ConocoPhillips's Dunham: Industry leaders can restore public confidence in corporations

Sept. 15, 2003
Archie W. Dunham
Chairman
ConocoPhillips
"Sarbanes-Oxley requires no more in the way of transparency and disclosure than most ethical companies have been providing for years. The new law should be regarded as the minimum standard for transparency and disclosure that responsible corporations owe their shareholders and the public. We can do better than Sarbanes-Oxley."

Judy Clark
Associate Editor
In the wake of scandals surrounding certain energy-related and other corporations that have damaged the public's trust and tarnished the image of US corporations in general, it is important that industry leaders "step up and do their part" to restore the public's confidence in trustworthy corporations, says Archie W. Dunham, chairman of ConocoPhillips.

"I think this is an issue that is broader than just the energy industry," he said. "It really is an issue for all of corporate America," he told OGJ.

"There are 17,000 public corporations in the United States in the various exchanges, and I would imagine there's 16,990 of those corporations that I think are scrupulously honest, and the CEOs are scrupulously honest. So, we're talking about a problem that was caused by a handful, you know, less than a dozen dishonest CEOs and CFOs. And so it's not an issue that I would think is prevalent in corporate America, rather it is an issue that has tarred all of the major corporations and chairmen and CEOs in America," he noted.
"These are the kinds of issues that have created skepticism on the part of the public over whether or not they can trust major companies," he said.

But Dunham suggested remedies.
"The first thing we have to do. . .is that chairmen and CEOs. . .need to step up and talk about what they're doing in their own companies to make sure they have the right kind of ethics policy [in place] and a strong board," he emphasized.

A different world
"If you look at the history of the energy [industry] going back well over 100 years, there have been hundreds of thousands of transactions approved and implemented—actions taken with a handshake," Dunham said.
"And that's true not only in what I would call the wildcatter or independent producer segment of the petroleum industry where deals were made with handshakes. You don't have to go back too far, even with major energy companies, probably in the '50s and '60s when I first started to work for [ConocoPhillips predecessor] Conoco. We did a lot of deals just based on a handshake. "There were no written contracts," he added.

"In our industry, especially, if you ever reneged on a deal, you were going to have a hard time doing the second deal. You know, in the trading community, for example, where prior to the time of electronic communications that we have today where you can quickly confirm a transaction, back 40 years ago most of these transactions were done on the telephone. Just one trader with another trader from another company, and you agreed on the deal, you agreed on the differential or whatever it was trading, whether it was crude oil, natural gas, or propane. And the deal was made on the telephone, and you honored those transactions even if the market dropped 20% the next 5 min," he said.
"It's a different world today."

Ethics enforcement
Leaving ethics enforcement up to the government, however, via such legislation as the Sarbanes-Oxley Act of 2002 is not the total answer, Dunham stressed. (The act requires principal executive and financial officers to certify corporate financial and other information in quarterly and annual reports to the Securities and Exchange Commission.)

"First of all, government regulation alone can't legislate morality," or keep the market honest, he added, because "government can't manage morality. We know that from life.

"Sarbanes-Oxley was a good bill; I think it's a good piece of legislation, but it, in itself, cannot ensure that we have honest CEOs and companies of integrity. And so the CEOs, the chairmen of all of our companies need to. . .make sure that we have the right kinds of policies, the right amount of transparency and disclosure that will give the public confidence in our corporations."

Dunham said that ConocoPhillips has always had a written ethics policy that is promulgated worldwide throughout the company. ConocoPhillips operates in about 50 countries, he said, and "we try to uphold the highest standards of integrity. . .in every country where we operate, regardless of where a particular part of that policy might be required legally in that country."

Dunham said that ConocoPhillips has a "very effective internal audit function" whose personnel travel the world, based on guidance from management about which parts of the world and which business units have the biggest challenges—because of the culture of the particular country where they may be operating," he said.
The auditors check all transactions to ensure that the company is abiding by company policies. "If we find any instances where any employees have breached that policy, then disciplinary action is taken, including, in many cases, termination. And that's done very quickly and without question," he said.

