CORRUPTION

Guest Post by James the Wanderer

In 1981 I was a fresh young fellow, just out of college, and needed a job. I joined the Port Arthur Research Laboratories of Texaco Inc. in Port Arthur, TX, which was the most lucrative offer I had gotten out of college. It was one of a couple of offers I had received at the time; another was a company that made fibers for carpets and other things, Millikan. There was something of a stigma on them at the time, for periodically the owner would fire an entire corps of engineers if something went wrong, and was known for it; other companies would eagerly hire the fallen, since it was known that Millikan did this, despite having only hired the best he could find. But I was not interested in this, so I went for stability, which was TXC (their stock exchange symbol back then, hereafter a handy shortcut for the name); they were known for their veteran employees, and rarely fired anyone except for theft, incompetence or similar good reasons. I was neither a thief nor incompetent, so I took their offer.

Here I must apologize; despite the passage of over a quarter-century, I have not been able to establish that ALL the people I worked with are dead, retired or otherwise employed. And TXC had people of honor, character and discipline, which I have come to value wherever I find them; so EVERY name here is a pseudonym, to protect those who might still be serving in some capacity for their successor company, which turned out to be mainly Chevron, or somewhere else. I have no interest in gossip, nor maligning by association those who honorably do their jobs in this world. The worst perpetrators in these stories are dead, so it serves no purpose to name them either.

This article is to demonstrate by example the challenge of working honorably for an organization that is corrupt at the top. And how, despite the existence of honorable men and women (such as those who worked for TXC all over the world), a corrupt organization is doomed eventually.
I didn’t work at PARL for long; about eighteen months. The Oil, Chemical and Atomic Workers were restless; there was strike fever in the air at the oil refinery next door, but the Research lab staff didn’t think there would be one; after all, they had “gone out” a few years earlier, and several members of the union had lost cars, boats, even homes when they had insufficient funds coming in to keep up their payments; they were too hurt from the last time to go out again so soon, so if there was a strike it would be short, a kind of face-saving gesture.

The extra money from overtime would be useful to the personnel helping to keep the refinery running and making gasoline, lubricants and fuels of every kind to meet the customer orders, but better not make any plans for lots of largesse; it would be over in a week or two, so don’t buy a new house, car or boat just because you thought you could afford it. So went the thinking among the Research staff, who had been there / done that before; they probably won’t strike and if they do it will be over quickly. Similar rumors came to us from the union side, whose former members made up the supervisory staff of the refinery next door, and their friends from before promotion assured them that the local union was not eager for a protracted showdown.

We were all wrong; the majority of the larger union was chemical workers in places like New Jersey and nearby, people who hadn’t struck for higher wages and better conditions a few years before but had a say (through the union management structure) on what would happen. The first week in January 1982 saw the call made, and the OCAW struck TXC and the rest of the oil companies; we were summoned to our assignments at the refinery for 12-hour shifts, but expected to be back at our real jobs in a week or two, once the details of a new labor agreement were hammered out.

We were wrong again; it was seven and a half months before we went back, the union was effectively broken and came back when TXC finally said “Come back or we are hiring permanent replacements, and none of you will ever work here again”. They hated it (and us, for making it possible) but came back, and aside from minor concessions not worth another strike, never had an equal hand in operations again.

But TXC, having learned that they could run the refinery with fewer people (a LOT fewer people) than they had been, was making reductions overall in the refinery staff where they could; and the word went out that Research headcount would be reduced, with transfers to other departments that were understaffed openly posted throughout the company, something none of the veterans in Research could ever recall having happened before, and a sign that things were changing. My supervisor was happy with my work before and after the strike, but could not guarantee I would have a job myself after the deadline; I took a transfer to Purchasing, and things got even busier.

Texaco Purchasing Houston Division was in a four-floor office building (the longer one in the background) in Greenway Plaza at the lower edge of the city; it had been built by Jefferson Chemical, an acquisition, and parts were rented out (Purchasing was the top two floors, with some storage on the first). A small army of clerks and secretaries bought the stuff needed to move hundreds of thousands of barrels of crude from the fields to the refineries, the products from the refineries to the customers, and everything between, around or nearby the effort.

The heads of Purchasing liked to hire engineers whenever possible; engineers had the smarts to learn quickly, the background to understand complex issues involving equipment and processes, and usually the skills to negotiate getting the best deals for the company. Retention was high, and getting in was almost an assurance of permanent employment (except for theft, incompetence & etc.). I joined them after the strike because they were close, and I wasn’t eager to leave Texas for extended-family reasons (my grandparents were upstate).

