Book Review — Private Empire: ExxonMobil and American Power

Posting this review now, it was mostly written the week of December 15th and I decided to upload that version without significant updates (so some honorific titles will reflect that) to portray my views from the book before Rex Tillerson became Secretary of State.

Two years ago I read Titan: The Life of John D. Rockefeller, Sr., the sharp and informative biography of Standard Oil's herculean rise and the life of the man who made it happen. Private Empire is a vivid, sprawling portrait of one of America's most important firms that in many ways illustrates that Rockefeller's puritanical drive and commitment to excellence, along with the controversy and apparent heartlessness that can lead to, has continued on in the companies left over after the breakup of Standard Oil.

With the recent nomination by President-elect Trump of Rex Tillerson to Secretary of State, this book became even more timely as a window into how large corporations interact with both the US and foreign governments to achieve their ends and how that might influence a Sec. Tillerson's running of foreign policy. A critical takeaway is that viewing ExxonMobil, and likely any corporation its size, as a monolithic entity that is 'good' or 'bad' is deeply flawed. And the assumption that they and the US government have aligned interests at all times is as well. Rather than looking to USA foreign policy as a guide, it is better to understand the past actions, current motivations, and overall culture of a company. This will give a better picture of how it's CEOs and others will act in other environments (what mindset are they bringing to a situation) rather than dragging in preconceived notions that may be wholly inaccurate.

Exxon Valdez helps set the stage for what is to follow.

In the spirit of painting a grand portrait of an American icon, Private Empire is also similar to Caro's spirited LBJ biography Master of the Senate, in that it lays out the past situations ExxonMobil was involved in throughout disparate geographical/historical parts of the world (in LBJ's case, the history of the Senate and the United States), (unintentionally?) builds up a near mythical view of Exxon (and later ExxonMobil) as this hard-charging, efficient, power-playing entity (akin to LBJ's storied in-your-face, back-room dealmaking) that must work with, around, or reform crusty institutions (Department of State and foreign governments for ExxonMobil, the Senate for LBJ) to help achieve a grand goal (profits and energy for ExxonMobil, legislation for LBJ). To this end, what might seem at first to be a hit-job type book aimed at showing how ExxonMobil is a shadowy corporate empire actually ends up making the reader vastly more sympathetic toward ExxonMobil, as you see it less as an unthinking, purely profit driven `evil' corporation and more as a mini country with various interest, high performing individuals, and other characteristics that contribute to its ability to further its existence and achieve specific ends.

In this manner, this book is excellent at showing the broad, complicate chessboard on which international corporations must play, especially those in the energy business like ExxonMobil, who must deal with hostile, ever-changing regimes in semi-failed states and under every-fluid geopolitical circumstances. But in another sense, this book has echoes of The Best and the Brightest, in that it appears that some of ExxonMobil's failures or missteps can be placed onto people, and a corporate culture, who are so obsessed with the prowess of engineering, mathematics, and systems (policy-, economic-, or engineering-wise) that they become inflexible to changing conditions, similar to what befell McNamara, George Bundy, Ball, Westomland, and others during the Vietnam War. From Tillerson's interviews, it appears that he subscribes to the engineers "let's solve this" mindset, which might cause a degree of concern should the Whiz Kids mentality seep over into areas beyond operations and management at the DoS.

In a way, the "and American Power" part of this book is less about showing how American Hegemony, in the governmental sphere, allows ExxonMobil to push smaller nations around in negotiation than it is about showing the limits of American (government) power. The mistrust that ExxonMobil has in the State in several countries, see portions of the book dealing with Nigerian piracy, may come into play once Tillerson takes the helm at State. This might come in the form of reforming State's position toward Africa, how it handles diplomatic relations with despots (treat them well, improve the wealth of their nation, and then push for reforms), and other likely areas where Tillerson saw ineffective State operations in the countries ExxonMobil had to deal with.

ExxonMobil is a global empire.

