You wouldn't think it from the brouhaha enveloping British Petroleum and Prudential this week, but these two old British companies have each made the right strategic decisions. But BP is wounded whereas Prudential is merely embarrassed. BP has concentrated on North America. This area is going to remain one of the world's largest consumers of oil for many years. BP has recently focused its exploration activities on the Gulf of Mexico, the doorstep to this market. There it has more leases than any other oil company so that now the region accounts for 25 per cent of BP's total production. For reasons of mishap and misjudgement, its position is now under threat, but its direction of travel is right.
Prudential works in a different context, financial services, where opportunities are moving from west to east. The company established a strong position in Asian markets ahead of its British competitors. But its attempt substantially to increase this investment by buying a large, American-owned insurance company operating in a wide range of Asian markets has failed. This is a costly setback, but like BP it has been trying to do the right thing.
The survival of these two companies as independent entities for more than a century is remarkable. Think of the famous names that have disappeared in the past 30 years or so. Cadbury Schweppes has gone. On the path to oblivion it follows ICI, Marconi, Courtaulds, Royal Insurance, Beecham and many others. The City of London remains a world-beating financial centre, but most of its major units are foreign owned. In the same class as BP and Prudential I would place only Rolls-Royce, the aero engine manufacturer. The luxury carmaker of the same name is separately owned.
Rolls-Royce is also a century old, but unlike BP and Prudential, it was once bust. That it came back from near-death to full strength and how this was achieved could be relevant to BP. Rolls-Royce's heart stopped beating for a short period in 1971 when the costs of developing a new range of aero engines, the RB 211, overwhelmed it. It had a big contract to supply these power plants to Lockheed. Again the strategic direction was right. In aero engines you must keep up with your US rivals or you are nothing. And it almost was nothing, for the engines were costing more to manufacture than their sale price. On 4 February 1971 it was placed into administrative receivership and this in turn put Lockheed in great difficulties. What happened next is instructive.
Edward Heath's Conservative Government immediately nationalised Rolls-Royce on the grounds of its strategic importance. At this distance, it is hard to determine what was meant by "strategic". This may have indicated only that the company was a major manufacturer of engines for military aircraft as well as for civil aviation. Two years later the automotive division was sold to an even older British engineering company, Vickers, which disappeared in 1999 after 170 years of independent existence. As a result, the luxury cars finally ended up with BMW. Then in 1987, 16 years after Mr Heath's good deed, Mrs Thatcher privatised the aero engine business. Today Rolls-Royce is an independent, world-class British engineering company, quoted on the London Stock Exchange.
The example of Rolls-Royce has no relevance for Prudential, for the latter remains a healthy company. (Here I should state that I receive fees from Prudential as chair of an internal supervisory body). But BP is in real trouble. I would argue that BP's success is a British interest. Like Rolls-Royce before it, it has made grievous errors. In March 2005 its Texas City refinery blew up, causing 15 deaths, injuring 180 people and forcing thousands of nearby residents to remain sheltered in their homes. It is evident that management shortcomings played a major role in the Gulf of Mexico disaster. Nonetheless, we don't want to lose BP, and the Government may have to give some help, just as it did with Rolls-Royce 40 years ago, to prevent that happening.