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A Discussion with ConocoPhillips’ Harald Norvik

Leadership Series Volume 4: Issue 11

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Boyden’s Leadership Series presents discussions with business and thought leaders from organisations across the globe. The series focuses on topical issues that offer executives, political leaders and the media insight into current trends in business and talent management in the global marketplace.

This issue features Harald J. Norvik, currently a Director for ConocoPhillips and former CEO of Statoil. He discusses why being a CEO is harder today, the importance of the working relationship between management and boards, the Norwegian board model, his optimism about hydraulic fracturing and the battle for talent and executive resources in the energy industry.

Harald J. Norvik is a member of the board of directors for ConocoPhillips. He serves as the chairman for the Public Policy Committee and is a member of the Human Resources and Compensation Committee and Executive Committee.

Mr. Norvik was chairman and partner at Econ Management AS from 2002 to 2008 and was a strategic advisor there from 2008 to 2010. Additionally, he served as Chairman, President and CEO of Statoil from 1988 to 1999. His previous roles include CEO of Astrup Hoyer between 1986 and 1988 and CFO of Aker Group from 1981 to 1986. In the 1970’s, Norvik held various political positions such as Advisor to the Prime Minister as well as Deputy Minister in the Ministry for Oil and Energy.

He currently serves on the board of directors of Petroleum Geo-Services ASA. Previously, he served as Chairman of the board of directors of Telenor ASA.

Norvik was educated at the Norwegian School of Economics and Business Administration, graduating in 1971. He lives in Nesoddtangen, Norway.

Boyden: Is leading at the board and the C-levels harder today than 15 or 20 years ago, or is that just a perception?

Norvik: In general, my answer is “yes.”  We experience a more intense, globalised competition. Thus, the risk exposure is higher because of the speed of change in technology, the extreme market dynamism and political and regulatory influence. Boards and management are up for a much tougher agenda and it’s rather demanding to meet the expectations of all stakeholders, and, at the same time, deliver competitive results to shareholders.

Boyden: Is easier access to information changing everything?

Norvik: Access to relevant and timely information is critical for boards as well as management. The information revolution, internet, and social media have in a dramatic way changed and democratized access to information.

Easy access to information brings us towards more of a level playing field and competitive environment. For business this is important – we are more transparent, we are more closely followed, and what we do and don’t do are scrutinised. Corporate responsibility means that as companies we have to be transparent, we have to communicate with all relevant stakeholders, and we have to be proactive and strategic in our internal and external information.

Boyden: Is there a “disconnect” between boards and companies, in terms of the information needed to make decisions?

Norvik: Good corporate governance defines the different roles and the responsibilities for the owners, the boards and management. There’s no doubt that the board is accountable for all decisions and everything that’s going on in the company.

The distribution of responsibility between board and management implies that the board agenda will be strategy, compliance and control, risk understanding, and, most important, quality  of the CEO and the executive team.

We all know that management, which lives with the company for 365 days a year, has deeper insight and more information as well as better access to facts and information. The board is completely dependent on management’s ability and their willingness to inform and to share their doubts and beliefs.

A professional management needs to do their best to make their board look good. The other part of this, for sure, is that the board has to drive the agenda. They need to be curious, read and listen, challenge and sometimes provoke. Mutual respect for roles and responsibilities is vital. A culture characterised of openness, honesty and frankness is important in creating a constructive relationship between the board and management.

Boyden: Is it overplayed how much influence a CEO can have on a company?

Norvik: It’s difficult to overestimate the influence and importance of the CEO. The primary responsibility of the CEO is to lead the company and to establish an executive team that can address all the relevant issues and take initiatives in a timely and excellent way.

Individuals make a difference. The right top team can move the company, build a strong culture and create unique results. We have also learnt that the wrong guys at the top can destroy values and kill the company entirely.

For the board, the selection of the right CEO definitely is the most important of all duties. For that reason, it is necessary and important to have a succession planning as a permanent process within the board.

Boyden: In the US and Europe, many observers believe boards sometimes should have taken more oversight, especially during the most recent financial crisis. Do you agree?

