Book: Private Empire: ExxonMobil and American Power

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Twenty-three

 

“We Must End the Age of Oil”

 

The ExxonMobil Corporation Political Action Committee invested $722,000 in candidates for federal political office during the 2008 election cycle. Despite obvious signs of a strong Democratic electoral wave building across the United States at the end of the Bush administration, the corporation’s political spending remained staunchly Republican. Only 28 of the 207 recipients of ExxonMobil P.A.C. contributions during the 2008 cycle were Democrats; in dollar terms, ExxonMobil gave just 11 percent of its money to Democrats. The corporate P.A.C. gave more heavily to Republicans than did the company’s employees, when they made donations as individuals. Political contributions between 2000 and 2008 by individuals who declared an affiliation with ExxonMobil on disclosure forms—including Tillerson, Cohen, and other senior executives—totaled $1.22 million. Most employee contributions went to Republicans, but as a whole, employees gave more than twice as much to Democrats, as a percentage of their total, than the corporate P.A.C. did.

“We are a business-oriented P.A.C.,” an executive involved in the political spending decisions said. “So we are looking for candidates . . . who are pro-business. . . . Now when you apply that litmus, our P.A.C. is rightly criticized that we tend to give more money to Republicans than to Democrats, but it is a result of the [key vote system] approach we take and not a desired result.”

Joe Barton received more contributions from ExxonMobil than any member of Congress after 2000. Anne Northup, a Republican member of the House of Representatives from Kentucky, received the second most. Each of ExxonMobil’s top ten recipients was a House Republican. “Whoever’s in power in the House has almost dictatorial power,” a Washington consultant who worked on oil industry issues said. “If you control what’s going on in the House, you have huge influence over the final product; power is more diffuse in the Senate.” Moreover, low-tax, free-market ideology was ExxonMobil’s “North Star,” as a former executive involved put it, and the House Republican caucus increasingly offered the staunchest philosophical allies. In the Senate, Ken Cohen told his colleagues in the K Street office, “it’s all about the sixtieth vote,” that is, making sure that ExxonMobil could block unfavorable proposed legislation by encouraging loyalists to invoke the peculiar Senate institution of the filibuster.

From an office in Arlington, Virginia, the ExxonMobil Citizen Action Team mobilized employees and retirees to reinforce ExxonMobil’s lobbying positions and favored candidates. The team maintained a toll-free information line, playing on the corporation’s stock exchange ticker symbol: 1-866-VOTE-XOM. It provided updates on the corporation’s legislative priorities on a Web site and sent out glossy newsletters about pending legislation and upcoming campaigns to employees, retirees, and sympathizers. “Electing people who will pursue policies that are good for our industry and make sense for our families is an important responsibility,” one of the mailings enjoined.

As the 2008 presidential campaign began, however, the greatest risk that American politics posed to ExxonMobil arose from something the Citizen Action Team had trouble addressing: the corporation’s general unpopularity and its attractiveness as a piñata for populists, left and right. ExxonMobil had never really broken free from the reputation for ruthlessness and self-interest Standard Oil had forged during the Gilded Age. As the Bush presidency entered its final year, retail gasoline prices rose toward four dollars a gallon. Quarter after quarter, higher global prices caused by Nigerian unrest and runaway Asian economic growth delivered jaw-dropping record profits to ExxonMobil. Its executives could hardly turn this cash flow off, but they had difficulty justifying it publicly in commonsense language. The problem was structural: Popular anger as pump prices spiked reflected a form of economic powerlessness among commuters and small business owners. Gasoline had become a necessity in the United States, like electricity, but its fluctuating price remained unregulated, in comparison with electric rates, which could be managed up and down more gradually, when underlying commodity prices changed. Moreover, when gasoline prices shot up very suddenly and without forewarning, the largest private corporation in the country made even more money, to add to its historically high profits. An American commuter or truck owner did not require socialist leanings to find this aggravating. “And how about this?” Jay Leno asked on The Tonight Show. “ExxonMobil today reported a profit last quarter—not last year, last quarter, one quarter—of $12 billion! . . . But in their defense, that money didn’t come from the gas. That’s just from the mini marts.”

