Strategic CSR - Roe v. Wade

As you will all no doubt remember, the U.S. Supreme Court was busy over the summer, in particular overturning Roe v. Wade – the 1973 decision that had allowed abortion to be legal across the whole country. This newsletter is not about that, as I am sure you all have firmly set views on the topic; instead, this newsletter is about the article in the url below that reports Patagonia's reaction to the decision. Understandably, it was emotional and demonstrates the firm's progressive views and its support for its employees (e.g., see also Strategic CSR – Patagonia):

"Outdoor clothing brand Patagonia said on Friday that it would post bail for any employees arrested at abortion protests. The company will provide 'training and bail for those who peacefully protest for reproductive justice,' it said on LinkedIn. The perk applies to both full-time and part-time workers, Patagonia said."

Apparently (and quite surprisingly, I think), this is not a new thing for the firm:

"The company offers protest training and has a policy of bailing out employees arrested at peaceful protests, according to Bloomberg."

What I was wondering as I read through the article is how this response would be received by the CSR community. My guess is it would largely be welcomed (and I certainly liked it), but that then made me wonder whether it is always ok for companies to encourage behavior that gets people arrested. The company softens it a bit by adding the "peaceful protest" qualifier but, after all, they are anticipating employees will be arrested, which is the only reason they would need bail. Specifically, I wondered what I would think if I saw a headline saying that Exxon was willing to bail out any employees caught protesting against a UN COP conference? Or, what if Black Rifle Coffee Company had offered to pay the court costs of any of its employees caught at the January 6 insurrection?

As long as my reaction would have been the same (i.e., similarly supportive), then I am being consistent in my views. But, if I liked the Patagonia response, but would have objected to a similar policy by Exxon or BRCC, then I am being hypocritical. Values are values, and it is hard to argue that one person's values are any less valid than someone else's. I might disagree with them and think the world would be much better off if everyone shared my values, but that is not how life works. And, this decision by the Supreme Court seems like a good issue on which to make the point.

If we want businesses to be values-based, then we have to recognize there will be some that advocate for causes with which we disagree. The battle comes in trying to 'win' the day on the issues about which we care the most. If we lose those arguments, it is not because the other side is 'evil,' it is because we disagree about something fundamental (however ill-informed you think the other side's position is).

So, my sense is that we should only be happy to see Patagonia inciting its employees to act lawlessly, if we are perfectly ok with Exxon, or BRCC, or Chick-fil-A, or whomever else doing the same. If acting based on our values and principles is objectively a good thing, then that applies to all the values and principles, not just the ones we support. In terms of strategic CSR, being "socially responsible" does not mean only firms doing things that we think are acceptable; it means creating value for the firm's stakeholders, according to their values and perceived self-interest (see Strategic CSR – Self-interest), even if that looks like something we oppose. In other words, just because we don't like something does not mean it is not socially responsible.

Take care

David

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (5e)

© Sage Publications, 2020

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

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The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

Patagonia will post bail for any employees arrested at abortion protests

By Tim Levin

June 24, 2022

Business Insider

https://www.businessinsider.com/roe-v-wade-abortion-patagonia-protest-bail-out-2022-6

 

Strategic CSR - Exxon

To me, the article in the url below falls under the category of 'trying to solve a problem that doesn't really exist':

"Exxon Mobil will no longer allow banners of outside organizations on its flagpoles, angering some employees who in the past had flown a rainbow pride flag."

I can see how this might be an issue if employees were constantly lobbying the firm to fly the flags of all kinds of groups and causes that were offensive or attracting negative attention to the company – where would it stop? But, the article instead suggests that it is just a couple of flags (LGBTQ+ and BLM) from organizations that its employees broadly support:

"The new policy allows only government flags and those representing Exxon Mobil and its employee resource groups, which are employee-led affinity organizations that are generally blessed by employers. Workers can display the pride flag and representations of other groups like Black Lives Matter on other areas of the company's properties, including on lawns or in digital spaces."

It seems that the decision was made quite abruptly, and imposed from above:

"Current Exxon employees declined to comment. J. Chris Martin, a former employee who used to head the [L.G.B.T.] group, said that a different flag featuring the Exxon logo on a rainbow background 'was flown at many company locations last year without question' but that he had been told that approval to display that flag had been revoked 'without explanation.'"

Why risk alienating your most important stakeholder group, the firm's employees, for no discernable benefit or to avoid no noticeable harm? It beats me. But, then again, I have never understood why Exxon (one of the most innovative companies on the planet) continues to make dumb decisions that only serve to ensure it is an organization that continues to underperform. It seems that the company has a well-established track-record in this area:

"Exxon was long considered a foe of gay rights, particularly after it merged with Mobil and eliminated that company's policies that barred discrimination based on sexual orientation and provided benefits to same-sex couples. Exxon has since reinstituted those policies, and its rating in the Human Rights Campaign's Corporate Equality Index has risen to 85 out of 100 in 2022, from negative 25."