Norvik: In hindsight it’s easy to answer “yes” to that question. In many companies, probably both boards and management have taken on more oversight and addressing risk more thoroughly. However, having said that, there is no doubt that we all needed the lesson on corporate governance that started in the 1990’s. We realise the importance of a high quality board and the strength it is for a company to have professional and independent board members. Good corporate governance means a mutual respect and good balance between management and the board.

Boyden: Is that balance the key starting point for success?

Norvik: I think the question is extremely relevant. In the report from the commission that examined the “collapse” of the Royal Bank of Scotland, they clearly state that the board had a definite responsibility to understand the core of the business, define the risk level and guide and control management. By reading that report, it reminds a director on the responsibility and accountability of taking a board position.

It is extremely challenging to be a board member in banks these days; to really understand the core of the banking business; and to understand what’s going on in innovative “product development,” “creative financial engineering,” and aggressive sales-processes. It’s difficult enough for management to really be on top of it. In fact, the message from the commission is that the board didn’t have a clue.

Boyden: What is the biggest strength of the Norwegian board model?

Norvik: First, I believe all models can function, but you have to adapt the work processes, the agenda management and the “checks and balances” according to the model. The British corporate governance tradition, for instance, gives more power to the chairman than in the Norwegian, or Scandinavian, model.

In the US, the majority of companies still combine the CEO and chairman position with the same person. There are obvious strengths and weaknesses that could be discussed with all the different models. I have been on Scandinavian, German and US boards and I’ve recognised that the different traditions and models can function rather well.

There are two characteristics in the Norwegian model. One is we have employee representatives, which are one third of the board members. In addition, we have a law regulating gender equality that mandates that boards must be comprised of at least 40 percent from each gender.

With regards to employee representatives, the experience has been good. There is, however, a weakness in that model. In Norway, for example, all these employee representatives on the board are Norwegians. In those companies, with a big percentage of employees coming from and working in other parts of the world, it is rather strange and unbalanced to limit the board representation to those working in Norway.

The other issue is gender diversity. This regulation functions quite well, but I don’t like that we had to have such a law as a way for force a better balance between men and woman. There’s no doubt that many of the women appointed to boards in recent years are well qualified and highly competent women. Though, I would also say that the quality of the men appointed to the boards have become better too - the process in the nomination committees have been more focused on the balance of qualifications and experience, skills and good judgment.

Boyden: The Norwegian management model has been highlighted for its success. Is this system more manageable because of Norway’s size and its culture as a “trusting” society?

Norvik: First, it’s the tradition in the Norwegian industry as well as in Sweden and Denmark that there is an open and good cooperative relationship between the companies, government and unions. There is a consensus culture that you find looking back in the last century. It’s a pragmatic view in industry and in politics that considers open cooperation to be beneficial to all parties. I think it’s fair to say that this cultural element has contributed to making Norwegian business and industry quite efficient, flexible and adaptable. Restructuring and downsizing can be decided and executed fast and without too much friction and resistance.

Another unique element in our structure is massive state ownership in Norwegian industry. The Norwegian state has 100 per cent ownership in many companies and has a minority or majority ownership in many of the biggest companies in Norway. Many of these companies are very big by Norwegian standards and significant even in a global perspective. Examples of this would include, Statoil, Telenor, Yara and Hydro.

The private capital available in the Norwegian capital market has been limited and the state has taken this position as long term owner in the Norwegian industrial landscape. Today, there is more or less political consensus on the question on state ownership as an acceptable model, contrary to what you see in most other European countries. In those cases, the state has established a very professional and distant ownership model, more like the profile of a pension fund.  

Boyden: Could the Norwegian model of company and government partnership work in a bigger market such as the UK or US? And what would have to change?

Norvik: In fact, there are markets in Asia that have some similarities to our Norwegian model. But I think if you go to France, Italy or to UK there’s scepticism of state ownership based upon experience with the badly managed companies in the 60’s and 70’s. 