It turned out that the retention rate was high because no one was allowed to transfer out; the head of Purchasing, who I will call The Emperor, didn’t want any stories getting out in the company. His second-in-command, Darth Vader, was similarly inclined (or had no say). From my lowly perch at the bottom of the organization, I was only in contact with the Emperor rarely; he was a slightly portly, elderly (sixties) man with a greying hair, a slight limp (from a heart attack or two), and firm, no-nonsense manner. I was to learn that he was devoted to TXC, and in some ways ethically flexible; I can talk from experience about a couple of the worst offenses, now that he is long dead and perhaps the deals are extinct.

At the time TXC was one of the Seven Sisters, perhaps the fourth-largest oil company in the world. “”Seven Sisters” was a term coined in the 1950s by businessman Enrico Mattei, then-head of the Italian state oil company Eni, to describe the seven oil companies which formed the “Consortium for Iran” cartel and dominated the global petroleum industry from the mid-1940s to the 1970s. The group comprised Anglo-Persian Oil Company (now BP); Gulf Oil, Standard Oil of California (now Chevron), Texaco (later merged with Chevron); Royal Dutch Shell; Standard Oil of New Jersey (Esso/Exxon) and Standard Oil Company of New York (Socony) (d/b/a Mobil now part of ExxonMobil).” [Wikipedia]

One of the market structures for “oilfield tubulars” (the pipes driven underground into the oil reservoirs, a highly specialized materials-and-structures solution to high temperatures, high pressures and corrosive / erosive fluids) was the “oilfield supply company”; basically, a distribution network for manufactured goods unique (or nearly so) to the needs of the oilfields. Having a well down could cost tens of thousands of dollars AN HOUR; more than one was a concern, several would be highly painful (and things are ALWAYS breaking down in the oil patch; valves, pump heads, motors, gearboxes, you name it, it would break, and usually at 3 AM on a weekend) so a distribution network built up.

Made up of independent companies with locations in places like Left Elbow, Montana, they were situated so that the local supervision could buy a new motor / gearbox / whatever in the middle of the night, get it replaced into position and back online and producing as quickly as possible. The oil field supply companies were big enough that they could negotiate discounts from manufacturing firms like U S Steel and Lone Star Steel for oilfield tubulars, and other items that were highly in demand in the oil patch; they could make money to stock their warehouses in places like Left Elbow because they were big enough to run their businesses on the spread between what they paid for things and what they sold them for to operators like TXC. So far, so good.

The Emperor’s innovation was to BUY an oilfield supply company (Zodiac Supply, out of Tulsa, OK). Normally this would be fine also; it would be a TXC subsidiary, and run like one. But The Emperor went a step further; he demanded that the manufacturers EXTEND THE OILFIELD SUPPLY HOUSE DISCOUNT to Zodiac; this effectively gave TXC a step up on the competition, since TXC would be buying wholesale as a retail customer. MILLIONS of dollars were at stake, because THOUSANDS of oil fields were in the TXC domain; single orders for thousands of twenty-foot-long “joints” of oilfield tubular for a single field were not unknown, and a fifty-dollar-per-joint distributor discount (for certain grades / materials of pipe) were there for the taking.

The Emperor took it, and saved TXC vast funds in oilfield operations by pretending to be an “independent” oilfield supply company while being an end-user. And woe to the manufacturer who refused to play along and supply goods at distributor prices; U S Steel refused to play along, and was excluded from business worth TENS OF MILLIONS of dollars worldwide because The Emperor could say “Keep those bastards off the bid list” when oilfield tubular requisitions came in to Purchasing, and they would be kept off. There was a whole group of five or so buyers who handled oilfield equipment requisitions, and their offices were right next to the Emperor’s on the top floor; THEY were, effectively, “Zodiac Supply Co.” and would negotiate deals for TXC under the name of “Zodiac Supply”, then handle the paperwork for Zodiac to buy and TXC to receive.

Zodiac still kept a few warehouses going, and would sell to anyone, in order to help maintain the fiction. And oilfield tubulars were not the only goods handled this way; motors, gearboxes, whatever a normal, independent supply house would have, Zodiac would have. This went on for YEARS (but when I looked online, the Zodiac Supply I found was another company; I guess the old “Zodiac Supply” must have been disbanded when TXC was bought out by Chevron).

This is just an example of CORRUPTION; here, taking what was undeserved under false pretenses (the distributor discounts being taken by an end-user). But it’s not the only one I can relate.

