UK: The Davidson Interview - David Varney.

UK: The Davidson Interview - David Varney. - Even his own chairman agrees he's a maverick, but the chief executive of BG has been a breath of fresh air for the demerged British Gas. The City has been suitably impressed thus far, as Andrew Davidson points

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Last Updated: 31 Aug 2010

Even his own chairman agrees he's a maverick, but the chief executive of BG has been a breath of fresh air for the demerged British Gas. The City has been suitably impressed thus far, as Andrew Davidson points out, but the future is littered with banana skins.

How would you describe David Varney? Bristly, certainly. Bubbly?

Not really. Combative, probably. Driven, of course. Brave? Now there's a word. Why else would a man leave a company the size of Shell after 28 good years to head up anything linked to a public relations disaster like British Gas?

'Oh, it was just the challenge,' he says, twisting round in his chair.

'The problems didn't put me off. I've been pretty much used to problems.

I wanted to sort this out, and I liked the idea of putting together a team from different backgrounds and making it all work. It was a personal journey, if you like.'

Varney, 52, compact, bald and pudgy, rubs a hand thoughtfully through his beard while he talks. His accent still has vague inflections of 'sarf' London, a legacy of his Catford childhood; easy, you think, he's a pure no-nonsense oilman - go to the place, do the deal, pump the oil out, no Fancy Dan stuff - and the accent enhances it. Then the oil veterans put you right: Varney made his name as a 'downstream' man. His expertise? Management and marketing with a large dash of attitude. Even his own chairman agrees he is a maverick. Pigeonhole him at your peril.

He has been chief executive of BG for a year and a half now, ever since the former British Gas was split up. The gas sales business became Centrica plc. The rest, including the Transco pipeline business in the UK, the international exploration and production arm and the power generation subsidiary, was bundled into BG for Varney to sort out. That's beside the point for some observers, of course. 'Succeeding Cedric' is the key headline. Varney's predecessor, Cedric Brown, chief executive of British Gas, became Britain's most reviled businessman for his leap in pay post-privatisation, earning bucket-loads of tabloid manure in the process.

Varney must have had a whiff of it when newspapers questioned his own £100,000 pension pay-off on leaving Shell. Does he feel like a fat cat?

'Nah, I've got a fairly robust attitude to all that. If it comes, it comes. You have got to do the right thing and play the right game and if that makes you unpopular or gives you problems, then fine, it gives you problems. At the end of the day I am more interested that I can look at myself in the shaving mirror and see I have done the right things than I am in anything else.'

But he doesn't shave.

'Hah, hah. Yeah, well, I do a little bit,' he laughs, lifting up his chin and drawing a line across his Adam's apple with his finger. He seems tense but he's loosening up. 'Anyway, I don't want to use a more intimate analogy.'

Heaven forbid. Varney has lived through worse press criticism, anyway.

He was hauled in by Shell's top brass to help sort out the public relations mess following the environmental confrontation over Brent Spar. It threatened to unravel any progress he had made in marketing Shell products across Europe - he has earned his stripes in the field of media conflict. Right now, he probably feels pretty safe from all that. His bustling, unsnotty style has already caught the eye of Westminster's power brokers. Recently installed as chair of the Government's New Deal Employer Coalition in London, Varney - like an increasing number of privatised utility bosses - now bears the personal imprimatur of the Labour administration. And characteristically, he has no truck with anyone who says there might be a hint of cynical opportunism in his new enthusiasms. When I suggest as much, he screws up his face as if he is sucking a lemon and replies slowly, 'Well, if you are a journalist with that view of life, then I can only say there are a number of papers for whom you can usefully work. This is not cynical.' You tend to believe him.

Even better than that, he has got most of the pinstripes in the City on his side. Though doubts still remain about the structure and breadth of interests of BG, Varney seems to have got the right figures pumping through (£1.15 billion pre-tax profit on £4.3 billion turnover in 1997) and generated some goodwill into the bargain - the Financial Times described his first year at the company as 'a breath of fresh air'.

His real problem is with the share price, bouncing between 315p and 340p at the time of writing. Despite being among the best performing stock in the market last year, BG shares still appear cheap. The weak oil price, the strong pound and the recent mild winter cutting demand for Transco's pipelines, means the market won't give the company the value some think it deserves. There are constant rumours that last year's share buy-back, which helped boost the value, won't be the last.