Perhaps it is aspiring to a negative score once again.

Take care

David

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (5e)

© Sage Publications, 2020

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

Exxon Bans Outside Flags From Its Flagpoles

By Ivan Penn

April 25, 2022

The New York Times

Late Edition – Final

B4

https://www.nytimes.com/2022/04/22/business/exxon-pride-flag.html

 

Strategic CSR - Artwash

The article in the url below reviews an art show at MoMA, the Museum of Modern Art in New York City. Specifically, the show is titled Automania and studies the car as a piece of art; it is up until January 2022:

"In 1974 Andy Warhol bought himself a two-tone Rolls-Royce Silver Shadow — brown roof, black doors — custom-ordered from London. It didn't matter that Warhol had no driver's license. For some a car is more than a vehicle, and in 'Automania,' the Museum of Modern Art's engine-revving summer show, the automobile appears as an art object all its own."

For the art critic writing the review, however, while he can appreciate the show's artistic elements, he takes issue with its timing given the current discussion around the car and, more specifically, its fuel source:

"Of course it's the cars that are the main attraction of 'Automania.' Although, in a week when the Intergovernmental Panel on Climate Change confirmed that 'warming from anthropogenic emissions from the pre-industrial period to the present will persist for centuries to millennia,' a show devoted to the personal motorcar feels a bit like one devoted to lethal poisons."

The author's favorite car in the show (1 of only 9 cars actually on display) is the VW Beetle:

"If, however, you asked me which auto says the most about the culture of its time and ours, it's the VW Beetle, parked upstairs, where it's shown with a 1950s film reel from the assembly line. Properly called the Type 1 Sedan, the small, aerodynamic 'people's car,' designed by Ferdinand Porsche in 1938, responded to Adolf Hitler's challenge to German industry to develop an inexpensive ride for a family of four. It would become, after the war, the world's best-selling car, and a motor – quite literally – of West Germany's economic miracle."

But, this reflection causes the author to take MoMA to task for its long-standing relationship with VW:

"In a wall panel the curators mention the Beetle's 'inglorious origins,' though there is more recent VW unpleasantness this show and catalog do not discuss. Over the last decade, MoMA has enjoyed more than a million dollars in support each year from Volkswagen – a company that admitted to equipping 11 million cars with illegal software to cheat emissions testing, and then lying to investigators about the scheme."

Specifically:

"While one VW division was violating the Clean Air Act, another was putting its name on MoMA programming that would boost its civic credentials — notably 'Expo 1: New York,' at MoMA PS1, a Volkswagen-funded ecological showcase from 2013 that in retrospect looks like an egregious act of greenwashing. 'Volkswagen is das Auto, and MoMA is das Museum,' Martin Winterkorn, then its chief executive, said pithily in 2015. He is now facing criminal charges in the U.S. and Germany, though he has long contended that he was unaware of any wrongdoing."

The point, of course, resembles the criticism that has been levelled at the Sackler family (and the museums that have gratefully taken their donations) for their stewardship of Purdue Pharma (and the opioid crisis in the U.S.). The author digs deeper:

"Yet even after one of the largest corporate and environmental scandals in history, Volkswagen's American subsidiary remains MoMA's 'lead partner of education.' It supports PS1's public programming, which took place for nearly a decade in a Volkswagen-branded geodesic dome (finally retiring it in 2020). The museum has a traineeship program known as the VW Fellows, who appear in Volkswagen promotional materials and even get to visit the car plant in Wolfsburg. And Volkswagen of America underwrote the restoration of the Beetle in 'Automania,' which the museum initially acquired in 2002."

But, it is MoMA's attempt to justify its ongoing relationship with VW that pushes the author to refer to a term I had not seen before – artwashing:

"And really, this might all be so much inside-philanthropy, except that the organizers of 'Automania' explicitly discuss polluters' interest in art in the catalog and the museum's online magazine. In both, Kinchin writes about the corporate practice of 'artwashing, a by now well-established branding strategy practiced by the polluting fossil fuel industry.' The curator singles out Shell, which commissioned English artists to make posters of the bucolic English countryside; it also mentions Mobil, whose art philanthropy in the 1970s and 1980s was the subject of Hans Haacke's institutional critique, and recent demonstrations against BP's sponsorship of London museums."

It is the hypocrisy that grates the most:

"For MoMA to criticize Shell, Mobil and BP for 'artwashing,' and then to ignore the criminal polluters still supporting its own museum, takes a real brass neck."

