Transcript: Peter Sutherland

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What do you think?

A transcript of the FT’s interview with Peter Sutherland, chairman of BP, conducted by Charles Pretzlik

Charles Pretzlik: Welcome to View from The Top. With me today is Peter Sutherland, chairman of BP, where we’re sitting today, and also chairman of Goldman Sachs International, and also a founding father of the World Trade Organisation. Mr Sutherland, thank you for joining us. Just how long can this market turmoil that we’re experiencing in the end continue do you think?

Peter Sutherland: I think it’s likely to continue - perhaps in a gradually abating sense - quite some time into the New Year. I think it’s impossible to judge precisely how long the current condition will continue but I’m not hopeful of a sort of rapid return to normality.

CP: Are you with those who think that the growth that we’re seeing in the emerging markets, particularly China and India, can mitigate the effects of any US slowdown?

PS: It can certainly mitigate and it is mitigating, and growth prospects remain reasonably firm in India and in China for an example, over the coming period. But I think to say that those markets will not be affected by a difficult situation in the United States would be wrong. After all, the United States makes up 30 per cent of global GDP and China in particular is dependent on exports very considerably for its growth. So it’s obviously going to have an effect. But the BRICs do mitigate the current condition and they have changed the global paradigm in terms of economics generally.

CP: And the estimates as to how much pain the banks would have to take has moved significantly. At the very beginning the US government was estimating around $50bn from the subprime crisis, that’s now gone to $200bn-$500bn just from subprime alone plus any impact of credit card loans. Do you have a sense at all of how much more pain the banks will have to take?

PS: Frankly for me to speculate on that I think would be utterly ridiculous, I don’t know. I don’t think anybody has been very clear from the beginning as to what the outlook really was. We’ve had various estimates and I’m not going to add to that.

CP: And when you look at how the three, sort of top central bankers, Bernanke, Trichet, and Mervyn King, have handled this crisis of the last few months, which one do you think comes out best?

PS: I’d be slow; I’d be slow to rank them. Obviously there have been hiccups and they’ve been obvious. Overall, I think that the European reaction has been rather good.

CP: There are some that say the ECB’s intervention on August 9 was in a sense the trigger even for the crisis because it made the scale of the problem so dramatically apparent and therefore they should bear some of the blame for sort of the turmoil that followed.

PS: That’s the sort of Eurosceptical nonsense that I expect from some quarters but not from the Financial Times.

CP: And when we last met, you talked about the possible risk, the risk that you saw of a strike on Iran and the impact that that might have on markets and world economies. Since then, intelligence has come to light to suggest that perhaps the Iranian threat is not as great as some in Washington had thought. Has your mind shifted at all on the possibility of a strike against Iran?

PS: Well, we’ve had two interventions from the United States, also from the joint Chiefs of Staff and now, most recently, from the intelligence community, and I think that that clearly indicates a significant reduction in the risk that many of us saw in terms of some of the rhetoric that we were hearing at the time when we last spoke on it. So it seems to me that that risk must have reduced considerably. It was a pretty clear report that we’ve received about the intelligence and even though president Bush underlined his view of a continuing threat from Iran, I think it is in a different context, having regard to the content of that report.

CP: And sticking with politics, do you think that one of the more realistic geo-political threats at the moment is rising protectionism? And I’m thinking, for example, of Hillary Clinton’s remarks that the Doha Round was of limited benefit?

PS: I was deeply worried by that intervention. It seems to me that the Doha Round is very, very important; it also seems to me that it is in deep difficulty at the moment. I would make the following points in regard to that question. First of all, it seems to be forgotten that the WTO and the discipline that the WTO has brought into trade negotiations and into, in particular, the integration of China in the global trading system, has been crucially important in providing rules and a road map for the liberalisation of economies globally and providing assurance of the globalisation process, which has given us years of sustained growth and which has been very important in the development of the BRICs.

