Steve Simon giving testimony before Congress
By
Matt Nicholson
How did your experiences at Northwestern University's Kellogg School of Management (Kellogg) help you develop your leadership style and prepare you for ExxonMobil?
One of the things I like about Kellogg, and I think separates it from some of the other graduate business schools, is the importance of teamwork. The way the curriculum is structured with case studies and the way you operate working with other people, it makes you establish yourself as a leader when you don't really have any formal authority. Developing the capability to influence people as part of a team was very instrumental and very helpful to me in establishing a leadership style.
What was it like testifying before Congress?
(Laughing) Well it was a unique experience to be sure. In my career I testified before congress four different times, and it is not to be underestimated. You have to prepare very well before you go before Congress because you have no idea what they might ask. Usually there is a theme or subject of the testimony, but you find, and I knew this before I testified, that they can ask you a question on any subject or any topic that they desire, so you pretty well have to prepare yourself for all areas of the business. So I spent considerable time in preparation before I went to Congress each time. You know it's most likely going to be a somewhat adversarial environment and you recognize that is going to be the case, and it is very important to maintain your composure.
So do you think anything good came from the Congressional testimony?
I will say this: I testified three times in the last couple of months with ExxonMobil, and one of the themes which I (and others testifying before Congress) hit on time and time again was that we need to take advantage of the resources we have available in this country. This is the only government in the world that denies its citizens access to known petroleum resources, and yet we are the largest consuming country in the world. We tend to come across as a very arrogant country when we tell other countries which are producing petroleum that they need to produce more to meet our requirements when we don't even take full advantage of our own resources. I'm not saying it was because of our testimony, but at least partially as a result, that we began to see public opinion turn in favor of taking advantage of petroleum resources declared 'off limits' in the U.S. In fact I think when you looked at the results, some would judge that the industry came out better than some of those who were attacking our industry in Congress.
Were you surprised by the run up in crude prices over the summer and the subsequent steep decline we have had over the last few months?
Well after 41 years in the industry you are never surprised, but I will say that when you look at the historical fundamentals of supply and demand, days of inventory in particular, the run up and the magnitude of the run up that we saw was certainly atypical of what you would have expected given those conditions.
Starting in early 2007 there became a disconnect between the usual correlation we saw between days of inventory and price, and the disconnect grew through probably July of last year. We could identify three components that contributed: the weakness of the dollar, the geopolitical situation and market uncertainty given low levels of spare capacity, and speculation in the market. But these factors were not unique to oil and had the same effect, to some extent, on gold, silver, wheat, and all the commodities. If you had looked at the fundamentals based on days of inventory, that correlation would have indicated that the price should have been somewhere in the $55 to $65 per barrel range. And, indeed, the price has dropped off considerably, especially with the fall off in demand.
What have been some of the keys you think have allowed ExxonMobil to be so successful at creating value?
One key is having a long-term perspective and a constancy of purpose. We don't change our fundamental approach to the business. Now that doesn't mean we never change, but we have a fundamental approach that we maintain and we don't try a new flavor of the day, so people know what's expected of them. We know where we are going and we have a constancy of approach and constancy of purpose. And therefore you don't waste a lot of energy and time and effort re-doing your business or your approach to the business every two or three years.
The other thing that I think separates ExxonMobil, and I realize there are many other corporations or businesses that could make this same comment, is the level of integrity and ethical approach to the business. I can say unequivocally that at ExxonMobil you would never be asked to do anything that would not at least equal or surpass your own personal standards of integrity and ethical behavior. The level of integrity, ethics, and business standards of the corporation are as high as any you will ever find, and this culture has served ExxonMobil very well and allowed it to sustain itself as one of the top corporations in the world.
And it really goes back to the quality and the character of the people. You won't find a group of people with any more talent, but more importantly, or certainly as important, you won't find any group of people with a higher level of integrity or ethical standards than at ExxonMobil.
There is obviously a lot of focus on renewables right now, but often people overlook the technological advances that have been made in traditional oil and gas technology and the reduction in its environmental impact.
There is no question about that. This will probably come as a surprise and a lot of people might find this statement somewhat humorous or unbelievable, but I say unequivocally that you will not find a group of people more interested in protecting the environment than those who work in our industry. When you look at the improvements that have been made in the environmental aspects of our business, to me there is no other industry that has improved more than ours. When you look at the products we produce and the air and water qualities associated with our operations and the improvements that have been made, I don't think there is any other industry that has made the advancements that we have. It is very important to our industry, and the people who work in our industry feel very good about what we've done in that respect. We have put a tremendous amount of our resources into operating in an environmentally responsible fashion.
The other point I'd like to make is that when you look at what is going to supply our needs today and in the future, the predominant source of energy is going to be fossil fuels. Today oil, gas, and coal constitute 80% of the energy supplied, and in 2030 we still project it is going to be 80%, so we have to continue to innovate and create new technologies to meet that fossil fuel requirement in an environmentally responsible fashion. The amount of energy that we are going to need in 2030 will be roughly a third higher than it is today and the majority is going to be fossil fuels, even though a lot of people don't want to hear that.