Take care

David

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (5e)

© Sage Publications, 2020

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

At MoMA, Love of Cars Cuts Two Ways

By Jason Farago

August 13, 2021

The New York Times

Late Edition – Final

C11

https://www.nytimes.com/2021/08/12/arts/design/automania-moma-review.html

Strategic CSR - Engine No.1

Over the summer, you may have read about the environmental activist investor (Christopher James) who took on Exxon with his hedge fund (Engine No.1) and won 3 board seats, all against the strenuous protests of Exxon's CEO and senior management:

"Mr. James, 51 years old, was an unlikely catalyst for change at an energy giant. After making a name for himself during the dot-com boom and bust, he operated an Illinois coal mine and built storage facilities used by the oil-and-gas companies. Away from work, however, he supported conservationist causes. The Exxon campaign offered a chance to align his personal values with an investment thesis—that the giants of the oil industry would drop in value unless they embraced a transition to renewable energy."

What I found interesting about this story, though, was not the victory itself, but the disconnect between the media portrayal of Engine No.1's three director nominees and the arguments James used to secure their election. The media coverage appeared to suggest that these three directors would convert Exxon's board into a bunch of tree huggers. As the article in the url below makes clear, however, in reality the directors were only successfully elected because they made it clear their goal was to create value for Exxon's shareholders. Rather than a bunch of environmental radicals that wants to turn Exxon upside down, Engine No.1 advanced a goal that was centered purely on the firm's business interests:

"In its December note to Exxon's board, Mr. James's fund called on the company to slash expenses on projects that might lose money when oil and gas prices are low, realign management incentives and develop a plan to invest in renewable energy. 'If we're right on getting Exxon to mitigate these impacts, the stock should go up,' Mr. James said in an interview. 'And maybe Exxon does have a future.'"

It was only Exxon's poor economic performance in recent years (in particular, its inefficient allocation of capital) that made it vulnerable even to these benign arguments; not the fact that it is a fossil fuel company that bases its worth almost completely on assets that will have to remain unexploited if we are to have any hope of preserving the integrity of our environment:

"They chose Exxon as their first big target because it had already drawn the ire of a number of other large shareholders for its lackluster performance and refusal to engage. The Engine team also knew that Exxon was a familiar name to investors of all sizes, assuring the campaign would resonate with many of the company's individual shareholders. Some Exxon investors had also questioned why Exxon hadn't added more directors with industry expertise."

In short, the Exxon campaign was not at all about sustainability and all about shareholder value:

"[On] calls with shareholders, [the] pitch was to steer clear of ideological arguments about climate change. Instead, [Engine No.1] said investors should focus on how much value had been lost. The proposed directors on these calls said the company needed to perform better and had allocated capital poorly over a decade."

As the article notes, the performance of Exxon's stock price in the months following the announcement of Engine No.1's campaign reveals the success of the campaign, and the extent to which shareholders have already benefitted:

 

 

Time will tell as to whether the environment will do nearly as well.

Take care

David

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (5e)

© Sage Publications, 2020

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

The Man Who Battled Exxon – and Won

By Justin Baer and Dawn Lim

June 12-13, 2021

The Wall Street Journal

Late Edition – Final

B1-B2

https://www.wsj.com/articles/the-hedge-fund-manager-who-did-battle-with-exxonand-won-11623470420

 

Strategic CSR - Europe (I)

I am often struck by the differences between the economic systems in the U.S. and Europe (see also Strategic CSR – Europe vs. U.S.). While the quality of life generally appears to be higher in Europe, the level of innovation/creativity seems higher here in the U.S. Although this contrast is pretty fixed in my head, the article in the first url below argues that the balance is shifting. Specifically, the author (a Finance Professor at NYU) emphasizes how the U.S. has become much less competitive in the past 20 years, while the EU has become more competitive:

"When I landed in Boston in 1999, the United States was the land of free markets. Many goods and services were cheaper here than in Europe. Twenty years later, American free markets are becoming a myth. Internet service, cellphone plans, and plane tickets are now cheaper in Europe and Asia than in the US. In 2018, the average monthly cost of a broadband internet connection was $31 in France, $39 in the UK and $68 in the US. American households also spend twice as much on cellphone services as households in France or the UK. This is a result of policy choices. In 1999, the US had free and competitive markets while European markets were dominated by oligopolies. The airline industry is a prime example. Over the past two decades a wave of mergers has turned the US airline industry into an oligopoly while Europe has opened its skies to competition, thanks in part to low-cost carriers such as Ryanair and EasyJet. US regulators allowed these mergers to happen without meaningful challenges. EU regulators, on the other hand, encouraged the entry of low-cost competitors by making sure they could get access to takeoff and landing slots."

As this quote suggests, there are many structural reasons that explain the shift that the author explores, and the gridlock around public policy at present can hardly be helping, but one additional reason may be an unwillingness in the U.S. to adapt to what science has to teach us about our changing environment. In particular, developments over the past few months suggest that the fossil fuel companies in Europe are reacting very differently to the evolving societal awareness about climate change compared to their U.S. counterparts (e.g., see Strategic CSR – BP (I) and Strategic CSR – BP (II)). As the article in the second url below notes, what was always a philosophical difference is suddenly having very practical implications:

"As oil prices plunge and concerns about climate change grow, BP, Royal Dutch Shell and other European energy companies are selling off oil fields, planning a sharp reduction in emissions and investing billions in renewable energy. The American oil giants Chevron and Exxon Mobil are going in a far different direction. They are doubling down on oil and natural gas and investing what amounts to pocket change in innovative climate-oriented efforts like small nuclear power plants and devices that suck carbon out of the air."

