The decision to walk away from it was really grounded in my fundamental belief and commitment to capital discipline. We could have won. We could have outbid the other company, but we would have reinforced what I think investors found as their biggest criticism of our industry.
Welcome to Gray Matter. I'm Declan Kelly, founder, chairman, and CEO of Concello. I've spent the last 30 plus years advising the CEOs who are leading the world's top companies. If there's one thing I've learned in that time, the best leaders think differently. That wiring, that gray matter, separates the truly exceptional leaders from everyone else. Understanding it is what allows us at Concello to help the best in the world be even better. This podcast exists because the most accomplished leaders agreed to sit down and talk about something they rarely discuss publicly, how their minds actually work.
Mike Worth has spent more than four decades at Chevron. Leading in an industry where decisions are measured in years, not in moments. As chairman and CEO, he has faced several choices that tested his discipline as well as his conviction. He walked away from the Anadarko acquisition despite the reputational risk and the belief that Chevron would eventually prevail in a bidding contest for that company. Conversely, during the Hess transaction, he chose to see it through, even as the deal faced extended scrutiny and delays prompted by what many saw as unnecessary objections from his largest competitor. 18 months later, his argument prevailed at the International Court of Arbitration. Those choices reflect a leadership style rooted in pragmatism, shaped by an understanding that durability matters more than visibility. And checking your ego at the door is often the greatest leadership strength of all. This is gray matter. Mike Worth, great to see you. Thank you for joining me on Grey Matter.
It's good to be here, Declan.
So, we're sitting here overlooking this beautiful landscape of Houston in Texas. And everybody chooses the location where we do these interviews. So, tell me why we're here.
Well, Houston's my new home and moved our company last year after 145 years in California and I thought it was appropriate to invite you to my new home.
So, that decision to make that move after 145 years was something that I'm sure you thought long and hard about. What was it like to have to do that given the cultural history and the attachment to California?
Our company is part of California's history. We made the first oil discovery in the state in Pico Canyon in 1879. We were part of the growth of the state and our people have been incredibly connected to every aspect of California. And so at that level it was breaking this long deep historical tie. At a personal level, it was difficult because I have spent more of my adult life there than anywhere else. And we have a lot of employees that I knew were reluctant to leave, some of whom won't leave that are good friends of mine. At a professional level, my responsibility is to our company and to set our company up for success. And at that level, the decision was not if, it was just when, because of taxation and all the other laws that were being applied in California that were just impossible to deal with anymore.
Those don't make it easy. But we still have businesses in California that are going to be subject to California policies. Houston really is the epicenter of our industry. It's where our partner companies are, the service companies that we work closely with, the universities that we do research with and recruit from. And it was increasingly where more and more of our people were. And I felt it was important for our people to be together here, our leadership to be together here and to be part of this community. And so it really is the right place for our company.
Every time I do this with a CEO, I'm trying to figure what is the right thematic framework for the person that I'm interviewing and you and I have worked together for many years. And the way I think about you is sort of pragmatic discipline over ego. It's an interesting thing because you're extraordinarily disciplined. You're very pragmatic leaders and I don't see much evidence of ego and I think all of this is usually rooted in how somebody grew up and their background and what framed them. What was your upbringing like? What was it like growing up?
I grew up in a fairly normal middle class family. My father was an engineer, my mother was an artist. I was born in New Mexico. My father was working at the Los Alamos National Lab at the time. I had this very interesting right brain, left brain family experience. My parents were very different in almost every dimension. An engineer, an artist, a Republican, a Democrat, a free spirit, a disciplined engineer. And I found myself, I think, the beneficiary of the blend of both of those things. I'm the oldest of four children and grew up playing a lot of sports and I think the lessons I learned in competition are things that I benefit from today, working together as a team, having an overarching goal that brings everyone together, learning how to deal with success and failure and learn from both of those. And so I do think much of who I am today, I can trace back to the experiences growing up in a little town outside of Denver, Golden, Colorado.