Of all the candidates for president during the 2008 campaign, Barack Obama spoke most often and most pointedly about ExxonMobil. In debates and stump speeches, he offered none of the nuanced support for the sanctity of international oil contracts that he had voiced in private to Chad’s dictator Idriss Déby while visiting N’djamena two years before. Obama and his speechwriters exploited ExxonMobil’s unpopularity. They called out its profits and contrasted its wealth with the struggles of American working and middle-class families coping with long commutes and soaring gas prices. Obama’s spin specialists sought to link their Republican opponent, Senator John McCain, to the pro-oil policies of Dick Cheney. Politically, this was an attractive target of opportunity: In the summer of 2008, 72 percent of Americans surveyed had a negative view of Cheney, and only 18 percent saw the vice president positively. “President Bush, he has an energy policy,” Obama declared. “He turned to Dick Cheney and he said, ‘Cheney, go take care of this.’. . . McCain has taken a page out of the Cheney playbook.”

That was campaign rhetoric; off the trail, Obama’s evolving views about energy and climate policy were subtler. He had only begun to immerse himself as a senator. It took time to grasp the nuances of automobile mileage standards, international oil supply, clean coal technologies, balance-of-payments issues, and the myriad ways in which different forms of energy contributed to global warming and how the existing patterns might be altered by policy intervention or technological innovation. Obama’s primary campaign involved a make-or-break commitment to Iowa, where ethanol subsidies were politically untouchable, so he embraced those with a particular emphasis on local ownership and populism. He embraced “energy independence” even though he knew that it was not achievable in a literal sense and perhaps not desirable, either. But the idea sold as nationalism, especially with independent voters in swing states. “There hasn’t been a campaign in thirty years where the policy wonks don’t cringe when ‘energy independence’ comes up, but the speechwriters get the last word,” said Jason Grumet, one of Obama’s energy policy advisers. Obama embraced “the smart version,” Grumet said, “in a more metaphorical than a physical sense. . . . He knows the last barrel we use will be from Qatar or wherever it’s cheapest . . . [but] he painted a bigger arc around the issue, that America can be great again, that it can renew itself.”

In June, as McCain emerged as the presumptive Republican nominee and Obama’s grinding campaign against Senator Hillary Clinton neared a finish, McCain proposed a gas tax holiday to provide temporary relief to commuters burdened by soaring pump prices. The holiday would, in fact, help middle-class households hurting from unexpected gasoline expenses over which they had no control, but it had a chicken-in-every-pot opportunism about it and did nothing to address the glaring gaps in American energy and climate policies. Clinton embraced McCain’s idea, but Obama announced, in effect, “This is stupid; the American people are smarter than this.” Against the advice of his campaign pollsters, he used the issue to differentiate himself from McCain and Clinton, painting them as pandering politicians, and he came out fine.

The easiest case to make was to pound on Big Oil. To many independent voters and disillusioned Republicans, Obama’s strategists knew, the symbolic ExxonMobil-Cheney complex pointed toward all that had gone wrong in the Bush years—the Iraq War, the rise in American economic inequality and economic insecurity at home, an economy that seemed grotesquely based on greed and was beginning to teeter, and a corrupt culture in Washington that reinforced these failings by favoring special interests. Obama therefore salted his campaign speeches with ExxonMobil references even when they were gratuitous—the very word “ExxonMobil” resonated in his favor. “It’s not going to be easy to have a sensible energy policy in this country. ExxonMobil made $11 billion last quarter. They’re not going to give up those profits easily,” Obama said at an early primary debate. As the Democratic race narrowed to a campaign of attrition between Obama and Hillary Clinton, the two candidates competed in public about who opposed ExxonMobil more ardently. Then, after Obama’s nomination became secure, he turned the same line of attack on McCain. When McCain announced a plan to reform corporate taxes, Obama’s researchers figured out how much of the benefit would flow to ExxonMobil and immediately made that the focus of their criticism: “Think about that,” Obama said at a rally in North Carolina. “At a time when we’re fighting two wars, when millions of Americans can’t afford their medical bills or their tuition bills, when we’re paying more than four dollars a gallon for gas, the man who rails against government spending wants to spend $1.2 billion on a tax break for ExxonMobil. That isn’t just irresponsible. It’s outrageous!”

