Friday, October 28, 2005

#205 - Exxon Profits From Creative Management

During the energy crisis of the 70's, Exxon was widely viewed as the Great Satan of corporate profiteers. They were the smelly pirates with bad breath and worse hair who raided our pocketbooks and shoveled our money directly into Swiss bank accounts, all the while refusing to apologize for their lack of corporate citizenship and common decency. When the Valdez dumped so much oil into one of the most pristine ecosystems on earth, their corporate image was lower than President Bush's current approval rating. Throughout the entire crisis the company merely sneered at our whining and carping, and rode out the storm in their plush offices while the rest of us rode it out in line at the gas pump.

Flash ahead to our current crisis where prices dance around either side of $3 a gallon at the pump. Once again Exxon executives refuse to acknowledge that their current record-setting profits are any indication whatsoever that they may be sticking a very sharp implement into very sensitive regions of our national psyche. "Consumers don't get it," they pontificate. "They can whine all they like, but we will continue to make money as long as there's oil in the ground. If they don't like it, they can kiss our balance sheet." Executives from Shell and Chevron could be seen snickering behind the curtains.

Being the dumb consumers that we apparently are, we make the false assumption that their obscene profits have something to do with supply and demand. For most of my adult life I've just assumed that whenever the oil companies wanted to make more money they would blow up a refinery somewhere (or, to throw us off their scent, generate a category 4 hurricane in the Gulf), then sit back and watch us pay through the nose to keep gas in our cars and generators.

What a fool I've been.

Turns out that it is not merely through a calculated reduction in our fuel supply that the oil barons fatten their collective pork (although it certainly helps!), but also through some very creative internal management which drives down their administrative costs and widens their already overlarge margins. In fact, I'm surprised this technique hasn't been widely touted in MBA programs across the country by now.

Actually, I can see how this might have come up in some executive's MBA studies. In any such program there are requisite (read: necessary but excruciatingly dull) courses that deal with internal management. This is where they learn such things as how to save money by reducing the amount of office supplies you have on hand, or cutting back on employee recognition programs so there will be enough money in the budget for executive bonuses at the end of the year. Most executives tend to sleep through these classes because they already instinctively know these things. Look at Michael Ovitz, for crying out loud. You think he got that $140 million by being Employee of the Month?

Just for a joke, one instructor - probably looking to see if any of his students still had a pulse - said something like, "Hey, you know those flu shots that so many companies offer every year? Wouldn't it be a hoot if, instead of flu shots, you gave them injections of saline or something?" Then he laughed to show that he was, after all, just kidding.

Unfortunately, an Exxon exec who was in that class snapped out of his torpor and somehow thought he'd just been given a project to do and report back on later in the class. So, in Baytown, Texas some "fake flu vaccines" were offered to participants in a health fair sponsored by the company. About 1,000 employees participated. Fortunately, no one seems to be permanently injured, and the company is already levelling blame at the doctor who supplied them with the vaccines; but, let's be honest, who's going to believe them after they posted over $25 billion in profits in just the first nine months of the year?

So, I'm guessing that this Exxon exec is now on the company's fast track. He'll score high on his final in the class. He'll get the bonus, the penthouse, the corporate jet, and the Ginsu knives. The employees will be offered free counselling and blood tests. It's another win-win scenario for the world's most successful gentlemen of fortune.

Make that: "Fortune" with a capital "F."

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