One policy area the book leaves unclear is what the true position of ExxonMobil is regarding the issue of human caused global warming or climate change (I will refer to the issue as global warming since climate change is a useless, deceptive term). In the books, it is mentioned that during the Kyoto negotiations, CEO Raymond openly advocated a position contrary to the United States's, something that may be kept in mind when Sec. Rex Tillerson is in office. This part of the book help illustrate very clearly how large multinational corporations, even those who are largely run by Americans, do not necessarily have the same interests as the government in whose jurisdiction they call home. Although, in more recent interviews/panels Tillerson has stated that ExxonMobil doesn't subscribe to Raymond's hardline stance (e.g. listen to his response at https://youtu.be/gj6cqbwfrYc?t=46m53s), but instead views it as 'risk management' situation: how do you mitigate the problem and develop contingencies in case the primary plan fails. In a sense, this is a refreshing change since Tillerson appears to be past the "OMG climate change! Cut all emissions!" or "Nothing to see here, just hysterics." views toward the "let's do a risk-benefit analysis and determine what the trade-offs are between mitigating the problem and adapting in case that fails". The later view will likely lead to Tillerson being better in negotiations with rapidly industrializing nations than a hardline, "this is non-negotiable" approach.

As mentioned before, Private Empire gives many hints as to the activities of ExxonMobil that lead it beyond the purview of US government policy. Case in point, the description of ExxonMobil's trials and tribulations in Indonesia is particularly enlightening, especially as it concerns the interaction between large corporations abroad, United States policy, and foreign governments. The murky interactions between Mobil, the rebels in Aceh, and the Indonesian government/military are at times concerning. There is a degree of "let's look the other way" that leads one to wonder whether Tillerson will be lenient toward companies working with enemies or unfriendlies of the USA so long as it doesn't directly harm national interests.

The Chad sage brought many interesting contractual and related details to light.

Another case is ExxonMobil and Chad, which was a particularly informative chapter especially as it related to corporations and their ability to outlast governments and how that changed their time horizons. Consider the following passage:

Exxon’s negotiators addressed this conundrum not just by negotiating for favorable royalties; they also inserted into the 1988 contract what was known in the oil industry as a stability clause. Article 34, entitled “Applicable Law and Stability of Conditions,” placed the terms of the convention beyond the reach of any Chadian law that might be enacted by any government of the future. The clause protected Exxon against political risk. That Exxon had the power to carve out rights trumping any future law passed by any future Chadian regime was perhaps not surprising in this instance; Exxon’s 1988 net profits of $5.3 billion exceeded by several times the size of Chad’s entire economy. Article 34.3 declared:  

During the term of this Convention the State guarantees that no governmental act will be taken in the future, without prior agreement between the Parties, against the Consortium which has the effect either directly or indirectly of increasing the obligations or amounts payable by the Consortium or which adversely affects the rights and economic benefits of the Consortium provided by this Convention. >

The language binding Chadians to Exxon’s “rights and economic benefits” was strikingly broad—it could even be interpreted to mean that future governments in N’djamena might be prevented from broadening civic freedoms or permitting unions to organize if such changes raised the oil consortium’s costs. More realistically, the stability clause provided a strong defense against any future Chadian coup maker’s inclinations to raise taxes on Doba oil production. The contract was unambiguous about the parties’ relative sovereignty: “In case of contradiction or inconsistency between this Convention and the laws and regulations of the Republic of Chad, the provisions of this Convention shall prevail, unless the Parties decide otherwise.”

Private Empire chapter 7.

The ability to structure contracts that explicitly state that a company is above the law of a sovereign nation is interesting and it would have been useful for the author to go into more detail about how these are enforced by ExxonMobil if regimes do change and how other companies, in oil and other industries, employ this strategy. It is mentioned later that ExxonMobil uses the guarantee offered by international courts to ensure these contracts, but how enforceable rulings there are sans independent police force or army is not fully clarified.

While the overall flow and tenor of the book is great, some of the wording is unnecessarily political or distracting, e.g. "As Democrats left federal office after George W. Bush’s disputed election" [emphasis mine]. However, given the authors apparent leanings and disagreements with ExxonMobil's position on such issues as human caused global warming, he remains even handed enough throughout to avoid putting readers off. The more dangerous issue, as this I currently have not had time to fully vet, is how much information Coll leaves out that would prevent readers from getting a clear assessment of ExxonMobil and its leaders.