The Bush administration and the McCain campaign studied polls that showed many Americans favored new offshore oil drilling as a strategy to reduce high gasoline prices. They announced coordinated plans to promote more domestic exploration in ocean waters: “Drill, Baby, Drill!” became a tongue-in-cheek-sounding chant at Republican rallies that summer. Obama promptly linked McCain’s offshore plan to ExxonMobil’s $11.68 billion in quarterly profits and denounced it as merely an “oil-company wish list.” The Democratic nominee also embraced a plan to impose windfall taxes on oil corporations when global oil prices were about $80 per barrel, as they had been throughout 2008. Obama also declared again and again that if he were elected, he would push with new vigor, working with Democratic majorities in both houses of Congress to cap greenhouse gas emissions and to invest heavily in solar, wind, and biofuels. Privately, he recognized that the American oil industry “is of economic significance, and that greater domestic drilling reduces imports and the balance of payments problem,” an adviser on energy issues said. But Obama wanted a comprehensive package that combined increased oil and gas production with progress on carbon pricing: “The idea was an ‘all of the above’ strategy that advanced both energy security and environmental goals.” More than his profit bashing, Obama’s climate and alternative energy policies—the ones he might actually be able to push through Congress as president—galvanized the attention of ExxonMobil’s public affairs executives and K Street lobbyists. “We must end the age of oil in our time,” Obama declared.

“We felt like a candidate,” one of the corporation’s executives recalled. “Both parties were mentioning us by name. . . . So we were a candidate and we clearly knew that we were not electable.” A Democratic congressman, Maurice Hinchey, even ventured that ExxonMobil’s profits had “crossed the moral threshold of what is acceptable.” That sort of language—and the fervor and excitement that seemed to be coalescing around Obama’s candidacy—suggested something more threatening to ExxonMobil than the usual cycle of congressional hearings and antitrust inquiries whenever gasoline prices spiked and American drivers howled. Trustbusters had broken up Standard Oil on moral as much as economic grounds.

ExxonMobil had no cause to fear anything so drastic. Yet the costs and taxes Democrats in Washington might impose on a corporation as unpopular as ExxonMobil in an emotional period of high gasoline prices and huge corporate profits could not be easily forecasted. In American history, a number of industries had been regulated and taxed during periods of popular revolt against corporate power on the grounds that the targeted businesses were “public callings” and served a public interest function: banking, telecommunications, transportation, electric energy, and natural gas transport, among them.

In mid-July, global oil prices crossed above $140 a barrel. If such prices persisted, Democrats were almost certain to seek relief for disadvantaged households trapped by long commutes to work and stagnant incomes. Tillerson and his corporate planning group could not figure out what was causing the 2008 price spike. The detailed internal analysis of global supply and demand produced by ExxonMobil economists during early 2008 suggested that global prices were moving much higher than market fundamentals would predict. Was hot speculative money pouring into commodity funds a factor? Were traders assessing political risk in West Africa or the Middle East as a more profound forward-looking bottleneck on supply than ExxonMobil did? Tillerson felt genuinely befuddled. On the one hand, the corporation’s typical “one right answer” analysis suggested that some sort of bubble had inflated and that oil prices would eventually fall, relieving some of the reputational pressure faced by Big Oil that summer. On the other hand, ExxonMobil had forsworn price forecasts precisely because the corporation had learned over many years that oil prices could not be accurately predicted on the basis of the empirical methods employed by ExxonMobil’s economists and planners. The truth about future prices was anybody’s guess—in the meantime, the corporation’s reputation was being pounded.

