Exxon Mobil's Riches: Fueling Controversy?


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Case Details:

Case Code : BECG064
Case Length : 23 Pages
Period : 2004-2006
Pub. Date : 2006
Teaching Note :Not Available
Organization : Exxon Mobil Corporation
Industry : Oil and Natural Gas
Countries : USA

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Exxon's Problem of Riches Contd...

A few US policy makers called for an investigation of the high gasoline prices and accused the big oil companies, including Exxon, of price gouging.7 Lawmakers were also concerned about Exxon's US$ 400 million retirement package payout to Raymond, who retired on December 31, 2005.

U.S. Senator Byron Dorgan (Dorgan) said, "There can be no more compelling evidence that the price gouging and market manipulation which has produced record oil prices is out of control, and is working to serve the forces of individual greed and corporate gluttony at the painful expense of millions of American consumers."8

Dorgan also announced his intention to renew his effort to enact a windfall profits rebate9 for consumers. On May 03, 2006, the United States House of Representatives passed a price gouging bill that would penalize any oil company found guilty of price gouging with penalties of upto US$ 150 million. Many analysts felt that no measure of Raymond's personal performance could justify this payout...

Background Note

Standard Oil was founded by John D. Rockefeller (Rockefeller) and his associates in 1870. Over a forty year period, Rockefeller built Standard Oil into one of the largest integrated oil producing, refining, and marketing organizations in the world. At that time Rockefeller was also the richest man in the world.

In 1882, Rockefeller and his partners used a 'trust' form of partnership to centralize their holdings in various US oil companies under a single group of trustees, thus establishing the Standard Oil Trust. However, US politicians and journalists accused Standard Oil of monopolistic practices and stifling the competition. In 1911, a US Supreme Court ruling led to the dissolution of Standard Oil Trust into 34 separate companies. Jersey Standard (Standard) and Socony were two of the 34 companies formed by the break-up of Standard Oil Trust. Standard and Socony went on to become Exxon and Mobil respectively. Demand for gasoline was increasing in the early 20th century. In 1920, Socony registered its product trademark Mobiloil. Both companies consolidated their positions during the next decade with a few acquisitions...

Excerpts >>


7] Price gouging refers to the phenomenon of pricing above the market by taking advantage of a situation where no alternative seller is available. It is also used to refer to a seller asking a price that is much higher than what is seen as 'fair' under the circumstances.

8] "Dorgan Calls ExxonMobil CEO's $400 Million Retirement Package 'Shameful'," www.dorgan.senate.gov, April 18, 2006.

9] In November, 2005, Dorgan forced a U.S. Senate vote on a windfall profits rebate plan. The plan applied only to the major integrated oil companies, and would have imposed a 50% windfall profits tax on oil company revenue derived from sales of oil at more than US$ 40 per barrel. Windfall profits invested to boost domestic energy supplies would have been exempt from the tax. Revenues collected by the tax would have been rebated to consumers. The motion was defeated.

 

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