Sunoco's Elsenhans a high-octane CEO

Lynn L. Elsenhans has led Sunoco in a new direction, away from oil refining.
Lynn L. Elsenhans has led Sunoco in a new direction, away from oil refining. (Sunoco Inc.)
Posted: September 11, 2011

Sunoco Inc. bills itself as the "Official Fuel of NASCAR," and the Philadelphia oil refiner and marketer sure has been in a hurry under chief executive officer Lynn L. Elsenhans.

In little more than three years in the driver's seat, Elsenhans has directed the sale of its chemicals business, spun off its metallurgical-coke unit, and all but removed the company from refining. In doing so, she has angered many longtime Sunoco employees and been the target of street protests.

Her strategy can be summed up as "pumps and pipelines" - expanding Sunoco's retail operations, which sell fuel at service stations and convenience stores, and its logistics operations, which store and transport crude oil and refined products.

Is that a strategy for success? And if it is, does the Philadelphia region still have a place in that plan? With last week's announcement that Sunoco intends to either sell or shut down by July its last refineries, in South Philadelphia and Marcus Hook, there are close to 1,500 jobs at risk of elimination in the region.

As frustrating as that is to those confronting the possible end of their careers, investors apparently liked what they heard, pushing Sunoco shares up 5.3 percent the day the move was announced. Still, its shares have lagged all energy companies in the Standard & Poor's 500 index over the last 52 weeks. Sunoco shares are up just 3.0 percent during that period, compared with an 18.9 percent increase in the S&P 500 Energy Index.

While there certainly have been more divestitures than acquisitions and some deep cost-cutting during the Elsenhans era, she has pushed the company into biofuels, acquiring a new plant in Upstate New York, and beefed up its retail network, increasing the number of Sunoco's convenience stores and service stations to 4,900 in 24 states.

The pace of change has seemed frantic, but the oil industry - from Exxon Mobil Corp. on down - has seen a number of dramatic moves in the last year. ConocoPhillips recently announced plans to de-integrate - spinning off its refining and pipeline operations. In doing so, it joins Marathon Oil Corp. and El Paso Corp. in splitting up.

Trilby Lundberg, publisher of the oil-industry Lundberg Letter, said she found it curious that Sunoco and other companiess wanted to exit the refining business.

"Not long ago, it was considered unthinkable to decouple refining and retail marketing, or E&P [exploration and production] from R&M [refining and marketing]," she said.

Not anymore, and it is clear that under Elsenhans, Sunoco is not done with its transformation. Sunoco has hired Credit Suisse to help it conduct a strategic review of its operations over the next several months and determine how to deploy its mounting cash, which stood at $1.5 billion as of June 30.

Elsenhans, 55, declined several requests to be interviewed for this article about her strategy. But she has articulated it to the investment community regularly, including as recently as Thursday. Speeches she has given and interviews with other publications - including those of her alma mater, Rice University, where she has been a longtime trustee - offer insight into an executive some view as a new version of Albert "Chainsaw" Dunlap, who dismantled Philadelphia's Scott Paper Co. in the early 1990s before selling it to Kimberly-Clark Corp. in 1995.

A woman of influence

Often, when a new chief executive comes to power, awards and accolades follow - especially when that CEO is a woman, because so few run Fortune 500-size companies. Women CEOs run some of the Philadelphia area's largest enterprises, including Campbell Soup Co., CDI Corp., DuPont Co., and Penn Mutual Life Insurance Co.

Forbes magazine has named Elsenhans to its World's Most Powerful Women list - which includes Secretary of State Hillary Rodham Clinton and German Chancellor Angela Merkel, as well as corporate executives and entertainers such as Lady Gaga - for the last four years. Elsenhans was No. 46 on the list released in August.

However, anyone who runs an oil company of any size is bound to come in for criticism. No one roots for oil companies.

Before Elsenhans accepted the Greater Philadelphia Chamber of Commerce's Paradigm Award at the Philadelphia Marriott Downtown in March, members of the United Steelworkers locals that represent workers at the Philadelphia and Marcus Hook refineries protested outside.

The award is given annually to a prominent woman executive of an area company. Her speech - on advice for women trying to make their mark as leaders in the business world - was interrupted several times by student protesters inside, who questioned whether Elsenhans should be receiving any such honor after laying off hundreds of workers. After each interruption, Elsenhans would fall silent until the protester was led away, then resume her remarks.

Judith M. von Seldeneck, chairwoman and CEO of the executive-search firm Diversified Search L.L.C., who nominated Elsenhans for the award, said the protest "could have been a mess." But Elsenhans handled it well, she said.

Some people who have worked for or served on boards with Elsenhans invariably describe her as "smart" and "tough." In public, she comes across as thoughtful, if a bit colorless, in her presentations.

Larry Kellner, former chairman and chief executive of Continental Airlines Inc., who knows Elsenhans from Houston business circles, agreed she is smart, but said that there are a lot of smart people who do not rise to become CEOs.

"As a leader, you have to have the ability to be comfortable being you, listen to others around you, and find a solution that's fair," said Kellner, adding that he considers her a very effective leader.