This was the kind of challenge for which Rex Tillerson had been chosen to lead ExxonMobil—a crisis that required more successful public communication than Lee Raymond had been able to deliver. Cohen approved the recommendation of his media specialists that Tillerson get out and speak more, to place ExxonMobil’s profits “into context.” Tillerson agreed. He invited a few members of the national press to visit him in Texas.

The 2008 presidential campaign, Jad Mouawad of the New York Times pointed out when he arrived to meet the chief executive, “has centered around expanding domestic drilling. But many say this will do nothing to reduce prices now because it takes ten years before any new production comes online.”

“If you use that logic,” Tillerson replied, “then we should not have any of the barrels that are available today. All of today’s supplies were developed years ago. It is nonsensical for people to make that argument. It reflects the ongoing difficulty we have with people who don’t understand the nature of the energy system.”

“Sure, but the argument is that we should focus on the demand side of the equation and that we cannot drill out of the problem.”

“Well, you can’t conserve yourself out of this problem, either. You can’t replace your fuels with alternatives out of this problem, either. The reason the United States has never had an energy policy is because an energy policy needs to be left alone for fifteen to twenty years to take effect. But our policymakers want a two-year energy policy to fit with the election cycle because that is what people want. The answer is you can’t fix it right now.”

After that condescending and vaguely antidemocratic debut (energy policy had failed because it was “what people want”), Tillerson next sat for an on-camera interview with ABC’s Charles Gibson. “Do you understand, and can you appreciate from your position, with the escalation of the price of a gallon of gas, why people are fed up, angry, indeed, disgusted with oil companies?”

“Well, I can understand why people are very upset and why they’re very worried and concerned about their ability to deal with these high prices. In terms of where they should direct their anger, I don’t think it’s useful for me to comment on that; although it does bother me that much of that is directed at us. . . .”

“We in the media have made a lot of the profits that ExxonMobil has made, particularly in the last couple of quarters—more than $10 billion in profits first quarter this year; $11.68 billion in the second quarter of the year. When people, I don’t know, complain about that to you, or say, ‘How dare you? Those profits are obscene.’ What’s your best—in brief form—what’s your best justification?”

“Well, I think it has to do with the ability to understand just the size of our business. Everything we do, the numbers are very large. I saw someone characterize our profits the other day in terms of $1,400 in profit per second. Well, they also need to understand we paid $4,000 a second in taxes, and we spent $15,000 a second in cost. We spend $1 billion a day just running our business. So this is a business where large numbers are just characteristic of it. . . .”

“John McCain, for his part—it’s become a mantra for him: Drill now, drill here, drill immediately. Is that any kind of a solution?”

“Well, it’s part of a solution. Again, I think this whole debate around someone looking for the solution is not a sensible approach. . . . We really should be developing all the supplies that are available to us, regardless of whether they come on now or whether they come on ten years from now. . . .”

“Senator Obama, he’s calling for a windfall profits tax. . . . And when the public sees the kind of profits that the oil companies are making, and ExxonMobil in particular . . . isn’t it fair that they wonder, ‘Why not?’”

“Well, I guess the question is what’s that going to solve? Are the American people going to be better off from an energy situation because we implement a windfall profits tax? Nowhere in a windfall profits tax do I see anything that addresses the problem. I understand that may be popular with some people because of how they view our current-day profitability. Certainly, again, if you put our profits in perspective, because of our scale and size, Charlie, on a unit-of-sales basis, our profits are way down the list. And so if we’re going to institute, from a philosophic standpoint, a windfall profit [tax] on highly successful companies, who generate high profits, you’re going to have to go after a lot of other industries and parts of our economy. . . .”