"We also have an ethics hotline that is included in all our publications; it's included online, in all our communications to our employees globally where they call this phone number in total confidence and share anything they wish to share.
"The calls that come in [are] looked at every day by members of our internal auditing group to make sure that if there are things that need to be followed up on, they can quickly respond to those concerns."

Competing ethically
Dunham said these actions are taken despite the disadvantage US companies have in competing in some countries with other international companies.

"We will always follow US law," Dunham said. "I mean, we're a US company, and I would imagine most of our major US-based competitors would say the same thing. We're guided by US law [and] by the Foreign Corrupt Practices Act (OGJ Online, July 6, 2001). If you violate that, you know, the CEO goes to jail. And so we're very careful.
"We can't use bribes; we can't do those kinds of things that are illegal in our country but may be legal in other countries. And so it makes it difficult to compete, to be quite honest, in many regions of the world. I mean, even with some of the foreign governments that we are competing with, the company may be headquartered in one of those European countries [where] it's not against the law for them to do certain things to encourage other countries to give their companies an advantage over US-based companies—but we've competed against that problem for years."

Dunham said the company competes in these situations by offering the best service. "We've got to make sure we have the best quality, the best management, the best technology, and a competitive offer, and [we] rely on that in order to get the opportunity."

Corporate governance
Dunham said that for corporate governance to be strong, the tone has to be established at the top of the company, and that comes from the board, the chairman, the president, and the CEO.

"And if you don't have the right tone at the top, then you're just asking for trouble further down the organization. The leadership of the company has to be scrupulously honest in everything that they do."
Dunham said Sarbanes-Oxley "really didn't change very much what we were doing; I mean, at ConocoPhillips we were already very transparent; we disclosed everything. You know, even some of the guidelines they gave around board committees; we had all those things. We had an ethics policy already, but I was surprised to learn [from talking to a CFO at a smaller company] that in his company, they did not have all those things," he said.

"They did not have an ethics policy; they did not have a various committees that are now required by Sarbanes-Oxley, and so I am sure that legislation did a lot to shore up governance in smaller companies, you know, companies that are not on the Fortune 100 or Fortune 500 list, and so there was a great value, I think. You know, if you look at maybe the 16,500 companies that aren't on the Fortune 500, it probably did enhance their governance, where it didn't have that much of an impact on the really large companies."

Career highlights

Archie W. Dunham is chairman of the board of ConocoPhillips. Formerly he was chairman of the board, president, and CEO of Conoco Inc. and was instrumental in orchestrating Conoco's initial public offering separation from I.E. du Pont de Nemours & Co. in 1998.

Employment
Prior to the merger of Conoco and Phillips Petroleum Co. in 2002, Dunham held a variety of senior executive posts at both Conoco and DuPont, including executive vice-president, exploration and production, at Conoco. While at DuPont, he served as executive vice-president and as senior vice-president for polymer products. Dunham also was a member of the company's Office of the Chief Executive and was chairman of DuPont's Environment Leadership Council. He also serves on the board of directors of Louisiana-Pacific Corp., Phelps Dodge Corp., and Union Pacific Corp.

Education
Dunham holds a BA and an MA from the University of Oklahoma and was awarded an honorary Doctor of Humane Letters degree by the university.

Organizations
Dunham serves on the boards of the American Petroleum Institute, the Energy Institute of the Americas, the Horatio Alger Association of Distinguished Americans, and the National Board of the Smithsonian Institute. He also is on the board of trustees of the George Bush presidential library foundation and serves on the Commission on National Energy Policy and the National Infrastructure Advisory Council, which advises the US president on security of information systems for critical infrastructure supporting energy and other economic sectors. Dunham is chairman of the National Association of Manufacturers and is a member of the Bretton Woods Committee and the Business Council. He also is a member of the Texas Governor's Council and is on the boards of the Greater Houston Partnership and the Houston Forum.