I don’t think the “Norwegian model” is exportable. There are historic, structural and political reasons why we can live with this rather unique model. It seems to function well now, we recognise many successful companies expanding globally, both private and state owned. For the partly state owned companies, it is extremely important that the government stick to the rules for good corporate governance they have adapted.

For the international capital marked that  we are completely dependent upon and linked into, there has to be guarantees that the companies are managed professionally with value creation as the goal – with no political interference.

Boyden: When you interview executives, what are the most important attributes and parts of their track records you focus on?

Norvik: Ethical standards, honesty and integrity. It always starts there. Point two is leadership capability. And the next points include conceptual thinking and strategic ability. What you notice is that I am very focused on the personal attributes.

Finally, it’s healthy that the person has a strong ego, but an ego under control. Excellent leadership is very much linked to open and direct communication, not only talking but listening.

Boyden: Are these timeless attributes or have things changed?

Norvik: I think it’s even more important than ever before that you have strategic skills and that you are able to see around corners. This includes a “radar” to identify and understand risks.  Risk is extremely important and risk mitigation is crucial in most businesses.

The changes in the market, the changes in technology, the changes in competitive landscape is more immense now, more serious now than in the past. That means that the person involved has to be open-minded, read the market, and he or she has to understand the competitive landscape and act quickly when necessary.

Boyden: The energy business has become arguably the most important global industry today. With technology, are the challenges or are the opportunities greater?

Norvik: There is no industry that is so interesting, fascinating challenging and important as the energy industry. You are meeting technological needs and opportunities, political issues as well as national, geopolitical, environmental concerns and financial challenges that you don’t find in any other industry.

Technology, innovation and willingness to take risk are vital in this industry. We see it in the oil and gas industry, but in solving the need for new, more environment friendly energy, we need innovation, political decisiveness and a well-functioning capital market.

Boyden: What part of the expected boom in hydraulic fracturing is least understood?

Norvik: The oil gas industry has environment challenges in all parts of activity. The industry has addressed health, environment and safety issues in a very professional and aggressive way, though the industry has become used to addressing this type of issues in a professional manner. 

This approach and management practice are crucial in the shale gas and tight oil activity that now is “exploding” in the US – and probably in other countries down the road. It’s changing the total landscape of the whole oil and gas industry. 

The challenges, however, are very important to take seriously. The water treatment and the gas flaring are issues we have to work on in order to minimise the environmental footprint and to mitigate the risk exposure. I’m very impressed by what I have seen in ConocoPhillips when it comes to operational excellence and innovation in our shale activity.  We haven’t had any serious incidents so far. The political concerns and the scepticism of some of the local communities are understandable because this issues and challenges appear new. I think we will handle these issues in the industry and I hope that oil companies both and big and small will take this type of challenge very seriously. 

Boyden: What will make the difference separating the most successful companies in the energy sector for the next generation?

Norvik: The most important and crucial issue for any oil and gas company is access to reserves and profitable reserves. That is becoming more and more challenging. There are interesting regions open for the international petroleum industry, such as eastern and western Africa, Brazil, Australia and parts of Asia.

But, the major petroleum reserves are to be developed and produced in regions not open for normal international competition. With this in perspective, the shale gas and shale/tight oil revolution is of great importance and it’s a game changer. There are a lot of opportunities now that make the industry quite optimistic for the future.   

In the future, as always in this industry, technology, and a unique ability to use technology, are extremely critical for a company to succeed and survive. But, the most important is and will always be operational excellence. And the crucial part in that is excellent quality in health, environment and safety.

On the human capital side, there is a lack competent people. There is an urgent need for education and training, for talent identification. Many experienced people in the oil industry are leaving this industry in the next years to come due to retirements and other factors.

This is a global industry, and we have to take a global perspective on the human capital issue as well.  We have to identify and motivate young people from the entire globe to pursue careers in the energy industry. Excellent education and intense training of young people are preconditions for a successful future. That goes for the oil and gas industry, but for the other energy sectors as well. Competence and skills, research and development, and excellent expertise in operations and safety are at the top of the list.

The views and opinions expressed here do not necessarily represent the views of Boyden; only those of Mr. Norvik.