That summer, Tillerson seemed to be channeling Lee Raymond’s tonal scales. He struggled to find clarity. Televised interrogation about sky-high gas prices favored the inquisitor, and neither Tillerson nor his advisers had figured out quite how to translate their strategic intention—to create an ExxonMobil that was more accessible and more flexible about controversial public policy—into language that would stick or be trusted. The corporation’s gigantic profits spoke amply for themselves. ExxonMobil’s net profits, when expressed as a percentage of corporate revenue, were, in fact, not particularly great; it was the arithmetic of the corporation’s global size that produced gargantuan raw numbers. ExxonMobil’s effective rates of corporate tax paid also fell on the high side, in comparison with other large American-headquartered multinationals. The problem was that Tillerson’s reliance on these talking points missed the country’s mood in 2008 by a wide margin: The American people were rapidly losing faith in the integrity of many large corporations, Wall Street banks, and their allies in the Republican Party. They were in debt, falling behind, and fed up.

Obama and his advisers had the surer sense of the corporation’s political meaning in 2008. “We’re talking about Joe the Plumber,” McCain said during his third and final debate with Obama, on the eve of the presidential vote. McCain’s remark came during a discussion of the tax issue.

Obama flipped over one of his mental file cards and said, before a television audience made of about a third of all American households: “In order to give additional tax cuts to Joe the Plumber . . . ExxonMobil, which made $12 billion, record profits, over the last several quarters, they can afford to pay a little more, so that ordinary families who are hurting out there . . . They need a break.”

In October, Cohen summoned the Democratic corporate responsibility specialist, Bennett Freeman, to another off-site summit meeting with ExxonMobil public affairs executives. Before a room of about a hundred of the corporation’s managers, media, and political specialists, Freeman praised ExxonMobil for implementing the Voluntary Principles in its corporate security operations, and also for joining another voluntary regime, the Extractive Industries Transparency Initiative, which was designed to increase the visibility of oil corporations’ payments to poor, dysfunctional governments in Africa and elsewhere. On the other hand, Freeman continued, the corporation needed to become more visible on human rights issues in Nigeria and Equatorial Guinea. “It’s not your job to be Amnesty International,” he said, but they had to advocate more clearly at the State Department in favor of human rights policies amid dictatorships where ExxonMobil pumped oil.

Then Freeman turned to climate change. As he spoke, Ken Cohen and other executives took notes.

“Look, with Lee Raymond, you were in the late nineteenth century,” Freeman said. “With Tillerson, you’ve come a long way, but you’re still just in the late twentieth century. This is the twenty-first century, and on climate change you need to change your tone and change your substance. You need to get behind cap and trade—or somehow advocate for setting and meeting carbon reduction goals. On alternative energy—whatever technological capability you have, whatever is most viable, you have to get on it and do it. This is a carbon-constrained future you’re looking at. Whoever wins the election—probably Obama, but even if it’s McCain—there will be a new landscape on climate change. You need to get into the mainstream on this. You need to send Tillerson to Washington, have him give a speech at the National Press Club. Do it in January. Don’t do it now—it will get buried in election news. But you need to have Tillerson say, ‘Exxon recognizes the reality of climate change.’ And you need him to take a clear policy position, in recognition of that reality.”

The 2008 election results vindicated ExxonMobil’s Washington strategy in at least one respect. A great Democratic wave had swept Obama to the White House. Democrats now controlled both houses of Congress. Yet in the Senate, members historically aligned with the oil industry’s positions on taxation and climate, many of them longtime recipients of ExxonMobil’s financial support, remained numerous enough to block unfavorable legislation. Obama’s windfall tax proposal, in particular, looked dead on arrival—in reality, it had been mainly a tool of campaign rhetoric. On climate, however, there would now be new momentum for cap-and-trade laws that might raise the price of carbon use in the American energy economy and reduce greenhouse gas emissions. Bennett Freeman’s analysis in October rang true, even if Tillerson and Cohen remained uncertain about whether to follow his advice.