“John Hammond” was the fleet buyer for TXC, responsible for automotive purchases for the entire company; he bought everything from pickup trucks for the oilfield roughnecks to get supplies in and out to company cars for the executives to big rigs to pipe haulers, and everything else. Across four continents and dozens of countries, TXC bought (and wore out) a lot of vehicles. ”John” was a busy guy (we all were). One day he got a requisition for a Rolls Royce, which was unusual even for him. He questioned it, and got an education.

TXC had bought the Getty Oil Company, and inherited numerous facilities, assets and personnel; among which were oilfields in a few new places, even the Middle East. TXC also inherited some deals, and this one went: In order to pump oil out of Left Elbowstan, you will pay X percent royalty, provide Y jobs to locals and provide a Rolls Royce each year to Sheik SoAndSo, at your expense. Normally, major oil companies did not do that, as it was a bribe in every sense of the word, and would be tough to explain to shareholders after an audit.

But Getty Oil Company was not a major, and could make that kind of a deal, being essentially privately owned (and that mistake eventually killed TXC, when an ownership squabble turned a major-league merger into an enormous lawsuit that miscarried; more later). But when John questioned the requisition, he was told “If we bitch about this, the Sheik might want to re-negotiate the ENTIRE deal, including the royalties, employment quotas and so forth; they are keeping the deal as-is since the buyout, and we don’t want to rock the boat. DO IT.” John found a Rolls Royce dealer in the Middle East (imagine that!), negotiated a price on that year’s model, and sent the purchase order upstairs. It came back, signed, and he was off to the next requisition.

It was ironic that a large justification for the Purchasing department was to PREVENT corruption; the kind that might lead a supervisor in a distant location to make a deal with a local supplier, to get a kickback for steering business to that supplier. I’m confident that Purchasing prevented a large amount of that kind of corruption, in fact; I certainly didn’t have any side deals with suppliers, and if I had the auditors who verified every purchase over $X would almost certainly have caught them and gotten my ass fired.

But I’m not sure the oilfield tubulars group was ever audited, or whether they had special rules if they were audited. Even if they had rules / were audited, The Emperor was tight with the TXC management (and could show millions in savings from every group, not just oilfield tubulars); any discrepancies that weren’t an outright fraud on TXC would probably be smoothed over as justified by the results, like that Rolls Royce bribe. It went on, as long as I was there.

Darth Vader was in a bad position to begin with; he wasn’t necessarily corrupt himself, but he was constantly having to try and justify / explain / devise solutions to problems he had not created. The buyer for oilfield chemicals (drilling mud, additives, etc. worth millions but not enough to require “special attention”) was a young man with great talent and honest outlook; but he was constantly being required to “get a bid from Zodiac” for certain items, which bothered him greatly. “Eddie Edwards” was too young and idealistic to just go along with corruption, so Vader was constantly having to create reasons to ask Eddie to do so; Eddie knew the score and wouldn’t make waves, but had some sleepless nights as a consequence. And cluing in a new Eddie replacement would be challenging and time-consuming, so Eddie was kept on and Darth kept finding excuses. The frequent tension was hard on both of them, and frustrating even to watch from a safe distance as I did.

The valve and fittings buyer was another one. “Tom Toledo” knew all about Zodiac, and refused to play along. Either he knew too much or had some other foothold, because he didn’t play along and ran an independent desk, more or less; he would “get a bid from Zodiac” only if he had to, if it somehow made sense or he needed a third bid for a given requisition and no other supplier was available. Tom was a tough, chain-smoking man with a conscience, and honest deals were the only kind he did.

I’m sure that there were some heated discussions between Tom and management about not going along to get along, not following the informal instructions and not maximizing the Zodiac payback, but Tom didn’t budge. He also didn’t get promoted, invited along on certain luncheons and praised for the undeniable cost savings he generated out of sheer knowledge and competence at his job, but apparently that wasn’t important to him. He was still there, chain-smoking and taking care of business when I transferred out.

All kinds of things come to an end, and TXC did, due to a ridiculous lawsuit that TXC management totally mishandled. Getty Oil was owned by the Sarah Getty Trust, a few relatives, and Gordon Getty, a MINORITY stockholder. Here’s how Lawnix describes the case:

“Facts: Pennzoil (P) and Getty Oil entered into a merger agreement whereby Pennzoil would acquire Getty. Pennzoil and Getty signed a Memorandum of Agreement subject to the approval of each board and issued a press release.

Texaco (D) made an alternative offer to Getty’s board. Getty repudiated its agreement with Pennzoil and accepted Texaco’s offer.