As the article continues:

"The disparity reflects the vast differences in how Europe and the United States are approaching climate change, a global threat that many scientists say is increasing the frequency and severity of disasters like wildfires and hurricanes. European leaders have made tackling climate change a top priority while [the U.S. president] has called it a 'hoax' and has dismantled environmental regulations to encourage the exploitation of fossil fuels."

While both sets of companies recognize the reality of climate change and that we cannot go on burning carbon forever, that is about where the agreement ends:

"'Despite rising emissions and societal demand for climate action, U.S. oil majors are betting on a long-term future for oil and gas, while the European majors are gambling on a future as electricity providers,' said David Goldwyn, a top State Department energy official in the Obama administration. 'The way the market reacts to their strategies and the 2020 election results will determine whether either strategy works.'"

This is where we have some hope, as the market is beginning to signal that the U.S. oil and gas firms need to move further and faster than they have publicly committed to date:

"In August, for example, Storebrand Asset Management, Norway's largest private money manager, divested from Exxon Mobil and Chevron. And Larry Fink, who leads the world's largest investment manager, BlackRock, has called climate change 'a defining factor in companies' long-term prospects.'"

While the U.S. companies double-down in response to this criticism:

"European oil executives, by contrast, have said that the age of fossil fuels is dimming and that they are planning to leave many of their reserves buried forever."

The problem is that while, from an environmental perspective, the European companies are right, it is not at all clear, from a business perspective, that the U.S. companies are wrong:

"'If this is the sunset time for oil and gas, someone forgot to tell consumers,' said Raoul LeBlanc, a vice president at IHS Markit, a research and consulting firm. He said that while sales of electric cars may have picked up, it would take decades to replace the more than a billion internal-combustion cars on the road now. It will probably take just as long, if not longer, to replace the large fleets of trucks, airplanes and ships that run on fossil fuels. There ought to be enough demand for oil over the next 30 to 40 years for Exxon and Chevron to exploit their reserves and make money, though the profits will decline over time, said Dieter Helm, an Oxford economist who studies energy policy."

Take care

David

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (5e)

© Sage Publications, 2020

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

Monopolies cost Americans $300 a month. We're no longer the land of free markets

By Thomas Philippon

November 19, 2019

The Guardian

https://www.theguardian.com/commentisfree/2019/nov/13/america-was-once-the-land-of-free-markets-now-theyre-becoming-a-myth

Oil Giants An Ocean Apart on Adapting to Climate Change

By Clifford Krauss

September 23, 2020

The New York Times

Late Edition – Final

B1, B9

https://www.nytimes.com/2020/09/21/business/energy-environment/oil-climate-change-us-europe.html

Strategic CSR - Big Tech

The article in the url below was prompted by the news that Exxon Mobil was being dropped from the Dow Jones Industrial Average after nearly 100 years of being on the list. This shift in the company's fortunes has been widely reported as a symptom of the oil industry's precipitous decline of late (see also Strategic CSR – Exxon):

"Less than a decade ago, Exxon Mobil was the most valuable company in the world. … Today all of Exxon is worth less than Jeff Bezos."

More specifically, the article discusses the possibility that the major IT companies, which are so dominant today, might be heading in the same direction as the tobacco companies of the past and the oil companies at present. The author presents two reasons motivating this assertion:

"First, as wild as it feels to have a handful of American technology superpowers rule the economy and the stock market and influence world events, oil superpowers like Exxon were in a similar position not very long ago. And second, while it's hard to imagine Big Tech losing relevance, most people didn't predict that demand for fossil fuels would start to wane, until it did. That's part of the sweeping changes that ushered out the era of Big Oil and started the Big Tech age."

Given the dynamic nature of the situation in which IT companies currently find themselves, are they able to adapt in a way that tobacco and seemingly oil have not been able to? The author argues there are multiple reasons to think they can:

"Apple wouldn't be the company it is today without its savvy diplomatic skills in the United States and China to advance its own business interests. Facebook is so influential that it's a tool used both against and by authoritarian governments. Google shapes how government regulators and the public think about antitrust laws. It's an imperfect comparison, but big tech companies are private empires in some of the same ways as the old Exxon."

Moreover:

"One fundamental difference is that Big Oil's fate relies on demand for a product that the companies can't control. The tech industry doesn't seem to have this essential vulnerability."

The clinching argument seems to be that, while individual companies may stumble, unlike oil, it is difficult to think that technology will become less important in our lives and the whole industry will disappear:

"[There is] a history of technology in which evolutionary changes have ruined seemingly invincible industry leaders. But while it's possible to imagine some of the individual tech powers losing relevance … it's much harder to imagine the tech industry overall growing less potent or essential."

