Comment: Don't expect the oil giants to opt for demerger

Is there any purpose to, or justification for, integrated oil companies - the industry giants that combine exploration and production with petrol retailing and refining - or would consumers and shareholders alike be better served by splitting them into their constituent parts? There is nothing particularly novel about this suggestion which, a bit like a passing comet, tends to turn up unannounced from time to time before disappearing again into the cosmos. Right now it is once more in full view, thanks largely to Pierre Jungels, the new chief executive at Enterprise Oil. Enterprise is a pure E&P company, so it shouldn't come as a surprise that Mr Jungels believes the integrated structure has had its day, that they are going to be outperformed by more focused pure retailing, refining and E&P companies.

Mr Jungels believes not only that there is no particular purpose to the integrated structure, but that it can be positively harmful to the businesses that make it up. Just ask Shell, which at its annual general meeting on 14 May faces a special resolution calling on the board to clean up its act on human rights and the environment. Single issue campaigning of this sort, whether justified or not, easily spills over from the business it is aimed at - in this case Shell's E&P activities in Nigeria - into the company's consumer-facing interests elsewhere. Before Nigeria there was the Brent Spar fiasco, prompting a consumer boycott of Shell's petrol retailing business in Germany.

Likewise, BP has had to work hard at preventing politically inspired complaints about its E&P activities in Columbia spilling over into its retail businesses in the more developed world. In other words, what a company has to do to get the stuff out of the ground may be unacceptable to those who happily buy it.

Even the term "integrated oil company" has become a bit of a misnomer, for these companies have not been "integrated" in the accepted sense of the word for many years now. The petrol being sold by Shell or BP is as likely to be derived from Esso or Mobil as their own oil fields, and it might as easily have been refined by someone else again. Each business operates within its own market place, largely regardless of the company's other interests up or downstream of it. The senior executive who has to deal with the problems of his retail company is highly likely to find it a distraction from the possibly more important challenges facing his E&P or refining interests.

Moreover, the traditional defence of the integrated structure - that the up- and downstream interests are largely counter-cyclical - was rather exploded during the last recession when all three activities, production, refining and retailing, got clobbered at the same time. The low oil price failed to drive up consumer demand, as it had tended to in previous cycles.

Most of the majors have made progress in differentiating the cost structures of their various businesses in an appropriate manner, but the problem is still there. The highly paid E&P executive drags up the pay structure throughout the organisation, even in unskilled areas of the company where the market dictates poorer rates of remuneration. Even the cost of capital is often no better for a major than a smaller, more focused E&P company, since investors are prepared to pay a premium for the pure exploration play.

So much for the downside. There is, however, one very significant advantage the big boys have. Their very size makes it much easier for them to take big commercial risks. If the project goes wrong, investors will certainly suffer, but provided the company is efficiently run and managed, it can be absorbed. The smaller player, with the risk of wipe-out to consider, is much more constrained and his opportunity is correspondingly limited. This is the case in most businesses but it is particularly pronounced in oil and gas. So although logic must be on Mr Jungels' side, we are unlikely to see BP and Shell hurtling down the demerger route, much as fee-hungry investment bankers would like them to.

An unknown quantity at WH Smith

At first glance a refugee from the troubled Sears shoe retailing empire does not look like the most obvious candidate to revitalise the almost equally troubled retail arm of WH Smith. That, however, is the task Beverley Hodson has been chosen to perform.

She may have a great future ahead of her. She may be just the breath of fresh air needed at WH Smith, an institution that still conjures up images of crusty paternalism and male-domination. Looked at one way, anything she does has got to be an improvement on Project Enliven, the ridiculous wheeze the last but one management dreamt up to restore the brand's fortunes.

But for now she is largely an unknown quantity and certainly not the big hitter the City had been expecting Bill Cockburn to bring in to head up the group's biggest and most important division. Until yesterday Ms Hodson was managing director of Sears' Dolcis and Cable & Co shoe chains, a post she had held for less than a year. That may not have been long enough to be tainted with the failure of the Liam Strong years. But it does suggest that Ms Hodson's credentials are untested.

Before Sears she spent 18 years with Boots the Chemist, where she relaunched its line in suntan creams until being picked to run its chain of Children's World shops. That may prove to have been, well, child's play compared with running WH Smith's sprawling chain of 400 high street outlets. Despite all Mr Cockburn's best efforts Smith still suffers from the twin handicap of selling a thousand different lines and yet finding it difficult to get customers to part with much money once inside its shops.

Jeremy Hardie, the chairman of WH Smith, says Ms Hodson has just the right blend of experience, skills and determination needed to succeed. Before she gets into harness in June, it would pay dividends to check out what the chairman said about her predecessor, Peter Bamford, before he was unceremoniously dumped last month. It might sound familiar.

Ignorance was bliss at Killik

The investment proposition outlined by Killik & Co yesterday as it joined the stampede to distance itself from Andrew Regan and his ill-fated bid to storm the Co-op would not have been out of place in the heady days of the South Sea Bubble.

Way back in the joint stock company's infancy, it was standard practice to ask investors to put up cash for as yet unplanned enterprises. Killik showed yesterday that little has changed at the more, shall we say, adventurous end of the investment spectrum. By the firm's own admission, Killik stumped up pounds 2m, including more than pounds 120,000 of personal account money from its partners and staff, to back Galileo, happily unaware that it was to be the takeover vehicle for one of the most audacious bid attempts in recent times. It saw no reason to ask anything so mundane as just what Galileo was for.

Mr Regan must be touched by the faith so many "blind" investors placed in his entrepreneurial skills. Whether the Stock Exchange agrees that ignorance was bliss is another thing.