They had been reviewing ExxonMobil’s policy options. Obama clearly would now move a major climate bill, and it would have a fighting chance of passage. Did ExxonMobil want to be on the outside looking in during 2009, undertaking its usual campaign of opposition, in collaboration with the American Petroleum Institute and others? Or would the corporation be better off endorsing a carbon price at last, as Freeman argued, in part to have more credible access to whatever legislative negotiations ensued at Obama’s instigation?

Dan Nelson and other public affairs executives who had fought alongside Lee Raymond against climate bills for so many years told their colleagues that fall of 2008 that they feared Rex Tillerson might be going weak in the knees. Nelson had worked with John Dingell to encourage the lawmaker to come out in favor of a revenue-neutral carbon tax, with few loopholes. But Dingell and Nelson both knew as the financial crisis descended late that year—the economy contracted more than 8 percent in a single quarter—that such a bill could never pass. Politicians in the Rust Belt would never vote for it while autoworkers faced massive layoffs and their employers stared down bankruptcy. If ExxonMobil changed its position on climate now, it would not actually win any new political friends in Washington, Nelson argued, but the corporation would anger and betray its allies on Capitol Hill and in the oil and coal industries. Such a reversal would be the lobbying equivalent of Rex Tillerson’s summer media tour—not effective enough to change public or Democratic legislative opinion, but a source of unwelcome attention for an unpopular corporation.

A policy shift on carbon would also repudiate Raymond’s legacy on a visible issue where he had stood firm against conventional wisdom under great pressure, as Raymond’s friends and allies saw it. Why would Rex Tillerson consider such a public betrayal of Lee Raymond, particularly if it was not likely to bring ExxonMobil any real political or bottom-line benefits? Was Tillerson so anxious to be respected and accepted by ascendant Democrats (perhaps temporarily ascendant) that he would undertake such a significant change in corporate policy, one that directly repudiated his former mentor? ExxonMobil succeeds because it does not compromise its core principles and hangs tough even when it is unfashionable: This was the tone of the Raymond camp’s argument inside the corporation that late autumn.

On the other side stood those—some independent members of the board of directors, younger scientists, and Obama voters at all levels of the corporation, who shared the country’s sense of excitement and anticipation about the new president’s election—who felt just as strongly that Bennett Freeman was right, that the 2008 election signaled that it was time for ExxonMobil to modernize its political reputation and to break with its past intransigence on climate science. By moving early, the corporation could seek to prove, by accepting cap and trade or a carbon price at least in principle, that its new leadership recognized the seriousness of the risks of climate change, that ExxonMobil’s communication strategy under Tillerson was not mere lip service.

Tillerson said later that he struggled over the question and went back and forth in his thinking as late as the Christmas break. He made one firm decision during the postelection period: He decided to clear out Dan Nelson from the Washington office and to replace him with Theresa Fariello, the registered Democrat who had served in the Department of Energy during the second Clinton term. From Irving after 2001, Fariello had served as Cohen’s principal liaison to Democratic lobbyists such as Senator John Kerry’s former chief of staff, David Leiter, and as a general source of Democratic-leaning political intelligence. By choosing Fariello, Tillerson made it clear that ExxonMobil would adapt to the Obama era, not fight it from the trenches. How far Tillerson was prepared to move was not clear. A change in communication and tone was one thing; a change in policy advocacy about carbon pricing would be something else altogether. Tillerson at least wanted a Washington office that would not actively resist him if he decided to move decisively on carbon. Tillerson offered Nelson the lead role in ExxonMobil’s effort to win access to Iraqi oil fields, but Nelson decided to retire. Tillerson approved a lucrative retirement package; the former marine saluted and departed quietly. He remained loyal to Lee Raymond and told friends and colleagues privately that he feared Raymond’s achievements and principles at the corporation might be at risk.

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