The book's coverage of many aspects of the interactions between ExxonMobil and government leads to some noteworthy items. For example, a very subtle and point is brought up. Coll notes:

Also, as drilling boomed, Interior became the conduit for annual royalties that reached $23 billion in 2008, $17.3 billion of which was funneled to the deficit-burdened United States Treasury.7 This cash flow reinforced congressional complacency.

—Private Empire chapter 28.

This illustrates a subtle way that corporations can influence policy, by agreeing to pay large royalties or fees and then using that as leverage on Congress/the government should they want such easy money to continue flowing in. A similar discussion is brought up when Tillerson is trying to lobby for a carbon tax instead of a cap-and-trade system:

There is another policy option that should be considered, and that is a carbon tax. As a businessman, it is hard to speak favorably about any new tax. But a carbon tax strikes me as a more direct, a more transparent, and a more effective approach. . . . Such a tax should be made revenue neutral. In other words, the size of government need not increase. . .

—Private Empire chapter 25.

While it might seem counter-intuitive at first for a large corporation to advocate for a tax, the complex interplay of cost of regulatory compliance, estimation of costs on a long horizon, and other economic/political calculations can lead to non-obvious positions should one not know what the past history or future aims of a corporation are.

While the interaction between the US government and ExxonMobil receives a fair amount of coverage, there is a disappointing lack of discussion about ExxonMobil's direct interaction and partnerships with large, nationalized oil companies in Russia, Saudi Arabia (though the attempt by then Prince Abdullah to get natural gas running there and separate operations in Qatar is discussed), China, and elsewhere. Specifically for China, it would have been informative to get a clearer picture of what ExxonMobil's interactions were with that rising nation as it would better inform how Tillerson would potentially deal with them going forward. In contrast, the relationship between Putin and ExxonMobil is woven in at several points and shows an evolving relationship as Putin better understood the relation between ExxonMobil, the USA government, and the changing relationships therein (e.g. former ExxonMobil CEO Raymond and Vice President Cheney's friendly relationship). The following passage is interesting and illustrates that something more complex than "let's abuse Russia's system to get oil" is at play:

More complex than initial appearances suggest.

Under pressure, Tillerson applied the Exxon formula: no surrender. “We jacked this all the way to the top,” recalled one of his colleagues. “We brought the issue up with the president [Putin] and we said, ‘Look, we have got the contract signed, we are doing everything we are supposed to do—here are the rules. And these guys don’t want to follow the rules. What are you going to do about it?’”

Putin offered to write out an executive order saying that Sakhalin-1 could proceed, but Tillerson refused. Putin did not have enough legal authority to satisfy ExxonMobil; Tillerson said he did not want to operate by decree, but by durable laws. Tillerson wanted to have “all the t’s crossed and i’s dotted exactly according to Russian law and regulation, and if we couldn’t get it done, then we were not going to do it,” the former executive remembered. Ultimately, after Putin “blew his stack” at ExxonMobil’s affront, the Russian president agreed.

—Private Empire chapter 12.

One weakness of the book, and this might have to do more with its scope, is the need to focus on the backstory of many of the people who have peripheral interactions with ExxonMobil. For example, a portion of the New Guinea saga is spent discussing the familial success of Papua New Guinea and the crazy lifestyle of one of the brothers. While interesting, it does little to advance the book that couldn't have been handled more succinctly. Several other examples of this abound and the space saved could have been spent exploring additional interactions between ExxonMobil and other countries (e.g. China).

Is this a Barbarians at the Gate-level business book? I would say yes. It has the thrilling aspect of Barbarians with the biographical sweep of Master of the Senate. It avoids discussing the nitty-gritty of day-to-day life in the corporation and focuses on the interaction between ExxonMobil and the wider world, which is likely of greater benefit to the reader. If you want a glimpse into the world of private power and to glean some ideas on how it will interact with government power going forward, this book is perfect. For everyone else, read it regardless, you'll be glad you did.