We project that alternative fuels, what we would call modern renewables: wind, solar, and biofuels, will grow at extremely high rates - wind and solar on average about 10% and biofuels at a little under 8%. I should point out that those extremely high growth rates are driven by government mandates and subsidies; without those, the growth rates would be an order of magnitude lower because modern renewables for the most part simply cannot stand on their own. But even with those very high growth rates they will still only constitute 2% of the total energy supplied by 2030 – wind and solar about 1% and biofuels about 1% – and that's because they start from such a low base. The energy equation is so monstrous that they simply cannot have an appreciable impact for decades to come. So fossil fuels will continue to be the dominant source of energy for decades and decades to come, and it's going to require significant advances in technology to meet that future demand. That is why technology is so important and why we put so much effort and resources into developing new technologies at ExxonMobil.
Obviously ExxonMobil has made the decision to focus on its core oil and gas business and not invest heavily in renewables as some other majors have done. How important do you think that decision has been in allowing ExxonMobil to outperform its peers?
Well it's been extremely important, and again it goes back to that constancy of purpose and maintaining a constant approach to the business. But let me say this: we are not against renewables by any stretch of the imagination. We have more PhDs and top scientists than the top universities in the U.S. and more than any other corporation; and these folks are constantly looking at other viable sources of energy with enough scale to have an impact. There is no technology out there today that ExxonMobil has not studied ad nauseum; however, the current generation of renewables just doesn't make sense without significant subsidies and government mandates and that is not something that we think is in the best long term interests of the societies in which we operate.
People just don't realize how large the energy industry is. If you look at the energy business today on a global scale, it would take 55 companies the size of ExxonMobil to supply the current world's energy needs. In order to have any impact on that scale you can't just incrementally improve upon the current technologies; you have to find new breakthrough technologies, otherwise you just aren't going to have any appreciable impact whatsoever. That is why ExxonMobil is sponsoring the research efforts of the Global Climate and Energy Project at Stanford whose objective is to look at all possible sources of energy in the future. They are looking at new technologies that can provide sources of energy with scale that have significantly lower Green House Gas emissions. Solar, certainly, but not the current technology of solar; they are looking at what might be the next two or three generations in the future, things that can have an appreciable impact 15-20 years down the road, not the next five years. People often want to know what can be done today in terms of increasing supply, and quite frankly there is very little because it will take decades to bring on an entirely new technology and make it commercially viable.
You have had to move around quite a bit during your time at ExxonMobil, how difficult was the decision to make those trade-offs?
One thing I will say is that I'm extremely fortunate to have a wonderful, supportive wife and a very supportive family. There are trade-offs, and if you don't have a family that is willing to make those moves and adapt to new and different environments then it is not a business you want to get into. There are definite disadvantages because you have to uproot your family, you have to leave friends behind, you have to make new friends. I would say it's hardest on the spouse when you move. The children have their school and you have your own support system at work, and so it is hardest on the spouse.
Despite those disadvantages, they can be outweighed by the advantages. You and your family get to have experiences that other people may never have. We lived overseas a couple times in London and Rome – not exactly hardship assignments – and my family loved that. The experiences we had living in different cultures, meeting different people, and making friends all around the world is something that made our life experience much more rich and enjoyable than it would have been had we stayed in one location or even a couple of locations.
I remember when I went off to college, it was a major, traumatic experience for me because I grew up in the same town and never moved at all. But when my three daughters when off to university, for them it was no big deal, just another move. They made new friends and adapted immediately and did extremely well. So yes, there are trade-offs, but our family wouldn't have changed it at all.
What advice would you give alumni early in their career in the industry?
I would pass along some advice my dad gave to me, and it's excellent advice. Number one, be sure you enjoy what you do because if you don't enjoy it then you are not going to do well at it. And secondly, don't worry about getting ahead. With every opportunity you are given, learn as much as you can and do as well at that job as you possibly can and don't worry about what's next, or where you are going, or are you getting ahead as fast as you should.
Its good advice, but its not always easy to follow. I admit that. But in looking back, it has been so true. There were times early on in my career when I would look at other people I graduated with and where they were versus where I was, and I felt like I wasn't doing as well as some of the others. But in hindsight, the things I learned early on in my career, having those opportunities and those jobs gave me such a firm grounding in the fundamentals of the business which allowed me to move a lot faster later on than would otherwise have been the case. Don't ever underestimate the importance of learning a business. You are going to have to go through a number of jobs in some corporations to get that grounding in the fundamentals of the business that will later allow you to have jobs of increasing importance and responsibility.
I think that if you follow the advice my dad gave me and do all those things, it will work out and you will do very well. I was certainly blessed and very fortunate to be given all the opportunities I have been given and am very fortunate to have had such a challenging, interesting and fascinating career.