Either way, the symbolism of the IT industry moving-in to take over from the oil industry is powerful:

"Exxon is being dropped from the Dow Jones index because of a technical change necessitated by Apple's stock getting too expensive. And Exxon's spot is being taken by a tech company: Salesforce.com."

Take care

David

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (5e)

© Sage Publications, 2020

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

In Time, Big Oil Faded. Will Big Tech Follow?

By Shira Ovide

August 31, 2020

The New York Times

Late Edition – Final

B5

https://www.nytimes.com/2020/08/31/technology/big-oil-faded-will-big-tech.html

Strategic CSR - Climate Action 100+

As the article in the url below explains, we may well be getting somewhere (at least in terms of climate change), thanks to a stand taken recently by Climate Action 100+:

"Climate Action 100+, an initiative supported by 518 institutional investor organisations across the globe [who collectively manage 'more than US$47tn in assets'], has written to 161 fossil fuel, mining, transport and other big-emitting companies to set 30 climate measures and targets against which they will be analysed in a report to be released early next year."

 

Whether this is sufficient or happening quickly enough are both important questions, but this statement at least feels substantive. Specifically, the group is seeking public commitments to target net-zero emissions:

"It is the latest step in a campaign by climate-concerned shareholders to force business leaders to explain how their targets and strategies will help reach the goals of the 2015 Paris agreement."

 

Why these 161 companies?

 

"The targeted companies are responsible for up to 80% of global industrial greenhouse gas emissions. They include mining giant BHP, which last week promised to reduce emissions from its operations by 30% over the next decade on a path to net zero by 2050 after sustained pressure from activist shareholder groups. Others on the list include Exxon Mobil, PetroChina, BP, Royal Dutch Shell, Rio Tinto, BlueScope Steel and major Australian energy companies AGL, Santos, Woodside and Origin."

And, the demands are both specific and extensive:

"… the Climate Action steering committee lists 'indicators' on which the businesses will be measured, including whether they have strategies to reach net zero emissions by 2050 or sooner and reduce the 'scope 3' emissions released by customers using the companies' products."

The inclusion of scope 3 emissions, in particular, raises the bar for these companies to meet the group's expectations:

"Stephanie Pfeifer, chief executive of the UK-based Institutional Investors Group on Climate Change, said a step-change was urgently required, and the analysis would ensure it was clear which companies were treating climate change as a 'business-critical issue.' 'Investors will be paying particular attention to those shown to be falling short,' she said."

We will see. Being willing to hold firms to account is essential in order to ensure such actions are understood by the firms to be in their best interests.

Take care

David

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (5e)

© Sage Publications, 2020

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

Investors that manage US$47tn demand world's biggest polluters back plan for net-zero emissions

By Adam Morton

September 14, 2020

The Guardian

https://www.theguardian.com/environment/2020/sep/14/investors-worth-us47tn-demand-worlds-biggest-polluters-back-plan-for-net-zero-emissions

Strategic CSR - Exxon

The article in the first url below offers some hope that investors are becoming more serious about the idea of climate change as a potential threat to business in certain industries. The focus is on Exxon's recent removal from The Dow Jones Industrial Average, which illustrates the growing weakness of the oil and gas industry:

 

"When trading begins next week, the blue-chip benchmark will include only one energy stock: Chevron Corp., which will represent just 2.1% of the price-weighted index, according to an S&P Dow Jones Indices analysis. In the broader S&P 500, the group isn't faring much better: Its weighting has shrunk to less than 2.5%, leaving energy as the least influential of the 11 represented industries. That is a dramatic fall from the end of 2011, when energy stocks accounted for 12% of the market."

 

There is historical context, too, that is specific to Exxon:

 

"Although the removal from the Dow is largely symbolic—much less money tracks the 30-stock index than follows the S&P 500—Exxon's departure has historical significance. The company is the longest-tenured member of the benchmark, having joined in 1928 as Standard Oil of New Jersey. It is also a reminder of Exxon's fall from the top echelon of American industry. As recently as 2013, Exxon was the largest U.S. company with a market value above $415 billion. It has since shrunk to less than $180 billion and has been eclipsed by the technology giants such as Apple Inc., Amazon.com Inc. and Microsoft Corp. that now drive the American economy."

 

The reaction by investors to Exxon's decline is as important as the news itself:

 

"Usually, market contrarians say a sector that is so beaten down should be ripe for bargains. But many investors remain skeptical of an energy rebound, pointing to muted expectations for global growth and spotty earnings. Energy is by far the worst-performing S&P 500 sector this year, down 40% while the index as a whole has gained 6.6%. The underperformance is nothing new: Energy was also the weakest performer in 2018 and 2019."

