March 13, 2007
Go East Old Man, Go East: Halliburton to Dubai
An interesting article, or rather an article on an interesting development that is difficult to assess. From the FT, entitled Risky Locations, on Halliburton's queer decision to move its CEO to Dubai.
I am, to be frank, puzzled. Comment below (crossposted from The Lounsbury).
The article may be a bit unkind in saying that its like trying to command a ship from the engine room. However the transfer of Dave Lesar, chairman and chief executive officer of Halliburton, to Dubai strikes me as peculiar, above all structurally as Halliburton’s financial and operational management are staying in Houston.
I am not sure it's entirely true as the FT says that Mr Lesar will find it hard to stay in control but leaving major management operations behind in Houston says to me rather that the new HQ is symbolic, and Lesar's time in Dubai is marketing.
The evaluation of the move and the spin might be a bit unfair:
Halliburton’s communication of the move has been hamfisted. It announced the opening of “a corporate headquarters office in Dubai” and the maintenance of a “corporate office” in Houston. That has upset a lot of US politicians who worry about national security and about companies moving to low-tax jurisdictions abroad. But it appears that the only thing changing is the location of the CEO’s desk.
A lot of provincial ignoramuses and fools they might have added. National security....
The commercial analysis makes sense
It is easy to understand why Halliburton wants to beef up its presence in the Gulf. In 1965 North America produced about a third of the world’s oil and the Middle East about a quarter. The Middle East now produces a third of the world’s crude output – and that proportion is set to rise further.
But why a CEO?
And why not operational management - well other than likely Dubai would collapse under the weight of so many fat Texans transfered en masse.
The question is whether relocating the CEO makes a difference. It certainly symbolises commitment to the new location, although Mr Lesar’s choice of Bahrain – one of Dubai’s rivals – to announce his move sends mixed messages. Mr Lesar will be closer to the state oil companies, such as Saudi Aramco, from which Halliburton wants business, and he will be able to insist that Middle Eastern customers are well looked after. On the other hand, moving the CEO sends an equally powerful message to those left behind: that staff, customers and suppliers in Halliburton’s home market have become less important; a risky message, even if it is true.
One would expect perhaps real meat and potatoes to be in Bahrain actually. More reasonable cost basis, about as laid back, less horrendous infrastructure problems and less frenzy in Real Estate.
BTW, I would like to add I am getting sick of getting approached by various and sundry Arab businessmen with the latest cool real estate development idea.
I don't like Real Estate, I don't do Real Estate, and I don't think financing UK-X or USA-X JVs for more idiotic over-priced RE projects is a way for me to make money.
Well, except in certain specific areas, but even then....
The person with most to lose from relocating the CEO, however, is the CEO. One minute they are an all-powerful leader, ruling the empire from an office on the 40th floor; the next they are thousands of miles away, reduced to e-mailing friends for gossip and fretting about boardroom politics.
Mr Lesar is moving to Dubai but the levers of power – finance, human resources and the like – are staying in Houston. He will be faced with a choice: either surrender some control or else run up a lot of air miles commuting back to Texas.
Or let's actually go one better.
He'll spend about the same amount of time as he actually already does (after say a month or so of face time in Dubai), and the Dubai office will be as fictive as many a HQ type office in Dubai.
Those US politicians up in arms at Mr Lesar’s move can afford to relax a little: relocating the CEO is not the same as relocating the whole company. When HSBC and Jardine Matheson relocated from Hong Kong before 1997 there was a real shift of control, economic output and tax revenues.
Halliburton does not appear to have made that move, but there are few examples of a CEO leading a company from afar. It will surely end in one of two ways: either the CEO will go back to the HQ, or the HQ will go to the CEO. If the latter comes true, and Halliburton moves everything to the Gulf, that really would be a revolution.
But everyone knows it isn't going to happen.
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Heh. I was waiting for a posting about this. Halliburton is one of the least-popular currently functioning companies in America. After the Dubai Ports mess, this is going to piss off Halliburton's political buddies, too. Halliburton muffed it, and spectacularly so.
I don't think Kellogg, Brown & Root is making the move, but still.
Halliburton’s financial and operational management are staying in Houston.
No doubt this is by mutual agreement of the parties. I doubt that thousands of Texans are any more eager to move to Dubai than Dubai is to have them.
Lesar's time in Dubai is marketing.
I think it's partly that but I'm guessing what's really driving this is blowback: Halliburton wants to de-emphasize the fact that it's a U.S. company.
Halliburton has gotten a world-wide reputation as being a civilian arm of the U.S. military and a tool of U.S. foreign policy. Ironically, you post about efforts to push "terror-free" investing because of objections about Iranian, et. al. policy. Want to bet folks issueing MENA energy sector contracts don't have equivalent concerns?
Even quite reasonable MENA decision makers might have serious qualms about awarding contracts to a huge company that is a) American b) hand-in-glove with the U.S. military and c) is perceived, even in segments of the U.S., as being Dick Cheney's best buddy. There's just too much potential for being caught in very nasty blowback.
Halliburton is, I think, rightfully concerned about companies from other, less-aligned countries eating its lunch. The Chinese, for example, are very keen to enter this segment. If they don't starting internationalizing their image, they're going to face a lot of trouble down the road.
Posted by: Anonymous at March 13, 2007 06:24 PM
This is a hunch with minimal data but I smell in part a preemptive legal strategy playing no small part.
There's a lot of litigation location and choice of law and collection of judgment issues wrapped up in the technicalities of corporate citizenship and principal places of business. Following the official paperwork in Texas would yield a clue.
It is conceivable that Halliburton (or its individual principals too) feels vulnerable to litigation for various matters that we may or may not know about, in past, present, or planned actions. Moving to Dubai (cf. Michael Jackson) may significantly frustrate service of process/subpoena power , lawsuit "discovery", trial location and jurisdiction, choice of law, availability of witnesses, seizability of assets in ways that are advantageous.
Only a hunch and even if true it may be secondary of other reasons, like competitive marketing.
Posted by: matthew hogan at March 13, 2007 06:52 PM