Steve Coll (SC)—[00:00:41:04] Well, it changed their culture and changed the way they operate because they...the executive who was rising to power at that time, Lee Raymond, used the crisis to re-make the company. And, he wanted to do some of this anyway. But, he used the sort of trauma atmosphere, and then the merge with Mobil, to really re-engineer—and that’s they right verb. They essentially created an engineering-led, rule-bound corporation driven by operating manuals. Incredibly rigid. Incredibly uniform. Disciplined. Tight. Effective.

And, it wasn’t just that they changed their procedures, which they did, in every way. Or wrote them all down in manuals so that everything you did at the workplace every day, you could consult a manual to determine exactly how you should do it. But, that mentality, that approach, the force of discipline and accountability and documentation that was required to create those changes, it also influenced their outlook on everything.

The funniest document I found in the Deepwater Horizon investigations was this Spill Response Plan that all the Super-Majors that were operating in the Gulf of Mexico had filed. And, they all used the same consultant. They all filed the same plan. ‘Of course, we will remediate this…’ But Exxon had its own forty-page Appendix that was unique to its filing that showed how to manage the media in the event of an accident. And it had all kinds of press release scripts out, you know: ‘We deeply regret…’ and then ‘fill in the blank here.’ And it just showed...you know, their idea of how to deal with communities in a crisis where oil may be spilling into fisheries and businesses may be upended and not only wildlife but conceivably people could be endangered and their idea is that, ‘OK. Let’s think that through in advance and write down every word we might speak in that setting.’ That’s...you know, that’s how it changed the company.

[00:03:07:29] So, for ExxonMobil, public relations (PR) is engineering, too?

[00:03:12:29] PR is engineering, too.

[00:03:16:15] The oil industry you describe is both increasingly profitable and increasingly dangerous. There is little coherent government or other force to contain a company like ExxonMobil. And, ExxonMobil is keenly aware of and concerned about its position in the market and how it behaves. Does that awareness and the behavior it inspires come largely from within ExxonMobil?

[00:03:30:15] I think that’s true. I think that’s true in the sense that this is a kind of bet-the-company-every-day kind of business. So, if you’re not really under meaningful regulatory pressure, if that’s not your experience of the risks of managing risk, then you do internalize it. And, if you didn’t have that $20 Billion fine hanging over your head,* which you know is coming if you fail to self-regulate adequately and you blow off a Mocando kind of accident, then, yeah, it’s pretty good motivation.

But, as you say, the dilemma...you know, if you’re writing a novel, you want your protagonist to have a dilemma. So, ExxonMobil’s dilemma is that they are this company that has tried to wring all human fallibility out of their daily operations but their business model is driving them inexorably into risk. So, they’re being driven into political risk in the ways we’ve discussed. They’re also being driven into operating risk because they have to operate in more and more frontier environments.

Now, they can say, ‘Oh, we know how to do it.’ But the truth is that a lot of these...wells under that kind of pressure, in those kinds of operating environments—in Arctic ice, in cold water, in harsh climates, in very deep water, in frontier geology—even fracking, which Exxon, of course, talks about very confidently, the truth is that nobody knows what happens when you frack on this scale of industrial operation because it hasn’t been done before. I mean, maybe its harmless. But, it hasn’t been done before. And, so they are constantly out on risk frontiers while trying to wring all risk out of their operations.

[00:05:13:28] We are in a curious position: To handle energy, we rely on ExxonMobil’s self-awareness & the path from regulatory agencies into litigation. What does that say about American power to govern ourselves?

[00:05:25:28] Yeah. It’s not...in the energy area, we are not organized to actually govern ourselves in proportion to the risks that we are collectively under. That’s my view. We’re just not organized.

I mean, there are other areas where we’re reasonably well organized to do that. I mean, the defense of our shores against attack. I mean, we’ve gotten ourselves over-organized, if anything, about that.

But, it’s a funny thing because there are sections of the energy economy that are reasonably well supervised and organized...Electricity generation, for example, you know, at the regional level, though it’s been deregulated over the last 15 years, so it’s probably more at risk than it used to be. You know, between the rise of the public utility commissions and the electrification of rural America and the long run in which it was recognized that electricity provision is so fundamental to quality of life, health and the economy that it simply cannot be left to the kinds of haphazard, self-regulating market forces that we see in the oil industry.

And so, we developed a public interest standard, a whole system of regulated, mixed private-public enterprise approaches to this with a universal service standard as part of the compact. And the government systems that rose up out of that, you know, they’re expensive, they’re inefficient, they didn’t always produce...but they basically built the infrastructure that allowed for this post-modern industrialization...re-industrialization in the United States through the computer industry, the information industry, telecommunications industry...until recently, we kind of lost our way grip. But, for 50 years, it was a pretty good system.

Now, oil is just a funny thing because, it is a utility. If you go to the gas pump, you drive a car, you know, you can’t get out of your relationship with gasoline. We don’t approach it with a public interest standard in mind.

[00:07:25:16] Do you think energy is a Winston Churchill proposition? We will do the right thing after we have exhausted all other options?

It seems you are saying there will be crisis that will force change. Whether that’s a crisis of morality or availability.

[00:07:39:15] Maybe. I mean, I was on a panel last night with  the former president of Shell USA. And he...we were having a conversation similar to this, and I said, ‘I don’t see where the change comes from unless it’s a crisis that’s really...you know, large scale.’

When we got 9/11, we got the Department of Homeland Security. Now, I’m not sure the Department of Homeland Security is better than what we had before. But, there was a reorganization of federal authority, and certainly more powerful than it was before.

And he was advocating for a single, Federal Reserve-inspired agency that would consolidate the 13 cabinet offices that now regulate the oil and gas industry and the 25 different...you know, that there would be like a quasi...an SEC, Federal Reserve-inspired, non-political, independent regulatory agency that would be...that would govern energy and environmental regulation around energy in one strong shop in part to actually match the potential of the regulated corporations.