 

Of course, this decline partly reflects the dramatic drop in oil price in recent years (accelerated this year), but also reflects the news from oil and gas companies about large write-downs this year (see Strategic CSR – BP) that, in turn, represents a growing concern that a large part of each firm's value is based on reserves they will not be allowed to extract. As such, the headline here is Exxon, but the trend is industry-wide:

 

"Exxon shares are off 41% this year, while Chevron is down 29%. The pain is even more acute among some of the oil-field services companies and shale drillers. Schlumberger has dropped 52%, and EOG Resources Inc. has fallen 47%. Only one company in the S&P 500's energy sector, Cabot Oil & Gas Corp., is up for the year."

 

For more detail about what the WSJ describes as Exxon's "stunning fall from grace," see the article in the second url below:

 

"Just seven years ago, Exxon was the biggest U.S. company by market capitalization. It has since lost roughly 60% of its value, with its market cap now at around $160 billion. … Analysts estimate Exxon will lose more than $1 billion this year, compared with profits of $46 billion in 2008, then a record by an American corporation. … At the heart of the problem: Exxon doubled down on oil and gas at what now looks to be the worst possible time. While rivals have begun to pivot to renewable energy, it is standing pat. Investors are fleeing and workers are grumbling about the direction of a company some see as out of touch and stubborn."

 

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (5e)

© Sage Publications, 2020

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

 

Exxon's Removal from the Dow Highlights Decline of Oil Sector

By Karen Langley

August 26, 2020

The Wall Street Journal

Late Edition – Final

B1

https://www.wsj.com/articles/exxons-departure-from-dow-highlights-markets-retreat-from-energy-bets-11598390465

 

Exxon's Bet on Oil and Gas Drags Down U.S. Titan

By Christopher M. Matthews

September 14, 2020

The Wall Street Journal

Late Edition – Final

A1

https://www.wsj.com/articles/exxon-used-to-be-americas-most-valuable-company-what-happened-oil-gas-11600037243

Strategic CSR - BP (I)

This week's newsletters will focus on a couple of recent articles about BP. The first of these articles, in the url below, is interesting because, at the time, it was the first announcement I had seen by a major fossil fuel company (in this case, BP) that it is writing down a substantive amount of its oil reserves:

 

"BP sent a signal to investors … that the economic shock of the pandemic would reverberate for years, and that less gas and oil would probably be needed in the future. The London-based oil giant told shareholders the company expected to write down as much as $17.5 billion of its oil and gas holdings in its next quarterly report."

 

I think the article is important because this write-down is not merely because the firm's current reserves are worth less (due to a drop in global demand, which has caused a significant drop in the price of oil), but also because the firm fully expects to leave some of those reserves in the ground:

 

"With the write-down, which could amount to as much as 12 percent of the previous book value of the oil and gas assets, [CEO, Bernard] Looney, 49, is preparing the company for a future in which it will produce less fossil fuel than previously expected. It is likely to be the largest write-down since 2010, when the company recorded a $32 billion hit related to the Deepwater Horizon disaster in the Gulf of Mexico."

 

This is a dramatic turnaround from only a short time ago, when investors were rewarding new discoveries of oil, irrespective of the debate around climate change, with the full expectation that those reserves would be extracted:

 

"In past years, companies rushed to acquire oil and gas fields and bring the crude or natural gas to market. Now, analysts say, investors are skeptical of all but the most profitable investments in fossil fuels because it is not clear that there will be demand for them — especially as many governments strive to meet the requirements of the 2015 Paris agreement on global warming."

 

Specifically:

 

"The write-downs are being taken for two reasons. BP has cut its long-term expectations of oil and gas prices by about 30 percent, to $55 a barrel for oil, a move that reduces the value of its assets. The company is also writing off resources, in places like the Gulf of Mexico and Canada, that it has on its books but may decide not to develop over the coming decades."

 

This is essential if we are to remain within our carbon budget (see Strategic CSR – Divestment) and have any hope of preserving the planet in anything like its current livable form. And there is some evidence that this perspective is spreading through the industry, although is not shared by all firms. See here for a similar announcement by Shell, subsequently, but here for an article reporting Exxon's resistance to such a write-down of its assets.

 

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (5e)

© Sage Publications, 2020

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

 

BP Steps Up Preparations for a World That Wants Less Oil

By Stanley Reed

June 16, 2020

The New York Times

Late Edition – Final

B7

https://www.nytimes.com/2020/06/15/business/energy-environment/bp-oil-gas-write-down.html

 

Strategic CSR - Privacy

The article in the url below is interesting because it argues that data and privacy breaches are today's major oil spills. That is, for firms concerned about their reputations, data breaches should be punished the way that oil spills have previously been punished. To emphasize the point, the article contrasts recent data breaches with the Exxon Valdez oil spill in 1989:

 

"In 1989 the thin-hulled Exxon Valdez supertanker ran aground in Prince William Sound, Alaska, pouring a quarter of a million barrels of oil into the surrounding waters. At the time, it was America's worst offshore spill, and a huge blow to the reputation of the ship's owner, Exxon."

