Free Private Empire: ExxonMobil and American Power by Steve Coll Page B

an economically privileged elite.
    Raymond reserved a particular scorn for the Wall Street analysts who published commentary about Exxon’s business strategy. After years of sporadic efforts to engage with stock commentators, the corporation began to stage an annual meeting with analysts. It was an unusual hearts-and-minds campaign because during the question-and-answer session, it was rare for Raymond to respond to any query without first challenging the analyst’s assumptions or intelligence.
    “This is going to be a tough meeting; you ought to take two patience pills,” Peter Townsend, the vice president for investor relations and corporate secretary, would warn him before these sessions.
    “No, three.” 9
    If Raymond began his answer to an analyst’s question with “Frankly” or “To be candid with you,” it was a signal to duck. He started one meeting at the New York Stock Exchange by noting that executives from The Walt Disney Company were also present in the building that morning: “I don’t think Mickey or his friend Goofy are going to join us, but I may have to hold my judgment on that until after the Q&A session.” 10
    Raymond served in effect as the corporation’s chief financial officer, in possession of all of the critical numbers. By the time he became chairman, he had also served for years as a director at J.P. Morgan, the Wall Street investment bank. During the mid-1980s, Exxon’s financial performance looked respectable but undistinguished, in comparison with its oil industry peers. Rawl’s cost cutting and reorganization campaign was intended to force improvements. In 1987, Rawl began to place heavy emphasis on a metric called “return on capital employed” or R.O.C.E. (often spoken of as “row-see”).
    This was a performance measure that sought to show how well a particular Exxon business unit—and overall, the corporation—used the cash it borrowed or recycled from earnings to reap returns from new projects. After he took charge, Raymond campaigned on Wall Street to have his particular measure of R.O.C.E. recognized as the premiere number by which oil corporations should be judged. He argued repeatedly to analysts that oil companies were very long-term businesses that consumed a great deal of capital, and that, ultimately, they should be judged not by quarterly profits or share-price fluctuations, but by how well they managed their investments—whether, for example, they regularly destroyed capital by leasing unproductive oil fields, going over budget on huge drilling projects, or by building unprofitable refineries.
    The deep cost cutting continued by Raymond raised Exxon’s rates of return on capital. So did the drive Raymond advanced to improve Exxon’s relatively low-profit divisions, particularly gasoline refining. The “downstream” divisions of integrated oil companies like Exxon were generally much less profitable than the “upstream” units that found, pumped, and sold crude oil and gas. (“Downstream” was an industry term that referred to what took place after oil was pumped from the ground: the refining of oil into gasoline or aviation fuel, and retail sales to motorists at thousands of Exxon-branded gasoline stations across the United States.) Exxon had long tolerated low downstream profit margins and even occasional losses because having huge refineries worldwide gave the corporation a built-in market for its own oil sales. In effect, upstream profits subsidized the downstream. By maintaining a focus on R.O.C.E. inside Exxon and preaching about it on Wall Street, and by tying performance on that number to promotions and bonuses for Exxon managers, Raymond hoped to create change.
    Exxon’s rates of return on capital rose sharply during the 1990s, declined as oil prices fell late in the decade, and then recovered to a record level of about 20 percent by the decade’s end, superior to any competitor. Raymond was only partly successful in persuading others to