Because Elsenhans is powerful, former Sunoco managers who criticize the moves she has made, and the manner in which she has made them, tend to do so only in private. Two who did not want to be identified fault her as someone who does not listen well or tolerate dissent, describing a "toxic" office culture.

Von Seldeneck, who has been involved in CEO recruitment for many companies, said Elsenhans possesses a good sense of humor and is "the total package" as a chief executive.

"I think from a business perspective, she's doing what she needs to do," von Seldeneck said. "That's her job as CEO."

Still, even von Seldeneck recognizes the heavy toll the closure of refineries in Marcus Hook and Philadelphia would take on neighboring communities. She thinks it's incumbent on the region's economic-development officials to do everything possible to make sure buyers emerge for those refineries to save the jobs there.

Jim Savage, president of United Steelworkers Local 10-1, which represents about 600 workers at the Sunoco Philadelphia refinery, has been outspoken in his criticism of Elsenhans.

In the 20 years he has worked for the company, he said, "it's never been like this."

No newcomer to oil

Elsenhans is an oil-industry lifer whose chemical engineer father worked for several oil companies, including Exxon. She pursued math, not engineering, when she attended Rice University in Houston during the 1970s.

According to a profile of her in a Rice alumni magazine, she played center and forward on the school's first women's basketball team. She was sports editor for the college newspaper. And she met her eventual husband, John Elsenhans, there.

After graduating in 1978, Lynn Elsenhans went to Harvard University for an M.B.A. She returned to Houston in 1980 to work for Royal Dutch Shell P.L.C., where she would spend the next 28 years, scaling the corporate ladder of one of the world's biggest oil companies all the way to its top U.S. job in 2003.

Sports is another means she has used to navigate her career path. After donating an undisclosed sum to the women's basketball locker room in Rice's Autry Court, she said in a 2008 interview that "one thing I tell anyone - women, especially - who is interested in going into business and being in leadership is to play a team sport."

Elsenhans is just the second outsider to serve as chief executive of Sunoco, having succeeded the first, Jack Drosdick, who retired after eight years. The Sunoco board directed the search for Drosdick's successor, and on Aug. 8, 2008, Elsenhans became the first woman to become chief executive of a large oil company.

At the time, Jack Ratcliffe, chairman of Sunoco's governance committee, said Elsenhans had "excellent credentials and experience" to succeed Drosdick, who had expanded the company by increasing its chemicals, coke-manufacturing, and refining businesses.

"We are confident that Lynn will further develop the strategy we have followed for the last decade," Ratcliffe said in a statement.

If anything, she has done the exact opposite, with the blessing of Sunoco's eight-member board.

A review of Sunoco's history since the 1970s reveals a long list of restructurings, in response to various internal and external forces, that have taken its workforce from a peak of 45,000 in 1981 to 10,200 at the end of 2010 and resulted in a smaller company. With $37.5 billion in 2010 revenue, Sunoco does not sound small but is, compared with global oil giants.

Elsenhans has repeatedly told Wall Street she does not think Sunoco can make money in refining long-term. The company's refining and supply business has lost money in eight out of the last 10 quarters, for a total of $772 million.

But several analysts are not sold that retailing has the potential to generate much growth for Sunoco - not when compared with the growing pipeline-and-terminals business housed under a separate public firm called Sunoco Logistics Partners L.P. Recent investor notes speculate that Sunoco is worth more broken up than in its current form.

While it undergoes a strategic review for the next few months, Sunoco may be making a pit stop from its speedy transformation. But for CEOs, creating shareholder value is a never-ending race.

One unanswered question is how Elsenhans plans to finish her turn on the track.


At a Glance: Lynn L. Elsenhans

Titles: Chairwoman, president, and chief executive officer, Sunoco Inc.; chairwoman and CEO, Sunoco Partners L.L.C. (the general partner of Sunoco Logistics Partners L.P.).

Hometown: Rahway, N.J.

Age: 55.

Married: To John Elsenhans.

Education: Bachelor's degree, mathematical science, Rice University, 1978; M.B.A., Harvard University, 1980.

Career: Worked for Royal Dutch Shell P.L.C. for more than 28 years, most recently as executive vice president of global manufacturing, Shell Downstream Inc., January 2005-July 2008.

Corporate board: International Paper Co., Memphis (March 15, 2007-present).

Nonprofit boards: Business Community for the Arts Advisory Council; Greater Philadelphia Chamber of Commerce; Rice University; Texas Medical Center; United Way of Southeastern Pennsylvania.

Trade associations: Executive committee of the National Petrochemical & Refiners Association.

Awards: Paradigm Award (presented by the Greater Philadelphia Chamber of Commerce in 2011); Texas Business Woman of the Year (presented by the Women's Chamber of Commerce of Texas in 2005); Distinguished Alumni Award (presented by Rice in 2005).

Sports: Played on the Rice women's basketball team in the '70s; golf.

SOURCES: Sunoco SEC filings, Rice University publications.


For more coverage of Sunoco Inc., including news of the proposed sale and an image gallery, go to www.philly.com/sunoco


Contact Mike Armstrong

at 215-854-2980, marmstrong@phillynews.com, or @PhillyInc on Twitter. Read his blog, "PhillyInc," at www.phillyinc.biz

 

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