P sued D for tortuous interference with contract. D asserted that the Memorandum of Agreement was not a binding contract because it was subject to the approval of Getty’s board of directors and would expire by its own terms if not approved. P asserted that the contract was binding because the Memorandum had been executed by a group of parties that controlled the majority of outstanding shares in Getty. The jury returned a verdict for P and D appealed.” http://www.lawnix.com/cases/texaco-pennzoil.html

Here, Lawnix gets it partly right, and largely wrong; “tortuous interference” was something the Pennzoil lawyers invented for their suit, and Gordon Getty HAD NO AUTHORITY, as a MINORITY stockholder, to make the offer to sell Getty Oil to Pennzoil; it’s that simple. The offer was invalid, unauthorized and greatly distressed the Getty Board. They went looking for a “white knight” to save them from Pennzoil (and give them an honest, competitive price on the deal). But TXC relied on its New York counsel, who were incompetent, and was so sure the lawsuit would be dismissed that they never made a counter-evaluation of the value of the deal, which led a rebellious and ornery Texas jury to rule for Pennzoil, and the $6 billion estimate of damages from the Pennzoil counsel was the figure they accepted.

In this day and age of billions and billions in government overruns and waste, $6 billion seems small, but back then it threatened bankruptcy for TXC; eventually, they were wounded unto death and Chevron was able to buy most of the carcass, with parts divested where the two companies had similar investments, might make a local monopoly, etc. TXC personnel who were honest, straightforward and did nothing wrong were now part of Chevron, other oil companies – or surplus, unemployed.

I was gone by then, one of the first transfers OUT of Purchasing in decades when the Emperor retired and a Getty purchasing manager ( a fine man, I hope he still prospers somewhere) took over. The Getty guy was a professional purchasing manager, who did not make side deals; if Zodiac was disbanded, I suspect he was the reason. But I had left TXC completely by the time Chevron bought out the remains of the carcass, so I don’t know if he still works for them or not, and he and others are why names are scarce (or made up) in this story.

Where does all this apply? TXC had honest, capable and honorable people in every department, including Purchasing, as I have related. The top management itself may or may not have been totally corrupt; certainly I knew a few Division vice-presidents who were good men, from my dealings with them (and occasionally pulling an iron or two out of the fire for them, even from my lowly position). But when you have The Emperor running Purchasing as a corrupt (but profitable!) fiefdom, it’s hard not to conclude that the rot was pervasive. And it’s really hard to become a big company like TXC without being willing to buy a few Rolls Royces once in a while, a few side deals once in a while, a few …….

Unfortunately, corruption breeds corruption, and does not exist in a vacuum. Another deal I heard about went like this: A flood was coming in South Louisiana, and ZZZ Parish was in a bad way. One of the locals went down to a TXC supply warehouse, and broke the lock off the door. The supervisor reported shovels, sandbags and sand were missing from the warehouse the next Monday, and asked if he should call the police and report the theft. “I’ll take care of it” he was told, and he made no police report.

The next month, at the meeting of the local board of trustees (or whatever they called it down in South Louisiana), a matter came up; TXC wanted to rent a section of shore on the bayou to build a loading dock to move supplies around. The question of rental rate was raised. “Well, since Texaco is a valued employer and corporate citizen of ZZZ Parish (and made no noise when we needed shovels, sandbags and sand when Hurricane WWW came through last month), I suggest $1 per foot per month rental on this fine bayou shoreline”. It passed unanimously, a real discount compared to similar arrangements elsewhere. The money that the taxpayers of ZZZ Parish did not get due to the special consideration was not raised.

The RFK Department of Justice building, Washington, D.C.
And this brings up where we all are, now. We are living in a country with a corrupt oligarchy (Corzine, Dimon, etc) that is not held to account for misdeeds, is protected (Holder, Lynch & more) from accountability, and is favored (bailouts, legal exemptions of all sorts) in its dealings. This cannot stand; corruption is no way to run a company, a society or a country, and is no foundation for any real gain or success.

We will pay for our corruption, as TXC did, eventually; and bankruptcy would be a minor price for what we have done. Until reality smacks us down, however, the corruption will continue; it’s too “profitable”, although
“What doth it profit a man, to gain the whole world, and lose his own soul?”
We need to look to our souls, and stand fast personally against corruption. We need to find the moral strength to resist profiting from corruption, and resist participating in the “go along to get along” mindset.

And we need to find public servants who can and will resist, to regain any semblance of pride in our nation. I’m not ashamed of America for past racism, oppression or exploitation – I’m ashamed of America now for the corruption that permeates our government, our institutions and our society. And I hope we find the people we need to reverse that corruption – before the court of Reality finds us guilty, and imposes the ultimate penalty.

JtW