New Boss Will Stick to Schlumberger Formula
Michel Vaillaud, the first new chief executive in 20 years at Schlumberger Ltd., says he has no plans of tinkering with the formula for managing the world’s largest oil field services company.
“You hire the best and you give them the best training and after that you give them a lot of freedom and after that, if they goof, you fire them. And that’s the name of the game,” he says.
The challenging rules of the “game” have been set since the company’s founding in 1927 by French physicist Conrad Schlumberger and his brother Marcel, a mechanical engineer, who together developed a technique for measuring potential oil and natural gas deposits underground.
“The founders were very smart to realize from the beginning that if you have boys working in west Texas, in Romania, in Venezuela, you’re not going to have them calling you up on the phone asking you what to do,” Vaillaud said.
For a company with $10.9 billion in assets and 80,000 employees spread around the globe, Schlumberger maintains a modest headquarters staff of 200 people in New York and rarely sends a direct order to its managers in the field.
“That’s what makes the company so appealing to young people, because they really run their business,” Vaillaud said.
But that doesn’t mean no one is in control of the company.
More Time at the Top
With people in the field making most of the decisions, top management has more time to spot problems before they flare into crises, reviewing candidates for key jobs, considering new strategies and takeover targets, Vaillaud said.
The few big decisions are up to the chairman, with the approval of the board of directors.
He describes his job as spotting trends that will affect the business, such as a shift in fortunes in oil markets.
“You have to do it with a few people and a lot of sniffing to see what’s going on,” he said. “You’re just like a hunter. It’s like smelling in the wind and trying to detect a few little things that will make you feel one way or the other.”
The man who developed that management style into a highly profitable art at Schlumberger was Jean Riboud, who stepped down as chairman and chief executive on Sept. 11, in favor of Vaillaud, 53, his hand-picked successor.
Riboud, 65, who is suffering from cancer, had been Schlumberger’s chief executive since May, 1965, and its chairman since March, 1972, and is a legendary figure in the oil business.
Under Riboud, Schlumberger’s profit soared almost 44 times to $1.18 billion and revenue increased nearly 20 times to $6.37 billion. The company has about $4 billion in cash on hand.
It was to send the message to the markets that Schlumberger goes on after Riboud’s reign that the company made an exception to its usual secretive style and granted requests for interviews with the new chairman.
Vaillaud, in shirt sleeves and alternately gesturing with his hands and rearranging a cluster of pencils, said his days are spent in meetings or telephone calls with individuals and small groups or in world travel.
“Schlumberger is a bit of a telephone and a plane civilization,” he said. “You spend days and days in the plane and you spend hours and hours on the phone.”
Typically, Vaillaud has been spending three weeks in the United States, followed by a week in Japan and two weeks in Europe to keep in touch with the widespread operations of the company. Now that he is chairman, Vaillaud said, he may spend a little more time in each spot before moving on.
No Meetings Wasted
He considers no meeting wasted, even if no decisions are reached after lengthy discussions.
“What you are gaining by this is having the man you spoke to having understood something. He himself will make the right decision; you don’t have to decide. If you have smart people, once you have brought them to the right thinking then there is no problem. They will do it,” Vaillaud said.
“It is the ultimate ego for the boss to say, ‘I decide.’ The boss has every right but having ego.”
Vaillaud, who was recruited by Riboud, is a former director of the petroleum administration in the French ministry of industrial and scientific development and a former chairman of the French national office of aerospace research.
He has his work cut out for him.
Earnings fell 8.8% in the first half of this year despite a 9.1% rise in revenue.
One big problem is the slump in oil prices since 1982 that has depressed oil exploration.
Less Demand for Rigs
Floating drilling platforms known as semi-submersible rigs, which Schlumberger was leasing out for more than $100,000 a day when the oil boom peaked in 1981, now are being placed for less than $30,000 a day.
The company’s main business, the measurement system of oil and gas deposits that is known as wireline logging, has become more competitive as oil field services companies scramble for a share of the shrinking exploration business.
Schlumberger, which has always commanded a premium fee for its wireline services because of its advanced technology, its worldwide capabilities and its reputation for quality, is now lowering its prices to levels closer to the competition.
It is also cutting costs and keeping overhead down.
Sandi Haber Sweeney, an analyst who follows Schlumberger for the investment firm Sanford C. Bernstein & Co., estimates operating profit from all of the company’s oil field services has slipped to between 25% to 30% of revenue from the 40% to 45% level of 1981.
But those results are “still fantastic,” she said, adding that while the company has not gained ground during the oil industry’s downturn, it still remains profitable.
Analysts say the biggest problem for Schlumberger is its Fairchild Semiconductor unit, which is caught in an industry depression.
“It has been a real failure so far,” said analyst James Crandall at Salomon Bros.
Vaillaud did not dispute analysts’ estimates that Fairchild will lose about $100 million this year.
Crandall said returning Fairchild to sound footing is Vaillaud’s biggest challenge.
Vaillaud said that while he is not pleased with the loss at Fairchild, a strong management team is in place and the company has weathered a severe downturn in the semiconductor business.
Passed the Test
“It’s a stress test. I think they (Fairchild) are tired, but they got through the stress test with success,” Vaillaud said.
He said his major problem is controlling costs at a time when oil markets are depressed so that Schlumberger will be able to harness its huge cash reserves when markets rebound, as he expects they will in the 1990s.
“What our clients are wanting us to do today is to continue working on research, bringing new products as soon as possible and being able to build the equipment when the business is going to start booming because they won’t be willing to wait,” he said.
With his globe-trotting schedule, Vaillaud said, he tries to catch up on his sleep and devote time to his family in his spare time. Vaillaud and his wife have apartments in New York and Paris and a home in the French countryside where he grows peach and pear trees.
“If you want to stay healthy, you sleep first,” he said. “The first hobby is family. In this business when you keep moving around and working a lot, the No. 1 victim is family.”
His three daughters have careers of their own, with one teaching mathematics in a New York girls’ school and the other two living in Paris, where one is a fashion photographer and the other a manufacturers’ representative.
“I think cultural life in New York and country life in France are probably the two things I like after sleeping and the family,” said Vaillaud, a fan of opera and ballet.