If the Doha development round fails, and at the moment one cannot be confident at all that it will succeed, then this clearly has an effect on the global trading system. One aspect of that affect clearly will the proliferation of regional, or inter-regional, bi-lateral trade negotiations, which I think is a bad thing. These have been described as bringing about a spaghetti bowl of agreements, which creates confusion and undermines the global intra-dependence which we really should be talking about and which the United Kingdom, I should say, has been the most consistent and fervent supporter of, all particular parties. So I am very worried about the present situation. Simply jettisoning the Doha Round or introducing, as Hillary Clinton seems to suggest, issues such as labour and environmental conditions into trade negotiations seems to me to be a retrograde step.

CP: Does Hillary Clinton’s intervention suggest that the WTO is effectively finished as the main forum for liberalising trade?

PS: Absolutely not. Absolutely not, even if those policies were pursued in an administration in the future I don’t believe that they would have that dramatic an effect. The WTO will remain an adjudicating mechanism for most disputes globally; it will remain the base for international trading negotiation.

But it will certainly be a body blow to the credibility of a multi-lateral institution, which above all has evidenced the age of intra-dependence, global intra-dependence that followed the collapse of the Iron Curtain. The WTO came into existence with a wind, a fair wind. That fair wind was, I think, provided primarily of the collapse of the Iron Curtain and the recognition globally that it was necessary to have a trade situation which increasingly liberalised. In other words that the market economy was the main catalyst for growth, for efficiency, and for innovation. That fair wind provided the conclusion of the agreement and the creation of the WTO.

I think it was assisted greatly at the same time by the completion of the internal market, the 1992 project in Europe, because Europe’s participation as Europe was vital, otherwise we’d never have had an agreement. And the example that had been provided by the completion of the internal market was important to the creation of the WTO. It seems that, in the intervening period, people have forgotten what the world was like before the collapse of the Iron Curtain. People have forgotten the world that existed before we created a third leg on the stool. That third leg you’ve referred to earlier in terms of mitigating the crisis, which otherwise undoubtedly would have contaminated the whole global economy more dangerously than it did in the United States.

So, the way that the Doha Round seems to be taking second place in political discourse, the way that it seems to have been referred to by Mrs Clinton – and others, it should be said, in the United States are adopting a similar line – it seems to be a line that is popular amongst many in Congress – a somewhat more protectionist approach – and we’ve had evidence of it here in Europe as well, is quite the wrong way to proceed.

CP: Do you think the WTO could have done things slightly differently to avoid, to save the Doha Round drifting as it has done.

PS: I think it could have approached it in a different way, yes. I think it has been very unfortunate that agriculture as usual, a diminishing and relatively tiny part of the global trade fabric, has dominated the debate and was put up front. I would have preferred to have seen a much faster process in terms of services liberalisation because I think services liberalisation could have developed earlier a constituency of support for the completion of the Doha Round, which would have been formidable.

Also, I think that a different approach could have been taken to, and this becomes highly technical, the modalities approach which has been adopted, which is a formulaic approach to trade negotiation. I think that the old approach of offer and acceptance between countries was a better, and is a better, way to proceed.

Finally let me say that if the Doha Round – and I suppose that there is still a vestige of a possibility that it can proceed before the end of the year with some breakthrough but it seems to me to be a remote possibility – but if that possibility does not emerge and we conclude that the Doha development Round cannot be best finished until some years further down the track, after the creation of a new administration in the United States and the emergence of a new dynamic, then I think we should at least try and salvage what has been achieved in some areas. Like trade facilitation – there have been achievement. But I think that it is very regrettable that this dialogue about trade is increasingly moving to bilateral debates. And it’s everywhere.

The Asean are talking about it as well, because they seem to perceive the failure of the multi-lateral discussions as being a likelihood. And, of course, Europe, following the example of the United States, has already engaged in bilateral discussions with various parts of the world. I think this is a bad idea. Faute de mieux, it may be the only thing that can be done. So when I say it’s a bad idea I don’t mean that it’s a bad idea – it’s not a substitute.