 

What is interesting is the effect the Exxon Valdez spill had on public policy and on the internal controls at Exxon:

 

"The firm paid $3bn to clean up the area and settle legal claims, and to improve safety the American government ordered the phasing out of single-hull ships such as Exxon Valdez. All vessels used worldwide by Exxon's corporate descendant, ExxonMobil, are now double-hulled. But that is not all. The disaster gave rise to a cultlike culture of discipline within ExxonMobil that helped turn it into the profitmaking beast it is today."

 

The author argues that firms today should learn from this experience and do all they can to prevent a similar traumatic experience happening to them. It draws on the recent data breach from Capital One of "personal and financial details of 106m credit-card customers and applicants," which is described as the firm's "own Exxon Valdez moment," especially given the firm's prior reputation "as one of the most technologically adept in finance":

 

"The incident has two parallels with the oil industry. … Like Exxon Valdez, Capital One should have had more protection. Like the oil companies of old, the bank may have also lacked a culture of safety sufficiently strong to ensure that it relentlessly probed for new vulnerabilities. Both are a reminder that, if data are now more valuable than oil, data breaches bear an unhealthy resemblance to oil spills."

 

The idea is that firms today can learn by seeing how Exxon reacted to its 1989 defining event, in spite of the greater complexity of cybersecurity and the odds that are stacked against firms today (they have to be right 100% of the time; hackers only have to get it right once):

 

"Still, the oil industry's experience is instructive. First, the emphasis on ingraining safety in every employee can strengthen the weakest link in cyber-security: the individual. … Studies show that employees are often, by accident or intentionally, the main cause of successful cyber-attacks. … [Second] Oil firms' insistence on their supply chains speaking the same language, and loudly, on safety is also worth emulating. Hackers increasingly infiltrate large corporations by first penetrating the defences of smaller suppliers and piggybacking on the communications systems which link the two. … Third, the near-death experience suffered by BP after the Deepwater Horizon oil disaster in 2010 shows how data can turn from an asset into a crushing liability. It ended up costing the British firm more than $50bn. Its reputation has yet to recover fully."

 

For now, the article argues, data breaches are receiving relatively light punishments from regulators. If this changes (under growing public awareness and concern) and firms are not prepared, then they could suffer an existential threat.

 

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (5e)

© Sage Publications, 2020

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

The Exxon Valdez of cyberspace

August 10, 2019

The Economist

Late Edition – Final

55

https://www.economist.com/business/2019/08/08/the-exxon-valdez-of-cyberspace

 

Strategic CSR - Davos

The article in the url below, in a nutshell, demonstrates everything that is wrong with our collective response to climate change. The article reports on the annual survey of confidence among political and business leaders in advance of the annual get-together at Davos:

 

"Every year the World Economic Forum asks 1,000 business, policy and thought leaders to rank about 30 risks facing the world by both impact and likelihood. In this year's report, … climate-related risks top the list."

 

This is not surprising. Climate change has apparently been on the minds of these leaders for a while now:

 

"While some risks come and go with the headlines, climate has been rising steadily through the ranks and has led the list of the past three years."

 

So, this is good, right? While climate change is broadly recognized as a problem, however, it is not a problem anyone wants to do anything about:

 

"If the first step to solving a problem is admitting you have a problem, this should mean climate change is well on its way to being solved. The reason it isn't is that the world is much readier to admit climate change is a problem than to do anything about it. This is especially true of businesses in the U.S., many of which claim concern about climate change then fight solutions that hit their bottom line."

 

In particular, the challenge becomes evident when you look at the short-term ranking of concerns for this same group:

 

"Asked additionally to rank only short-term risks, respondents ranked climate only 11th, well behind economic conflict between big countries, protectionism, and cyberattacks."

 

In other words, they recognize climate change as a problem in a long-term philosophical sense, but not in a short-term practical sense. The result is that there is much discussion and collective concern about the problem, and very little action. This paradox becomes all too apparent when you look at the divide between what is being done and what needs to be done:

 

"It is not that policy makers are doing nothing. On the contrary, the World Bank counted 47 carbon-tax or emissions-trading programs around the world [in 2018] covering roughly 15% of annual greenhouse-gas emissions. When China kicks off its emissions-trading system [in 2020], that should rise to 20%. The problem is that these schemes don't go far enough. The vast majority charge a small fraction of the $40 to $80 per ton of carbon dioxide the World Bank says will keep emissions on track with levels agreed to in the Paris accord. The reason is to avoid a backlash from taxpayers and businesses."

 

The hypocrisy becomes even more apparent when you look at specific examples:

 

"Even the oil industry is coming around: BP PLC, ConocoPhillips, Exxon Mobil Corp. and Royal Dutch Shell PLC have thrown their support behind a carbon tax proposed by the Climate Leadership Council, a bipartisan advocacy group, that would be revenue neutral. … Yet when a revenue-neutral carbon tax was put before Washington state in a 2016 ballot initiative, the oil industry declined to support it. The initiative was defeated."

