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Exxon's pumping profit in downturn
A sign hangs at an Exxon Station in Miami, Fla.
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Kai Ryssdal: Oil closed today jut shy of $42 a barrel. Seeing as how there are 42 gallons to each one of those barrels of crude, that means oil's at just $1 a gallon right now. At the pump, meanwhile, we're paying a national average of $1.89 a gallon to fill up our gas tanks, which kind of gets us into this next story.
At a time when most corporate profits are falling off a cliff, Exxon Mobil is sitting pretty. The world's largest publicly-traded oil company announced today that it raked in a record $45 billion in profit last year, breaking it's own record by the by. And even the stunning drop in oil prices over the past six months hasn't hit Exxon as hard as it has hit the company's rivals. And it makes you wonder what's Exxon's doing that the rest of corporate America isn't? From the Marketplace Sustainability Desk, Sam Eaton reports.
Sam Eaton: Go through the list of financial strategies that helped bring today's economy to its knees and you'd be hard pressed to find any that fit Exxon's corporate culture.
Philip Verleger: Exxon is the antithesis of a 21st century corporation.
Philip Verleger is an oil economist. He says while much of corporate America was swept up in the frenzy of short-term, high-risk bets, Exxon plodded along as it always has.
Verleger: They have operated and managed in a way that looks at the long term survival of the corporation. Long term growth of the corporation. And really paid very little attention to short term results.
For example, when oil prices were high Exxon resisted the urge to over-spend on new, harder to reach sources of oil. Instead Exxon has amassed a cash reserve of nearly $40 billion. Verleger says if more companies had acted like Exxon, the economy might be in less of a pickle today. But University of Delaware business professor Charles Elson says Exxon's strategy is far from foolproof.
Charles Elson: It gives you the luxury to play something out through various economic cycles. On the other hand it's got the negative that because it's so long term that you may never be held accountable for the failure that it engenders in the long term.
The auto industry's bet on trucks and SUV's being the prime example. Elson says even Exxon isn't immune. With a new global climate deal in the works, and the U.S. now serious about regulating emissions, tomorrow's windfall oil profits may be a lot harder to come by.
In Los Angeles, I'm Sam Eaton for Marketplace.
It is so refreshing to read postings from other people who also decry the short term mentality that has driven American smokestack and financial corporations into the ground. I don't understand Professor Elson's comment "... so long term that you may never be held accountable ...", since it appears that one of the problems with management right now is that they are not held accountable. Witness the ungodly huge bonuses and golden parachutes paid to CEOs of our largest failing companies.
Why not have executive bonuses for performance today based on company profits five years in the future? This would be incentive for long term planning and long term growth
I second the sentiment of Mr. Keszler's comment. When I listened to Professor Elson's statement it nearly floored me. I was also not impressed by the fact that his statement was left unchallenged. In my 30 years of employment I have seen the transition from companies that once made long term (5 to 10 year) plans to the shallow quarter based cycle that is now the rule and it is my observation that this transition has engendered more damage than benefit to the economic health of our nation.
If we want our companies to have the lifetime of a fruit fly - then go ahead and continue to teach the mantra of the quarterly cycle! But you, professor, will ultimately have no students left to teach since employers like Walmart, Target, and McDonalds don't pay high enough wages to support sending our children to your (or any other) business school.
I can't decide if professor Charles Elson's comment is merely insipid or truly insidious!
Exxon's management held true to their values and stayed their course. They won't be "held accountable in the long term" because the company will survive the long term! Why? Because Exxon's management did NOT get swept up in the gambling frenzy that we know as Wall Street.
I have never accepted the Harvard Business School school-of-thought regarding the "worship of the 3-month bottom line". I think of it as horribly short-term thinking that does NOT benefit the company in the long haul. Apparently niether does Exxon. BRAVO EXXON! Don't let "professors" like Elson brow-beat you into behaving like one more sheep and thinking like the rest of corporate America! Or worse, thinking like Wall Street!
If you have a bone to pick with Exxon state it clearly. Don't try to insinuate that their corporate strategy is faulty without even the suggestion of a fact. If you think they made too much profit say that. Otherwise we should all applaud their long term strategy. Right now, I wish all my investments were in Exxon stock.
Professor Elson, you have single-handedly reduced my opinion of the University of Deleware. Perhaps you should think harder about what you say to the press in the future.