CP: What can you do, what can anybody do to kick-start the process?

PS: It’s very difficult. Some people would say that Pascal Lamy, the director general, should put a proposition on the table and in principle I’m not opposed to that as an idea. The difficulty about it is that if you’re simply putting something on the table that you know is going to be universally rejected, where do you actually go and have you not damaged the WTO even more by doing so? So I think that that’s a judgement that I would leave to him. He’s a very expert trade negotiator.

CP: And sticking with political areas for the moment. How do you think the Irish government will handle next year’s referendum on the EU treaty?

PS: It can never be said that a referendum can be taken for granted, even in a country where it has the highest regard for the European Union, of all the member states of the European Union virtually. And understandably because of the relatively great success of the Irish economy. And there’s always the risk, as in the case of the Netherlands and in France, that people vote on issues other than the main issue. They vote because of discontent about the political party that is in power. They vote against the treaty for entirely unrelated issues, as they did in France, for example, many people voted against globalisation, against Turkey or against Chirac, or against migration in the Dutch case.

Having said that I am confident that it will be passed. I think Ireland had a shock over the Nice Treaty, and when they voted again it was overwhelmingly passed. I think it is regrettable that Ireland is forced to have a referendum because of the entirely restrictive nature of the constitutional provision relating to this particular subject. It appears that it will be the only country out of 27 that will do so, which I think underlines the fact that this is not the appropriate, no more than it would be the appropriate means for determining a political response to this issue in Britain – it is not a referendum-type issue. A referendum-type issue for me would be, in Britain for example, whether Britain wanted to remain in, as I said in an article in the Financial Times.

CP: What are the consequences of a ‘no’ vote in Ireland?

PS: I think the consequences would be appalling and that’s why I don’t think it is foreseeable that it could happen. For one country, even a large country, to seek to hold up the joint determination of 26 others is inconceivable. The country would have to, would be asked to review its position. I don’t think that that’s going to happen. I think Ireland will pass overwhelmingly and a lot of us will give whatever degree of effort and time is necessary to ensure that that is the case.

CP: And Mr Sutherland, Goldman Sachs where you are the chairman of the international business, has been the undisputed heavyweight champion of the credit squeeze so far. How much of that do you think is down to risk management culture, luck, or perhaps a slightly more commercially aggressive attitude to conflict management?

PS: I think it would be very unwise to be infected with hubris as a result of what has happened. Everybody knows that things can go right and can go wrong. In this particular case they’ve gone right. I don’t think it can be attributed to luck, I think that there were good decisions made and processes worked. However they can sometimes go wrong as well, as we have learnt in Goldman Sachs in the past. So I think everybody in Goldman Sachs is very conscious of the fact that it would be unwise to draw excessive conclusions from this relatively successful period.

CP: And you’ve held you post there for quite a while now. How much longer do you think you’ll stay there?

PS: Well, I’ve been asked to stay on. I reduced my involvement some years ago, not least because I had a greater time commitment here in BP, but I still spend a reasonable period of my week working with Goldman. I enjoy it very much and I have no immediate intention of leaving.

CP: And you don’t have a sort of a rough plan of how long you want to give it still?

PS: No.

CP: BP, on the other hand, you have indicated that you will step down from. What’s the timing on that?

PS: Yes. The timing on that is at the annual general meeting in 2009 is the anticipated date. The idea here, and this was a determination of the non executives, excluding myself, I should say, because I was quite relaxed about the whole thing, that it would be desirable to have an overlap on the appointment of Tony Hayward as the new chief executive. And he was anxious that I should stay for a period of time. And that period of time, which we determined jointly would be appropriate, is up to April or so of ’09. The other issue, of course, is finding my successor and that is a process which takes some time, having regard to organising possibly somebody’s realignment of their position in order to take the role, and that will be taking place in the course of the coming year.