Now, it’s interesting that someone like him would conceive of such of a solution. But, as you say, it’s very hard to imagine where the politics for that come from unless there is a ginormous crisis.

[00:08:51:00] Is this the Gilded Age all over again?

[00:08:56:00] Yeah. Yeah. And, the oil industry is creating these Behemoths because of the sheer scale of profitability that that utility function creates.

I mean, ExxonMobil is the largest corporation on the Fortune 500 list. Two of the other top five are oil companies: Chevron and Conoco. I mean, who...who thinks about Conoco every day.

Chevron is, I think, third or fourth. And ExxonMobil’s revenues are twice as great as Chevron’s. And that’s just within the top five of the Fortune 500. So, just putting your mind around the scale of these institutions takes some doing. And, all of that flows into our regulatory system and our political system.

[00:09:33:12] What ended the Gilded Age? A scale that shocked the conscience, from which there arose a progressivism that matched the scale of the shock?

[00:09:40:12] Yeah. We have that shock in the banking and the Wall Street system and we got Dodd-Frank and maybe some revival of Glass-Steagall. And there will still be a contest between regulators and the banks but...at least we’re having the right conversation about ‘too big to fail’ and systemic risk.

In the oil industry, we’re not. So, the question is, again, what kind of a shock would create...you wouldn’t necessarily want to live through that crisis. But, I think it’s likely over the next 20 years that there will be multiple catastrophic environmental accidents. And some of them will be very vivid north the Arctic Circle. We’re going to have a big wreck up there. And, it’s going to be ugly. And, I don’t know whether that will galvanize the majorities in the lower 48 [states]. Fracking, also, I don’t think is a story that’s finished, yet.

[00:10:38:10] It does seem, in how we think about governance, there is a fundamental dilution of the idea of regulation. Does this obtain in oil, as in banking?

[00:10:45:10] It does. And part of, of course, what you see in banking that you would also see in energy and that was true in the Department of the Interior when you’d look at the specific regulatory regimes that surrounded Gulf deep water drilling in the years leading up to the Deepwater Horizon accident—just read the national commission report—is that federal civil service is just not up to overseeing the degree of complexity and wealth that it is charged to oversee. I mean, it just doesn’t have the capacity to keep up with the derivatives traders and the...speed algorithm writers on Wall Street and it doesn’t have the capacity to keep up with the degree of complex engineering and interdisciplinary project management that’s going on on these off-shore oil platforms.

And, if you did have the human capacity, industry would immediately hire it.

[00:11:38:25] What of this argument, because regulators do not understand the specifics, therefore there can be no regulation?

[00:11:45:25] Right. Well, I think what’s realistic, you know, if were King, would be to identify those utility functions that are essential to the national economy, to society, to an equal, just and accessible economy and ring-fence those and force the corporations out of risk profiles in those areas and then manage the risk profiles without any too-big-too-fail institutions and without any catastrophic risk on the periphery of those core utility functions.

The problem, obviously, in Wall Street was that we mixed our deposit banking system with, you know, a bet-the-company, global derivatives, speed, algorithm-writing financial system. And, there’s no reason why we should do that. If...Citigroup is prepared to provide retail deposit banking and lending…commercial lending services, without intermingling its viability as an institution with that side of the house, so its back to Glass-Steagall there.

And, there’s an analogy in the oil industry, which is, we should determine what is the utility function in our economy, ring-fence that, regulate it carefully and, if we have to exclude environmentally risky activity in the continental United States, we should evaluate what the costs of excluding that are. But, we shouldn’t kid ourselves into thinking that we’re going to be able provide oversight in these frontier environments that’s going to be meaningful to these companies. Either we accept the fact that they’re self-regulating out of fear of failure because of the costs they would pay—the $20 Billion fine—either we accept that as the risk equation we’re going to undertake with some relatively light oversight or we ban the activity.

We do both right now. You know, we’re not really sure. We both abandon and we lightly regulate.

—End of Part Five—

More GWorks Interviews: Steve Coll

to Part One: An Age of Limits & Change

Private Empire: ExxonMobil & American Power

and how to write about a crucial resource,

a reticent corporation and what they say

about America’s place in the world.

to Part Two: Chad: A Basic Dilemma

ExxonMobil’s search for oil

in increasingly unstable environments

and the challenges this poses to the

way ExxonMobil does business.

to Part Three: Standard Bearers

How ExxonMobil’s roots in Standard Oil

and the Rockefeller family affect its present and future.

to Part Four: Coherence

ExxonMobil’s relationship to environmentalism

and government regulation and their place

in a political economy.

For more interviews,

please visit GWorks Interviews

EDITOR’S NOTES

GWorks Interviews: Steve Coll was filmed Tuesday 26 June 2012 in the offices of New America Foundation in the District of Columbia. GWorks would like to thank Mr Coll for his generous participation and Victoria Collins for her work to make this interview happen.

Photo: Book Cover: Private Empire: ExxonMobil & American Power. Courtesy The Penguin Press.

Photo: Steve Coll. Lauren Shay Lavin. Courtesy The Penguin Press.

*To be clear, the ‘$20 Billion fine’ refers not to ExxonMobil but to the amount British Petroleum agreed to set aside after meeting with President Barack Obama and in contemplation of claims from the 2010 Deepwater Horizon spill.

GWorks Interviews is a series dedicated to exploring governance issues of interest with persons given to thinking about and having relevant experience. GWorks invites a GWorks Interviewee to respond in depth to questions. GWorks does not edit the substance of what an interviewee says. GWorks edits GWorks Interviews only for editorial and technical considerations including style, length and productions issues.