I read about an experience that you've talked a little bit about, but not a lot, when you were a basketball player, and you had an interesting experience with your coach one day. How important was that?
I was playing high school basketball and I had broken my thumb. I caught a pass at the tip of my thumb and it fractured my thumb. Couldn't practice because I had a cast on. My coach was training for the Iron Man. This is in the very early days, the Iron Man triathlon. I didn't even know what it was. And so he was a fitness fanatic and he told me the first day I showed back up at practice with this cast on, he said, 'Let's go out for a run.' And I thought, 'Okay, we're going to go for a jog around the track.' We start running through the town and pretty soon I realize we're headed towards the base of a mountain called Lookout Mountain. Golden sits a little bit over 5,000 ft. The top of Lookout Mountain is over 7,000 ft and it's a very windy set of switchbacks to get to the top. And as we got to the bottom, I said, 'Mr., where are we going?' He says, 'We're going to run to the top of the mountain.' And I said, 'No, really. Where are we going?' And he said, 'We're going to the top of the mountain. Come on.' And we kept running. I had never run that far. I had never thought I could run that far or up a steady grade like that. And but I was 16 years old and this was my coach. I'm not going to say I can't do this. So off we went. And eventually we reached the top of the mountain, which is one of several places where Buffalo Bill is allegedly buried. And he used to run with his car keys kind of tucked into the waistband of his shorts. I thought, 'Okay, he must have his car parked up at the top and we're going to drive back down.' And we got up to the top and took a lap around the parking lot and we started running back down the mountain and I learned if there's one thing harder than running up a mountain, it's running down. But at the end of it all, I accomplished it. Something I never would have imagined I would have done, but I could do it. And you know, in reflecting on that over time, I realized that he knew I could do something that I didn't know I could do. And I've learned over time that the limits that most people are constrained by are the ones that they impose on themselves. And the people that accomplish big things are the ones that don't perceive boundaries or limits. And they reach much further than the average person does. And one of the things I do now is I work with others is I try to see the things in them that they might not see in themselves and have the confidence in them and support them the way my coach did to actually achieve things that they never imagined they could do. And that I find that to be the most rewarding part of my job.
A significant part of that though is discipline. And I know you're very very focused on fitness and you know physical discipline regimen etc. and also routine and making sure that you know as an engineer I think you've probably got a lot of processes around how you manage things. So you know how important in leading your leadership team and the people around you is that whole approach to discipline and like how often do you try to bring that into play when you're working with them?
Well, we're in a business that demands discipline. We work in very challenging and dangerous environments. Our people around the world are in some of the most extreme environments that you can imagine and that requires discipline. Running a large organization takes routine. It takes discipline and I've learned over the course of my life I'm at my best when I'm in a routine. And having grown up playing sports, I learned the value of trying to stay fit. I'm married to an athlete and I've got kids that have played college sports and the like. And so, I do know that I'm best when I'm kind of getting enough sleep, when I'm getting enough exercise, and that all is part of a routine that defines my day as best it can when I travel and do other things. And I try to bring some of that same discipline into my job.
You still getting up at 3:45 in the morning?
This morning it was 4, but,
Backing, you got to be careful.
Yeah. Yeah. Slipping. Yeah. You know, I've learned as I get older, I don't need as much sleep as I once did. And so I tend to wake up earlier and that's a good time to try to get my exercise in before the day gets busy and I can catch up with the world and do my workout with the news on or ESPN on and I try to start my day that way.
So that discipline I think the Anadarko and Hess examples to me were several really good examples of that discipline in action. Also pragmatism and frankly the low ego that I talked about. So let's talk about them in turn. So with Anadarko, you had the opportunity to try and buy the company and then you had built in a $1 billion break fee and I remember one morning talking to you about it and the decision that you made to walk away. And at the time there was lots of criticism. People going, 'Well, why would you do this? This is something that you should buy and it's obvious.' And afterwards, of course, you were absolutely right because, you know, it would have been a very, very, very bad decision for the company. Yet you walked away with a billion dollars of a breakup fee which the shareholders subsequently were thrilled to receive of course. What was it like to be you during that time? That was a very very tough decision to have to make but at the end it was the right one.
