Rex Tillerson. Photo credit: William Munoz via Wikipedia Commons.
Rex Tillerson has been with ExxonMobil (XOM 0.39%) since he graduated from college in 1975. His first job with the company was a production engineer and he worked his way up through the ranks in roles in both the U.S. and abroad before being named as the company's CEO in 2006. Since taking that top job he has guided the company exceptionally well. For most of his tenure the company has been able to deliver a total return that is above that of the broader market, though the company has fallen behind over the past year due to the oil market downturn.
XOM Total Return Price data by YCharts.
The company's recent weakness aside, ExxonMobil investors shouldn't fret as they have the right man for the job. Here's why.
1. He is a man of integrity
In a recent commentary in Fortune 500 Insider, Tillerson was able to share his ideas and leadership advice. He was asked the question, "What's one quality that drives your company's success?" He could have answered innovation, the price of oil, perseverance, or any number of things, but instead he said, "Integrity is essential and irreplaceable. It is the most valuable asset for a person, a company, or a society seeking to build and progress."
He would go on to note:
At ExxonMobil, we have identified four types of integrity that govern our business activities. First, there is operational integrity, which helps us manage the risks of daily operations at oil and gas facilities, protecting lives and the environment. Second, there is scientific or technical integrity, which ensures we solve problems through open and respectful dialogue guided by science and the best practices from engineering. Third, there is personal integrity, which ensures we hold ourselves to the highest ethical standards on our way to a shared objective. And finally, there is managerial integrity, which builds trust and helps us set an example as both a leader and a follower -- which are equally critical for fostering the culture of an organization.
Under Tillerson's leadership Exxon has built its foundation upon integrity. Because of this the company doesn't cut corners, or take the short-term view; instead, it is more concerned with doing what's right for the environment, its employees, and its stakeholders than simply looking to meet this quarter's expectations. This is the type of leader that shareholders would want stewarding their investments.
2. He has delivered results that consistently outperforms
In almost every metric that matters, ExxonMobil leads its peer group. The following slide is but one of many examples:
Source: ExxonMobil Corporation Investor Presentation.
As that slide points out, the company has led its peer group in returns on capital employed over the past few years by a fairly significant margin. The company also leads the group in free cash flow, shareholder distributions, and balance sheet strength as it is the only Triple-A rated oil company. To put it simply, Tillerson has led the company to outperform all of its rivals.
3. He has the company positioned to thrive no matter the oil price
Because of its ability to generate a lot of free cash flow and the fact that its balance sheet is strong, ExxonMobil is well positioned to weather the current downturn. While it is not completely immune to the downturn, it will survive as it has a lot of flexibility. That flexibility was on display on the outset of the downturn as the company reduced its capital expenditure spending by 12% over last year's level to give it even greater financial flexibility during the downturn.
However, that cut isn't anywhere near as steep as many smaller oil companies, which in some cases had to cut spending by 50% or more because their cash flow is much weaker than Exxon's. Further, many of these companies needed to cut spending that deeply just to survive due to weaker balance sheets. Meanwhile, Exxon's strong financial position gives it the ability to invest long term so that it can take full advantage of the eventual upturn while many of its peers are just hoping to survive to see that day.
Investor takeaway
Rex Tillerson is building ExxonMobil to last. He is doing that by laying a foundation of integrity. That has enabled the company to outperform its peers through the years and has it very well positioned to not just survive the downturn but take full advantage of the situation and thrive.
