Posted by: bmeverett | July 18, 2012

“Private Empire” by Steve Coll (Part 2)

Let’s continue our discussion of Steve Coll’s new book “Private Empire: ExxonMobil and American Power.” My basic theme is that Mr. Coll does some excellent story-telling, but much of his analysis is implicit and confused. Let’s consider the basic issue of how a corporation should behave in contemporary American society. Mr. Coll offers the following anecdote as a powerful illustration of ExxonMobil’s irresponsibility.

Once, at an industry meeting in Washington, an executive present asked [ExxonMobil CEO Lee] Raymond whether Exxon might build more refineries inside the United States, to help protect against potential gasoline shortages.
“Why would I want to do that?” Raymond asked, as the executive recalled it.
“Because the United States needs it… for security,” the executive replied.
“I’m not a U.S. company and I don’t make decisions based on what’s good for the U.S.,” Raymond said.
… it seemed stunning that a man in Raymond’s position at the helm of an iconic, century-old American oil company, a man who was a political conservative friendly with many ardently patriotic officeholders, could “be so bold, so brazen.”

Business Week starts its review of Mr. Coll’s book with this story, which BW calls “startling.” The reviewer goes on to say, “You’d expect a Big Oil chieftan to be ruthlessly profit-minded, but to the point of putting profits ahead of country?” OK, let’s think about this for a moment. First of all, what is ExxonMobil? It’s a corporation owned by several million shareholders, not all of them Americans, who have entrusted their money to ExxonMobil management to provide them a return. Many of ExxonMobil’s shareholders are rich people, but most of the shares are held by pension funds and mutual funds in the retirement accounts of average people. The top five ExxonMobil managers own about 0.1% of the stock. What right do ExxonMobil executives have to take money which does not belong to them and use it for purposes they consider more patriotic?

Take, for example, a UPS driver delivering books ordered from . We would certainly expect him to follow all the traffic laws in making his deliveries. We would expect him to stop and render aid if he witnessed an accident. Suppose, however, that someone asked him to donate the books he was carrying to a VA hospital for wounded veterans? Would that be an act of patriotism? Sounds more like theft to me. It’s a bit odd to argue that giving away other people’s money is socially responsible.

If Mr. Raymond agreed with the anonymous executive that ExxonMobil should build additional refineries to reduce the chances of US gasoline shortages, he would be agreeing to use his shareholders’ money for the benefit of everyone else. Not only would the new refineries he built not earn a return, their construction would reduce the return (already meager) on the other refineries the company owns. If the public needs protection against gasoline shortage, why shouldn’t the burden of that protection fall on consumers in general, say in the form of a government-funded strategic gasoline reserve? Why should one private company be expected to undertake that action with its shareholders’ money?

Our normal structure for funding public goods is taxation. Both corporations and individuals pay taxes to allow government to undertake functions that the private sector cannot. We don’t build infrastructure by asking UPS to build roads.

Mr. Coll’s anecdote tells me more about the anonymous executive than it does about Mr. Raymond. Too many corporate executives today treat their shareholders’ money as their own and seek public accolades by spending the money on politically popular activities rather than investments to earn returns for their investors. That view, not Mr. Raymond’s, is the irresponsible one.


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