Case
Culture Change at Texaco
In 1999, Texaco settled a lawsuit that charged the firm with discriminating against
African American employees. Texaco paid $175 million, the largest settlement of this
kind ever. The stock had fallen $3 per share after damning audiotapes became
available to the public. Peter Bijur, then CEO, decided to stop fighting the lawsuit
and settle. Minority employees received $140 million in damages and back pay, and
$35 million was used to establish an independent task force to evaluate the firm’s
diversity efforts for the next five years.
Apparently, there had been very real problems throughout the Texaco organization.
These included blatant racist language and behavior on the part of Texaco
employees and managers, documented lower pay for minority employees (in some
cases lower than the minimum for the job category), and comments such as the
following overheard from a white manager: “I never thought I’d live to see the day
when a black woman had an office at Texaco.” Unfortunately for Texaco, and
fortunately for minority employees, a Texaco official taped meetings about the lawsuit
in which executives used racial epithets and discussed disposing of incriminating
documents. The tapes were made available to the New York Times and, through it, to
the public. To make matters worse for Texaco, a former senior financial analyst, Bari-
Ellen Roberts, wrote a book detailing the humiliating experiences faced by many
minority employees, including herself. One time, a white official referred to Roberts
publicly as a “little colored girl.” She also detailed how the organization regularly
ignored grievance claims from minorities.
Bijur’s unusual solution to the problem was to launch a complete culture change
effort. During 1998 and early 1999, the company was in difficult financial straits due to
low crude oil and natural gas prices. Revenues and earnings dropped precipitously, and
the number of employees was reduced from 27,000 to 18,500. At a time like that,
another CEO might have put diversity issues aside in favor of a focus on the bottom
line. But Bijur took advantage of the opportunity to “make us a better company.” First,
as leader, he made it clear that he would simply not tolerate disrespect and that those
who didn’t go along with the culture change would be dismissed. He even went outside
the company, speaking to groups such as the Urban League, saying that “a real
commitment must be more than a diversity checklist. It must be integrated into a
company’s business plan. It must guide our strategies for hiring, developing, promoting
and retaining a diverse workforce. And it must extend beyond our corporate
boundaries—not only to our customers and suppliers, but also to the communities in
which we work and live.” Bijur hired African Americans in key positions such as
director of global business development, general counsel, and head of diversity for the
company. All of these individuals said that they agreed to join the company because
they were convinced of Bijur’s personal commitment to real culture change. New
recruiting systems were set up to increase the pool of minority candidates for every
position. Women and minorities were included on all human resources committees.
Search firms with success in minority hiring were brought in to help in the effort. For a
longer-term solution, the company set up scholarship and internship programs to
interest minorities in areas of study of importance to the firm.
Next, Bijur set specific diversity goals and timetables and linked managers’ career
success and bonus compensation to their implementation of the initiatives. For all
supervisors, he instituted 360-degree feedback that included performance on diversity
issues in evaluation criteria. He also established formal mentoring and leadership
development programs to ensure that the company was preparing minorities for
leadership positions. All employees were required to attend diversity training, and
such training is now being incorporated into more general management training. And
multiple methods were set up for filing grievances. These included hotlines, an
alternative dispute resolution process with independent arbitration and mediation, and
a confidential outside ombudsman. Finally, the company set up a Minority and Women
Business Development Program to increase the number of minority wholesalers it
works with. This entire change effort is overseen by the independent task force set up
as part of the settlement. The task force meets frequently with employee groups and
monitors the firm’s progress.
How is Texaco doing? Angela Vallot, director of corporate diversity initiatives,
says, “You’re not going to change the way people think, but you can change the way
people behave.” Evidence suggests that changes in behavior are real. The new general
counsel has few discrimination lawsuits to work on. In 1999, a total of 44 percent of
new hires and 22 percent of promotions went to minorities. The company spent over $1
billion with minority and women-owned vendors in 1997 and 1998 and exceeded a
goal set in 1996. Texaco even applied for inclusion in Fortune magazine’s 1999 list of
America’s 50 Best Companies for minorities. It didn’t make the list, but the
application suggests that company officials were feeling pretty good about their
progress. Weldon Latham, diversity expert at a Washington, D.C., law firm, says,
“They are absolutely a model for how to approach one of the biggest problems facing
this country.” Reports of the monitoring task force were posted on Texaco’s
website. In a report, released in July 2000, the task force acknowledged the commitment
of Texaco’s leadership. “Through the values espoused by its leadership and its
efforts to improve its employment practices, the Company continues to communicate
effectively the message that it will not tolerate discrimination, harassment, or
retaliation in its workplace and that equality and fairness for all employees are central
to its mission as a highly competitive business enterprise.” The report also cited the
ombudsman program as employees’ preferred way to resolve grievances that might
otherwise have become serious problems.
The task force’s subsequent report cited more mixed results. Although the overall
percentage of women and minority employees increased slightly, the percentage of
new hires and promotions in both categories declined, and the representation of
women and minorities in executive positions fell slightly as well. Nevertheless, the
percentage of promotions in these groups exceeded the percentage represented in the
overall Texaco workforce, and this was viewed as a sign of continuing progress.
These reports noted that there was much more work to be done, particularly after the firm became part of Chevron in 2001. On its website, Chevron says that it values
diversity and runs the business “in a way that respects our employees and the world
community.” The company has recently received awards for its treatment of women
and of gay, lesbian, and transgender employees and was named a 2008 Best Diversity
Company by Diversity/Careers in Engineering & Information Technology magazine.
Case Questions
1. Identify the ethical culture problem at Texaco in the mid-1990s.
2. Based on the facts in the case and what you have learned in this chapter, evaluate the culture change effort that is under way. What cultural systems have been targeted in the culture change effort? What systems are missing, if any? Does the culture appear to be in alignment? Misalignment? What else might management do that it hasn’t already done to make the culture change successful?
3. How long might such a culture change take?