What should the share price be? 'I'll tell you right now,' says Varney, popping out of his armchair to punch the computer keyboard at the desk behind him. 'Three ... thirty ... nine ... pence,' he shouts. 'I think that at twenty-five to two on a Friday that is a reasonable valuation,' he says, chuckling as he comes back to his seat. We are sitting in a corner office at the top floor of BG's small London base in Jermyn Street. For all his leaping around, he is not going to budge on the share price issue. 'I think everyone thinks their company is undervalued,' he says flatly. 'We keep all our options open.'

It's a motto you could just as easily apply to Varney's career to date.

Telling the story of his Shell years, he gives the impression of a piece of rough sandpaper constantly rubbing up against smooth surfaces. It is hard to gauge if he really didn't fit in, because he was certainly successful in his 28 years there and a highly valued member of Shell's senior team. But in the end, he says, he found a lot of the things that were good about the organisation also deeply frustrated him. 'I got to the stage where I wanted to feel I could carry through and deliver something in a faster way than was thought possible. In some ways that characteristic in an organisation is good, because it safeguards against anyone making major mistakes, but it's not very creative.'

Shell is a broad church, though Varney does make little digs about the predominance of Scottish accountants and humourless Dutch so you can only speculate about what differentiated him from the rest. Perhaps it was that prickly ambition mixed with a touch of meritocratic niggliness. Varney was not part of the typical, patrician Shell intake.

Born in the post-war baby boom, his mother an ambulance assistant, his father an RAF flight sergeant turned salesman, he was brought up with his sister and two brothers in a family that pushed hard to better itself. His father, who had seen 'a lot of harshness in India during the war', had a strong work ethic and a passion for Charlton Athletic (which rubbed off on one of Varney's brothers, who now runs the business side of the football club). By the sound of it, Varney, the eldest son, grew up fast, working during every holiday from the age of 14. 'We were weaned off welfare young,' he grins.

His father, who went on to lecture in selling, was a confident, gregarious, technically minded man, according to Varney. 'He moved easily among men,' he says, summing up. Some of it clearly rubbed off on his son too.

But Varney was never academic. He 'stumbled' into grammar school, competent at maths, fascinated by chemistry and - you would guess - a bullish speaker in the debating society, which later became a real passion. He went on to read chemistry at the newly founded Surrey University, and like a lot of grown-up-quick big-talkers, swiftly made a mark in the student union. He became president, then chair of the London region of the National Union of Students (NUS).

Other luminaries such as Anna Ford (president of the Manchester region) and Jack Straw were moving through the union's ranks. Varney says that heading his bit was like running a small business: £100,000 turnover, staff, bars, sports clubs, discount travel.

Did all that give him more confidence? 'No,' he says, never one to acquiesce to an easy answer. 'It doesn't give you confidence, it gives you humility.

I always think that is a far more valuable commodity than confidence.'

Meaning? 'Well, you see the way in which well-intentioned people can get screwed up, and how very bright people can produce an answer that is not very sensible.' He lets the answer hang, tellingly. It is during explanations like this that Varney likes to adopt his most alert pose, hands clasped, head down, looking at you very intently through the top of his wide glasses, like a little rhino about to charge.

He plumped for Shell because he liked the man doing the milk-round interviews.

Who else did he see? 'Oh, ICI, IBM, BP and other assorted rogues.' He didn't like the look of BP because it appeared 'fairly buttoned down and British'. He wanted to travel: he had only been abroad once, to Belgium. Shell offered the right kind of international opportunities - if he could get what he wanted. They offered him marketing. He said he wouldn't join unless it was personnel. They wanted him to go north. He said he wanted to stay in London. It was the start of what sounds like some fairly bristly early years at Shell. You can imagine the bustling, confident ex-NUS president was quite a handful for his bosses. The conflicts continued. Three years in, he wanted to go to business school. Not yet, said Shell. So he booked himself into Manchester. Shell relented. He wanted to go into general management afterwards. Not yet, said the chairman, who by that stage was interested enough in this obstreperous young man to visit him. Varney refused to back down. Shell relented.

He went on to have a glittering career, working in Africa, Australia, and Europe, handling relations with regimes run by the likes of Idi Amin in Uganda, the Marcoses in the Philippines and the Sultan of Brunei, all of which says a lot for the kind of company Shell was, prepared to harness Varney's individual talents. 'He was a maverick,' agrees Sir John Collins, chief executive of Vestey and one of Varney's bosses at Shell, 'but a very disciplined maverick. He tested the boundaries but he left each job having made a success of it.' He married a doctor who went on to specialise in sexually transmitted diseases - no jokes, please, about where they met (Manchester, when she was a student), he has heard them all. They had a son in Australia and a daughter in Holland. He went to Stanford Business School on a refresher course.

