of a post-Cheney Washington all argued for a leader of ExxonMobil, after Raymond, who could maintain the same level of financial and operational discipline, but project a gentler, quieter, more modern and inclusive voice.

  It was not obvious which of the two finalists would be the better communicator. Galante had grown up in Queens, New York, and on the South Shore of Long Island. As he rose, he managed Exxon’s massive Baton Rouge refinery and later served as Raymond’s executive assistant in the years after the Exxon Valdez disaster—“the most thankless job in the world,” as a former Exxon executive put it, in part because as the chief operations officer on Raymond’s staff, Galante had to decide when to wake up the boss with news in the middle of the night. “Sometimes it’s not much fun to wake Lee up at four a.m.,” the former executive noted. As the succession contest solidified, Raymond appointed Galante to run the corporation’s worldwide downstream portfolio—massive refineries from China to the Middle East to the American South. Some visitors found Galante to be affable, outgoing, and comfortable in comparison with his rival, Tillerson. A Fortune reporter, Nelson D. Schwartz, went so far as to offer ExxonMobil directors advice in print as they approached their decision: “If either of the candidates to succeed Raymond can address the company’s tattered image . . . it’s Galante.”

  Tillerson drawled unabashedly. He was a lifelong Texan bred in its small towns, and as his wealth accumulated, he bought a ranch outside of Dallas. His office in the third-floor executive suite in Irving contained a “Frederic Remington-style sculpture of a horse,” which
struck Schwartz as part of a style that “might be called masculine not-so-moderne.” It was true that Tillerson was not one to toss around French terms. Yet he did seem comfortable in his own skin, relaxed, willing to hear different views. He was credible in industry circles but more accessible and less defensive than Raymond when addressing skeptical audiences.15

  How important were communication skills, anyway? The board was choosing a leader at an operations-focused, highly profitable corporation in an innately unpopular industry, not a game-show host. Raymond knew that his board worried chronically about ExxonMobil’s public image. Some of the corporation’s outside directors had come to ExxonMobil from liberal university campuses or industries such as retail sales or telecommunications, where a corporation’s public reputation was fundamental to the ability to attract customers. Raymond didn’t see ExxonMobil or the oil industry as comparable.

  “The facts are, with the exception of the service stations, everything we produce has no interface with the public,” Raymond told his directors at a meeting in Japan, as the internal evaluations of Tillerson and Galante neared their end. “Crude oil, natural gas, chemical products—the public doesn’t know where it comes from. The only interface we have is the service stations.”16

  The retail gasoline stations so ubiquitously visible and so familiar to Americans returned notoriously low profit margins to all large oil companies. If the goal of ExxonMobil was to have a better public reputation, Raymond continued, maybe it should consider getting out of the retail business altogether and become a lower profile, highly profitable industrial company, with visibility more comparable with a company like Dupont. The public and politicians became inflamed when ExxonMobil reported its gargantuan quarterly profits in part because many people thought those profits were extracted from their wallets at the retail gas pumps where they stopped to fill up twice a week. When they drove to and from work or to the grocery store, ExxonMobil signs blared at them from street corners, reminding them of the corporation’s presence—and of the rising price of gasoline. Rather than choosing a new chief executive whose job would emphasize the rehabilitation of ExxonMobil before that hostile public, why not just retreat from view?