CP: And if that process works faster than people, than perhaps originally anticipated, would you go earlier if that was convenient?

PS: Well, I’ve always been willing to do whatever is desirable for the company but I think everybody is determined that the procedure that I have already mentioned is the appropriate one and that there should be some overlap also once the person is identified. So, I think as we’ve only got a year and a little bit between now and then it will, we will, stick to that time schedule.

CP: And after that. You’ve had big political jobs, you’ve had big commercial jobs; what will you do next?

PS: I have no plans, what I will not do next I think is take a substantial involvement in the corporate sector. I’ve retained a very significant interest in various aspects of public affairs. Over the last year or two I’ve spent a little bit of time, obviously limited, but as special representative of the Secretary General of the UN on Migration and Development, which I’ve enjoyed. I’m about to become chairman, on the 1 January, of the London School of Economics, which is not an executive role, it’s a non executive role, which I will also enjoy. But I think I will continue to pay particular attention to the European debate but I don’t see any structural role, formal role in that. But I will not be looking for any other corporate positions.

CP: And there are no big sort of public policy roles in international organisations that are coming up that you think would be interesting?

PS: Well, there are lots that would be interesting but there are very few that I’d be likely to be asked to do. I don’t know what the future will hold but I’m not masking or disguising anything in saying that. I’ve been out of the political world since I left the WTO and, well out of it in the formal sense, but I’ve retained a very active involvement in European affairs and I will continue to do that because I suppose that whilst logically the biggest moment in my life was the end of the Uruguay Round of the creation of the WTO, passionately, apart from my personal life, passionately, in terms of passion, my passion is for European integration, which I think is the most noble political ideal that Europe has had in 1,000 years. So I make no bones about the fact that that to me is a driving motivation, which will continue to drive me.

CP: So what’s the most effective way that you can contribute to that process?

PS: Well, I intend to continue stirring the pot in this country, as best I can, from what some people would consider to be an extreme integrationalist position but which I think, in European terms, is a rather moderate centrist European integrationalist position. So I intend to, I think I’m going to continue doing that. I’m about to publish a pamphlet in Britain, which will be, I hope.

CP: What’s the topic?

PS: Britain. Britain in Europe. Or out of it. Which, of course, is the last thing in the world that I would like. But I think the gradual movement towards being semi-detached has reached a pitch now, taken in conjunction with the decibel count of Eurosceptics, the volume of Eurosceptical comment, that it’s worrying. And it worries me and I think that it worries those who see Britain’s involvement as an economic liberal leader in Europe eroding at a time when it is vital that it should be increasing.

And I think it’s also vitally important from the view of transatlantic relations that Britain sees it’s role not as some sort of independent arbitrator between Europe and the United States, but, as the United States in successive administration would have wished, at the heart of the European process of decision-making. And that can only be done by taking a constructive role, not a negative one, not a semi-detached one where debate about Europe is conducted as if it’s them and us, which is the way it always comes across. You know, “they” are doing this, “they” – who are “they”? They are 26 other countries; it’s absolute nonsense!

CP: But do you think Britain is getting to a sort of cross roads where realistically, it’s politically realistic that one route could involve massive withdrawal from Europe?

PS: Well, I mean I hope that that can’t happen but we’re getting to a stage where more and more things are being jettisoned and Britain is opting out of more and more things. And therefore debates continue to take place. For example the Eurozone ministries of finance, the European Central Bank, institutions which are central to Europe are not participated in by Britain. The opting out of justice and home affairs in the Reform Treaty I think is a regrettable decision. And yet it is applauded by the editorialists in various mainstream British newspapers.

I think that if one continues at a stage where public opinion, on a consistent basis, measured by Euro-barometer in Britain is at the bottom or close to the bottom of those who believe that the European Union is beneficial, that that is unsustainable over the long term. Sooner or later some political party and the dynamics within a political party may lead to a crisis and I think that that has to be avoided and the only way it can be avoided is not by brushing everything under the carpet, which seems to be a popular political response, but by addressing it frontally and saying it as it is.