It would have been a good deal for us at the price that we did the deal. There hasn't been a history in our industry really of interlopers. Transactions have generally gone through and kind of been respected by other parties, but no reason that they can't be challenged. In this case, another company felt that they were the, I think they use the words like the rightful owner of Anadarko, came in with a stronger offer than ours after we had already signed the deal. And then even kind of changed that and strengthened it a little bit more. And we never ultimately made a counter offer. It was probably the first big decision, really big decision I had to make in this role and it wasn't easy because we liked the deal. But I also came in with a belief that our industry needed to demonstrate capital discipline and that our company should be a leader in demonstrating capital discipline and I'd made that clear to our employees and actually to our investors as well. This was going to get into a bidding war and we were very sure that the other party if we made a counter would make another counter. What we would do is likely drive value out of the deal for our shareholders and not demonstrate the kind of discipline I think our industry should have. And so that sat at the core of a very difficult decision. In fact, most of my leadership team when I kind of had the final meeting and asked for their advice said, 'Let's do this. We can, we're a bigger company. We can win.' And we could have won. We could have outbid the other company and eventually they would have had to drop out. But we would have reinforced what I think investors found as their biggest criticism of our industry is that we would lose our discipline and we would pay any price to acquire volume and to grow. And so the decision to walk away from it was really grounded in my fundamental belief and commitment to capital discipline. And we did have a good team that negotiated a strong contingency in the event that the deal didn't close. And so we did walk away with a billion dollars for a few weeks. And the company that acquired it then, is still to this day saddled with some unique debt and other things that were required to get the deal done. Which obviously we never had to go to a place like that.
We'll come back to that concept of discipline, capital discipline in a minute because when you think about the way you've reframed Chevron, I think you've become known especially for that. But the second example of discipline that I want to talk about is Hess. To me what was fascinating about this was the consequences of the consequences. As my old mentor Don Keough used to say if this had stood then the entire rule of law and precedent for the industry for M&A for everything that had happened in the past and perhaps in the future would have gone out the window and made impossible for people to actually do deals together. In reality, lots of people predicting bad things for the future of this company and for you if it hadn't gone the other way. Yet, you made a decision. We're in the right here and we're going to stick to our guns and we're going to, you know, wait until the very end of this process no matter how long it takes. Then one day you wake up and it's a 3-0 victory and you close the deal a few hours later. Being you in the middle of all of that, everything being called into question and to have to come out the other end the way you did, it was a pretty remarkable achievement. Not many of those things happen in business anymore. So what was that like for you?
Well, the first principle that you talk about I think is important for me to say a word about which is in our industry more often than not on large investments, companies come together to share risk, share technology, share people. And so we form agreements to own certain percentages and work together in these projects. Often usually in these agreements there is a provision that if one of the partners decides to sell the other partners could match that price and that allows you to have some measure of control over who might come in if they're not a party that's as financially strong or technically capable. The existing partners can say we'll take that share or we can pass on it if we think the price is too high or we think this is a good partner to come in. So these are fairly common rights of first refusal at an asset level that exist around the world. What was asserted in this case is that at a corporate transaction where these really aren't intended to apply because it would allow if at every corporate merger each project could trigger these rights of first refusal. People could cherry pick assets out of transactions and strip the value out of companies. And so it would undermine the premise upon which small companies become bigger, become acquired, people create value. So there really was this fundamental principle involved. More importantly, there was a very specific contract involved and the contract had very clear language to be administered under English law and as we looked at the deal before we did it. This was viewed as the single greatest risk to the transaction would be a challenge like this. And so we spent an extraordinary amount of time with internal counsel, outside counsel and a whole series of kind of red team, blue team challenges to this to say what if this clause were to be asserted by Exxon and how would we handle it? So the deal was structured to account for this. We sought a way to resolve it in the beginning in a way that we thought would be mutually acceptable. Turns out that's not what Exxon preferred and so we ended up in this protracted arbitration process. Those things test you. It became the dominant element of the narrative around our company inside the company, outside the company with investors, the media and it was portrayed as this big dramatic fight between the two largest companies in our industry. And so it was difficult to get people to move on and focus on other things. And these things have a binary outcome. And so all of those weigh on the decision makers involved. They weigh on the board of directors. They weigh on the team that's responsible for this. But we were very confident in our position and felt like we had to stand up for our company's rights. Stand up for our shareholders, stand up for Hess as well. A company that had a more than 90 year history, only two CEOs, the name of the founder and the current CEO on the company and very personal to John Hess and I felt a strong obligation to stand with John, including through some very unfortunate actions on the part of the US government in the antitrust review of the transaction where John's actions were unfairly characterized, criticized. And at one point a decision made to deny him the ability to serve on our board of directors which fortunately was reversed actually within 12 hours of when the arbitration outcome was resolved as well. I wish it hadn't gone on that long. I think there was a way to resolve it much more quickly but you need two people to reach that conclusion and we didn't have that.