He ran Sweden for Shell. He took a succession of top European jobs and became increasingly interested in marketing. And eventually, he grew disenchanted with having to struggle to make things happen. As others describe it, he wanted to whip Europe into shape and take control from the centre.

Shell's subsidiaries, which jealously guard their national independence, would have none of it. It was time to go.

Curiously, for a man who never quite fitted in at Shell, Varney has found the BG job tailor-made. Dick Giordano, chairman of BG, says it was precisely Varney's unconventional qualities which attracted him. The company needed a top-flight executive with real experience of the oil and gas industries, but one who wasn't moulded into a one-track corporate groove. 'The old BG culture had to be changed, but we certainly didn't want a guy coming in just saying, "this is the Shell way, this is how we have to do it" - that wouldn't have helped the cause.' And just as importantly, Giordano was impressed by Varney's reputation as a team leader. For, although Varney talks about the attraction of putting together his own team, in fact the top slots at BG had already been filled by Giordano. Varney was the last one in. 'We were giving him an entirely new senior team,' says Giordano, 'and we had to ask, is he going to make them his?'

It was a gamble that, so far at least, appears to have paid off. Despite City worries about the share price, Varney is quick to remind you of just how grim BG's prospects looked 18 months ago. Then the share price sat at 179p and many thought the combination of a monopoly domestic pipeline operator and international oil and gas explorer was a non-starter. There was also, after the tabloid vilification of the company and its enforced demerger, the problem of morale. 'I saw people who were very hurt,' says Varney. 'It was a company which was trying to make sense of the enormity of what had happened to it.' In short, the Government had promised British Gas a monopoly on gas for 25 years, and then recanted.

Varney spells it out: the old culture, that of high-quality monopoly service provision, had to be changed, retaining the emphasis on service and safety, but adding in the priorities of enhanced competitiveness and shareholder value. All the time, the strategic problems intensify. In the UK the Government wants to help the coal industry by discouraging generators from building new, gas-fired power stations. How will that impact on BG? And how can the £3 billion-turnover Transco really profit from its extraordinary technical feat in facilitating competition in the gas market, especially as Ofgas, the industry regulator, has already made it clear that it will not allow BG to cross-subsidise its international adventures from the pipeline business? Yet the unregulated part of BG's business is obviously the most exciting, and the most in need of investment.

New discoveries and a host of overseas deals means BG's international prospects look good, but each project is necessarily high-risk, the complete opposite of its British business. How can the two live together?

Varney shrugs. Is there a long-term future for Transco in BG? 'I don't know,' he says. What is clear, he adds, is that at the moment the Transco link clearly helps BG overseas. 'Next week I am going to Argentina, Uruguay and Brazil. They look at the UK, at our pipeline that can go six times round the world, they look at the fact that anyone can turn on a gas cooker at any time and it works, and that it's not big news, and they want that for their own people.'

Gearing BG up to sell all its skills overseas, that mix of exploration, production, generation, transmission and distribution, is one of his real challenges. He clearly loves it. When he talks about the joy of working with a senior team drawn from places like GE, British Steel and SmithKline Beecham or the excitement of dealing with non-executives who are not just 'retired managing directors lingering on Chinese-style', he sounds like a little boy in a sweet shop. If he wants gurus - and he is an avaricious reader of management theory - he can have them, by the pound. Already he has both Chris Argyris, the veteran US business thinker, and Richard Pascale, author of Managing on the Edge, working inside BG.

How would Varney describe his own style? He strokes his beard ('It's a great prop,' laughs Giordano). 'Direct, open, people-centred, informal and approachable,' he says, finally. Others say he is always methodical in working through the alternatives, a legacy of his time at Shell where every decision has to be backed by full explanations of alternative options, and why they had been discounted. He is also a hard man to read in argument, perhaps partly because of his rotund chirpiness. 'He enjoys debate,' says Collins, 'and frequently plays devil's advocate. This can lead to confrontation, and then his diplomatic skills come into play.'