CP: If I can just bring you back briefly to BP, what do you think has been the hardest thing, most challenging thing to deal with in your time at BP?

PS: The last year or two has been obviously very challenging but first of all one should not forget the enormous achievements, which I claim no credit for, which are also evident and were evident in the period leading up to that. I mean, when I joined the board of BP it had a market capitalisation at one stage of about 16 billion [pounds]. We have been well into the mid 200 billions in the interval and we’re still substantially up there. So it has been an amazing experience in an old industry to see a British company, for it is a British company in essence, doing as well as this. And a great deal of credit goes to John Browne for achieving that. But also, significantly, to David Simon and, going right back, Bob Horton and others who created, out of a very difficult time in the early ‘90a, a great dynamic.

But your question was what was the most difficult time? Well, clearly we had a difficult time in the course of the last year, which was a combination of a whole range of different circumstances. In the United States in particular, in the business context, Texas City. The oil leakages in Alaska, Thunderhorse and the trading scandal, all combining, whilst they didn’t take place at the same time they seemed to come up publicly at more or less the same time and at the same time that we had a traumatic change in terms of the leadership of the chief executive of the company. So that was undoubtedly the combination of circumstances that gave rise to the greatest difficulty for me. I think that it was all handled, bearing in mind the extent of the issues we had to deal with, as well as it could have been dealt with. So I don’t have particular concerns about that. But I am sorry that the circumstances were such that we had to face that, and I’m sorry also for those who were involved in those circumstances. Particularly for John.

CP: Was explaining to John Browne, one of the most admired chief executives of his generation that perhaps time was up. Was that a particularly difficult conversation?

PS: Well, there was a great deal of publicity about that at the time but in fact the conversations that I had with John never were, were never acrimonious, and that particular issue which exploded as a public issue for a brief period of time came to an end very rapidly. It was clear what was best for everybody and an amicable solution was reached. Fortunately, subsequent events accelerated that as a result of John’s own decision that he should step down earlier than had been envisaged.

CP: At what stage did you know that he hadn’t been entirely truthful with the Judge?

PS: I only saw the judgement of the court and was not involved because of the extent of the injunction itself the board was not involved in the legal proceedings at all, until the very last stages. At some stage the judgement was actually delivered, I can’t give you precise dates, John had given the outline of the basic facts to me but he himself was inhibited in handing over the early court orders and so on. And I suppose until the final judgement was given nobody knew whether there would be an injunction which would restrain publication of whatever had happened or not.

CP: And since then, since John Browne has left, have you stayed in touch, have you spoken to each other at all?

PS: Yes, I have. Yes, I have, I attended a lecture he gave two weeks ago in the, in LSE, and I have been out with him for lunch a couple of times in the interval, yes.

CP: And when you look back over the last years and the sort of difficult period, as you’ve described it, obviously it was primarily responsibility for the day to day company rests squarely with the executive management but to what extent do you feel that your role as overseeing the board and directing the chairman, the chief executive, that you share some part in the blame for all of that.

PS: Well, first of all I’m not attributing blame to any individuals in this. I think that the board actually did its job properly, throughout the entire process. So I don’t accept the basic question, the basic inference in the question.

CP: And the board wasn’t in thrall to the sort of superstar chief executive or anything?

PS: Absolutely not. I don’t believe that at all. I think that the first, one of the points I think that has to be made about the events that occurred in the United States is there are two different ways of looking at it, one way of looking at it is saying that they’re all linked in some way. I don’t believe that they are all linked.

They came to light at the same time and they all came to light in the United States. But I think that they were different issues. And clearly there were elements of real culpability in terms of, for example, Texas City which was a heritage Amoco, a heritage Amoco refinery, but had been under our control for some time. But I’m not issuing a blanket condemnation in any way of management let alone senior management either. Obviously there were deficiencies but there were lots of good things happening throughout that time in BP. So the suggestion that the chief executive in some way carried a unique responsibility in this would be quite wrong.

