In a book called Private Empire – ExxonMobil and American Power, Steve Coll, the Penguin Press, 2012, Mr. Coll takes a look at Exxon and how it operates. In a book of over 600 pages – one of the overriding themes is risk management at Exxon. There is always a perception at the larger companies – they can risk their money or capital to stay large, however the reality is different. Paul O’Neill, the treasury secretary in the Bush administration often said, ” Capital is a coward, and capital is not going to go any place that is unfriendly.”  In terms of ExxonMobil even though it is one of the most profitable companies in the world, they are not going to risk their capital until many senior committees have vetted their concerns about the risk and the expectation of their internal rate of return. For example, if Exxon has a 20% internal rate of return expected, even though projects may make sense for a public relations point of view, Exxon will not go forward as other projects will make the scale first.

Another way to look at the quote is for North American dollars to go to another country, a top priority is to make more, the second one is to ensure the money flows back to the head office. It is one of the reasons, why large multinational companies which can trade anywhere, still latch themselves to their home country origin. In the case of Exxon, it is a multinational, but to outsiders it is seen as an American company which works with the White House. In reality sometimes it may and sometimes it does not for Exxon has its own agenda. Part of the agenda is thinking about 30 years plus and what will be happening. It is important to review the outlook just in case a basic assumption is not correct or has changed. No matter what the case whether Exxon and the government are working together or not, perception is the rule.

Linking to dividend paying stocks, in relationship to the phrase about capital being a coward, the first rule of having money is not to lose it. Then you want to make more, that means investing in existing profitable companies is a great strategy. Profitable companies share prices tend to more stable and when the hot items in the market cools, money flows back into profitable companies. Equally important profitable companies can pay dividends to its shareholders which is a good thing.

There are more questions than answers, till the next time – to raising questions