Does Varney miss Shell? Clearly not, yet when he talks about his old company, there is that curious mixture of hurt and adoration underpinning what he says, as if he is talking about a love affair which he can't quite accept has run its course. And he brings with him that deep well of experience from which BG can draw. In a radical move, he is, for instance, trying to persuade Greenpeace to help BG draw up a better study of the environmental impact of its business. Colleagues say he was deeply affected by the pounding Shell took over Brent Spar, and is trying to put checks and balances in place to avoid a similar incident at BG. How? Varney is adamant: by encouraging open and frank debate, and listening to what he calls 'the deviant voices' that don't just toe the company line. He noted at Stanford, he says, how US executives were much more switched on to getting involved in community issues.

What he does miss, of course, is Formula One racing. As head of marketing he handled Shell's sponsorship of Formula One and became passionately attached to the sport. He can't go so much now - 'there are no gas-fired cars, are there?' he says glumly - but he clearly follows it from a distance. He can draw parallels between what's going on in the pits and senior executive offices: the constant performance drive, the feedback, the clarity, the relentless drive to win. But he doesn't pretend. It's the cars he loves. Has he driven one? 'Are you joking?' he laughs. 'Look at me, then look at the Formula One drivers. They are seriously small people, like jockeys, not built like Pavarotti.'

He is not that big but I see his point. Anyway, he says, he is trying to take up sailing as his main hobby now. For a moment I have visions of a BG-sponsored 40-footer gliding into Cowes Week, as befits a man earning close to half a million pounds a year. Even his beard starts to look nautical.

He puts me right. 'No,' he says with a broad grin, 'dinghy sailing.' Apparently he likes nothing better than to potter about at the sailing club near his home in Bourne End outside Maidenhead.

It is this ordinariness and lack of pretension which makes Varney such a compelling figure. His friends say that, if he gets BG in the shape he wants, he could go right to the very top. They wouldn't be surprised if eventually he 'does a Lord Simon' and becomes committed to helping the Government address wider issues of national importance. He is passionate about education - he sits on the council at Surrey University - and he is the kind of executive who now wants to deal in more than just business.

And as he points out, having married one doctor and produced another (his son is training at the Royal London Hospital), he is not likely to lose his grip on the real world.

But it is early days. No one can judge yet if his leadership of BG will work in the long term. It is his first crack at running a plc, and lots of banana skins lie ahead: the political risks of its overseas investments (sorting out Argentina's gas services, negotiating to get oil and gas out of Kazakhstan), the pressure of supplying competitors in the domestic market, and the gas regulator's squeeze on its Transco monopoly. Up until now everything has gone Varney's way - even Charlton Athletic has been promoted to the Premiership. The real test of his mettle will come when things start to go seriously wrong. He will appreciate that point. At present, you suspect, he's just enjoying the journey. 'I feel a bit like Robert Frost, walking down a road,' he says, summing up. 'And I took that turning. It made all the difference.'

BIOGRAPHICAL

NOTES

1946 Born 11 May in London

Educated Brockley County Grammar School and Surrey University

1968 Personnel assistant, Shell Refining

1971 Manager, East African Area, Shell International

1974 Strategic planning manager, Shell Company of Australia

1975 Islands manager, Shell South Pacific

1979 Business development director, Shell Coal International

1983 Area co-ordinator, Shell International Petroleum Company

1987 Managing director, AB Svenska Shell, Sweden

1990 Head of marketing, branding and product development, Shell International Petroleum Company

1991 Managing director, Shell UK

1996 Director, Shell International Petroleum Company

1997 Chief executive, BG

WHAT PEOPLE SAY

'David is bright and analytical, he drives himself hard and he's challenging.

He enjoys debate and frequently plays devil's advocate. This can lead to confrontation, and then his diplomatic skills come into play.'

Sir John Collins, chief executive, Vestey Group

'He's very sharp, a good lateral thinker and a straight shooter. He doesn't mince his words, irrespective of who he is talking to. I was surprised when he left Shell, because he wasn't one of those who goes round saying he is fed up with the place. But then, he was less identifiable as a Shell man than most.'

Ian Ward, director general, Institute of Petroleum

'When you meet him the intellectual rigour comes through very quickly, and the necessary level of aggression.'

Dick Giordano, chairman of BG

'David's pretty straight forward. What you see is what you get. He expects high standards and is good at extracting what he wants. He is the right peg in the right hole at BG.'

Bill Harrison, vice chairman, Deutsche Morgan Grenfell, adviser to BG

'I'm impressed. He's involved. He gets under the skin of issues and really knows the facts.'

David Benson, non-executive director, BG.

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