John did lots of good things throughout that period and we had difficulties in the company but that was not the reason that he left. John was leaving, in any event, because the conclusion of the board was that it was time for change. And that was a decision that would have been taken even if there were no issues of the kind that I have described. That was the decision about the necessity to move on, which the board had reached. So the implication, if there is an implication, that John in some way was held responsible by the board and therefore removed from this position is not correct.

CP: And, it may seem like ancient history now, but did the two of you disagree over whether or not some sort of deal with Shell would be sensible or at least worth exploring?

PS: We never, the decision about whether or not there was a deal was never moved to a final position at all. I don’t think it’s worth speculating about the consideration of a whole range of different alternatives which we would have had at various stages. I think that that has taken on a life of its own as a discussion.

CP: And how is BP changing now?

PS: Every new chief executive brings his own dynamics of change. John brought dynamics of change which were important and Tony is bringing dynamics as well. Certainly there have been some new moves, they might well have taken place under John anyway, had he remained as chief executive, for all I know. But Tony’s push for operational excellence, driven by some of the experiences that we’ve had, has been quite apparent, and I think very important.

I think that we are therefore bringing about a situation which enables the company to look with great confidence to the future. We’re bringing back on stream some of the assets that were not performing. They will be coming back. And I think that the reduction of complexity in the company, the addressing of performance by individuals and by the company as a whole, in a very direct way, with a very collegiate spirit at the top, is very evident and very desirable. So I think he is showing great dynamism and leadership. When one looks at the future of the industry, which is complicated, complicated geopolitically, complicated by issues relating to climate change, and complicated in regard to security of supply, it’s clear that we have to be nimble. And even though this is a very large organisation we have to create a dynamic for internal management growth and performance development, which is at the very cutting edge.

CP: If you had to identify the two or three key dynamics for the industry for the next three years, what do you think they would be?

PS: Well, the dynamic always will be finding the resources and developing them. I think that we have a good base in any relative terms in BP, and we have a very good record in exploration. And even in the last year we’ve had finds and we’ve had developments. I went down with Tony myself, and Tony Blair when he was prime minister, to Libya, where a deal had been concluded, and we continue to grow and develop our relationships in Russia and other parts of the world. So, that’s one very important factor. Obviously we’re very concerned with the whole alternative energy, we’ve been leaders in the area of alternative energy as a major oil company from the outset and we will continue to invest substantially as we are, for example, in biofuels with $500m in terms of investment strategy there.

CP: That’s not being downgraded in any way?

PS: No, it’s not being downgraded. Obviously the immediate focus is delivering back the production areas that were out of production and getting our refineries working effectively with the overall priority of safety of people being absolutely first having regard to what we have gone through. But we are moving forward and we are moving forward well.

CP: Mr Sutherland, thank you very much. Are you ready to play long short?

PS: I am.

CP: Oil.

PS: I’d be – on pricing?

CP: Yes.

PS: I think pricing will remain at a reasonably high level for the next two or three years.

CP: Would you be long or short then?

PS: I’d be long.

CP: On nuclear energy.

PS: I’d be long.

CP: On equities.

PS: Over what time scale?

CP: Over the next 12 months.

PS: I’d be neutral.

CP: On the chances of Lord Browne getting a FTSE 100 directorship in 2008.

PS: If he wants it, I would be very short.

CP: You’d be very short?

PS: I’d be very long if he wants it.

CP: On the likelihood of conflict with Iran.

PS: I’d be short.

CP: On Belgium as a united country.

PS: I’d be long.

CP: On the Doha Round.

PS: I’d be short.

CP: Mervyn King.

PS: I’d be long.

CP: A yes vote in the Irish referendum on the EU Treaty.

PS: Long.

CP: And philanthropy in an economic slowdown.

PS: I’d actually be long.

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