Keeping on the topic of discipline, one of the things you had to do when you came in was take a view at the capital discipline agenda for the company and decide very quickly that you were going to go from let's call it roughly 50 billion to 15 to 17 billion of capital expenditure. You came in and completely reframed the way the company thought about itself in an industry as you said earlier that was well known for spending a lot of money to try and get growth projects up and running. So you have completely reoriented the company and some would say the industry in some areas in terms of how people think about that subject of discipline. Again, I think all of this is rooted in sort of how you grow up and what you think and how you think. But that can't have been easy to come in and your first decision as CEO is to basically say, you know what, we're not going to do it this way anymore because we can't. What was it like to be you at that moment when you were doing that?
In my mind, there was no choice. I had come up through the downstream side of our business, refining and marketing, which inherently and kind of structurally has always had to be a little more disciplined on capital. Margins are tight. They tend to go down over time. And so I grew up in our company in an environment where every dollar of capital that you spent mattered. We'd been through a period of time in the early 2000s where commodity prices went through a bull run as China came into the WTO and drove a lot of global economic growth and our entire industry was in pursuit of new resources. At the time, some people will remember, there was a fear of peak oil production, that the world would run out of oil and a belief that you had to go to the most difficult environment, the most extreme projects and the highest cost to secure the next barrel to meet global demand. And so the whole industry got caught up in a period of time where the pursuit of resource at almost any cost became the prevailing behavior that we saw. We had a bunch of large projects underway at the same time. They weren't executed as well as we would have liked them to have been executed and on the back side of that some things externally were changing. We were starting to see shale come into the system to kind of alleviate the concerns about peak oil. But I also believed that our shareholders had lost trust in the industry and in the company to actually seek investments that would deliver returns and value creation for shareholders. And so it was important to send a signal that we were going to respect that and that we understood that shareholders expected us to return capital to them and to be more disciplined in our allocation of capital spending into our business. And so to me it was an obvious pivot that we should make. It was swimming against the current in many ways within the industry because others were not going that direction at the time. Much of the industry has now moved in that direction and I think over time our shareholders will be rewarded for it. The sector is still not as favored by investors as I think it ought to be but that's a different topic. So this is fundamental to my beliefs about how the company should behave and how the company should lead.
Speaking of how people should lead, it's a good segue to what I want to talk about next. What I'm fascinated by actually is up close how you manage people and everybody has a different style. But you know, you've got a different way of doing this to most other people. I was smiling at the anecdote that you gave several years ago about a woman who used to come and see you every morning whose name was called Betty. Because I think that's the name you used, which I'm sure was an anonymous name. But at the end of the day, you evolved into a leader who shows people how to get to a solution in a very different way. And the outcomes that you get to, you're not telling them what to do with a big wagging finger. You're letting them figure it out for themselves with some guidance because you've really thought through how you actually lead people in that way.