 

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (4e)

© Sage Publications, 2017

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

 

 

Climate Change Alarms Business, to a Point

By Greg Ip

January 17, 2019

The Wall Street Journal

Late Edition – Final

A2

https://www.wsj.com/articles/business-worries-about-climate-intensify-their-actions-less-so-11547643600

 

Strategic CSR - Oil

The article in the url below would be funny if it was not so serious. Apparently, the extraction industry (i.e., the producers of oil and gas) is requesting financial assistance from the US government to help protect its assets from the effects of climate change:

 

"As the nation plans new defenses against the more powerful storms and higher tides expected from climate change, one project stands out: an ambitious proposal to build a nearly 60-mile 'spine' of concrete seawalls, earthen barriers, floating gates and steel levees on the Texas Gulf Coast. Like other oceanfront projects, this one would protect homes, delicate ecosystems and vital infrastructure, but it also has another priority — to shield some of the crown jewels of the petroleum industry, which is blamed for contributing to global warming and now wants the federal government to build safeguards against the consequences of it."

 

The project largely protects the Texas coastline, from the Louisiana border to south of Houston – an area that is:

 

"… home to one of the world's largest concentrations of petrochemical facilities, including most of Texas' 30 refineries, which represent 30 percent of the nation's refining capacity."

 

This reminds me of a Newsletter I wrote a few years ago about Rex Tillerson who, when he was CEO of Exxon, was helping to sue a fracking company to prevent it from drilling too near to his house (see Strategic CSR – Exxon). And, as you might expect, protecting such a large area is not cheap:

 

"Texas is seeking at least $12 billion for the full coastal spine, with nearly all of it coming from public funds."

 

So, even though Exxon made $20 billion in profit (that is 'profit,' not revenue) last year, and even though they were only able to generate that profit by further deteriorating the environment, they feel they do not need to contribute anything to help cope with the consequences. Needless to say, many are not onboard with this bailout:

 

"… the idea of taxpayers around the country paying to protect refineries worth billions, and in a state where top politicians still dispute climate change's validity, doesn't sit well with some."

 

And this reluctance to pay is even to protect the industry's own assets, let alone the rest of the coastline that will be equally devastated:

 

"Federal, state and local money is also bolstering defenses elsewhere, including on New York's Staten Island, around Atlantic City, New Jersey, and in other communities hammered by Superstorm Sandy in 2012."

 

And, from the commentary and quotes reported in the article, it seems like Texas politicians are just fine with that.

 

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (4e)

© Sage Publications, 2017

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/ 


Big oil asks government to protect it from climate change

By Will Weissert

August 22, 2018

The Associated Press

https://apnews.com/4adc5a2a2e6b45df953ebcba6b63d171

 

Strategic CSR - Exxon

The article in the first url below explores the recent struggles of Exxon:

 

"Exxon faces a number of challenges, including investigations of its accounting and tax practices as well as lawsuits by cities and states seeking funds to pay for the effects of climate change. Its biggest problem is one the giant has seldom faced in its 148-year history: It isn't making as much money as it used to."

 

Up until 2008, Exxon was the largest publicly-traded firm in the world. Today, it is performing at a much lower level. Whether for political (sanctions), social (climate change legislation), or economic (lower profits) reasons, the firms is a shadow of its former self:

 

"In 2016, S&P Global Ratings stripped Exxon of the triple-A credit rating it held since 1930. It was one of only three companies to hold the distinction at that time, along with Microsoft Corp. and Johnson & Johnson . While Exxon once ranked as the world's largest company by market value, it was 10th as of June 30, less than half the size of Apple Inc."

 

Given the reality that a significant proportion of fossil fuel reserves will need to remain in the ground if we are to survive as a species, you have to think that Exxon (and CEO at the time, Rex Tillerson) is missing the bigger picture. While bad luck has played its part, strategic vision has also been lacking:

 

"As [oil] prices rose to all-time highs of almost $150 a barrel, Mr. Tillerson led the charge to chase more expensive prospects that could meet the world's thirst for crude. He looked to Canada's oil sands, natural gas fracking and even Russia's Arctic, all of which required higher prices to be profitable. Those efforts largely failed. Exxon's production has declined in the past five years, and the company has delivered lackluster financial results. Today, oil prices are around $74 a barrel. … its U.S. drilling business has lost money in 11 of the last 15 quarters."

 

While other energy companies are increasing their investment in low-carbon or alternative energies (Shell, for example, is investing heavily in natural gas), Exxon is doubling down on oil. As the price per barrel fluctuates, the extent to which the firm is exposed has become apparent. Moreover, the working assumption internally is that Exxon will be able to extract all of its known reserves, in direct contradiction to what climate science is telling us. The result is a sense that the firm has seriously misjudged the market:

 

"Shareholders haven't responded with enthusiasm. The price of crude is up about 60% in the past year, but Exxon shares are up less than 5%. … Meanwhile, rivals such as Shell, BP and Total have diversified outside of fossil fuels."

 

The article in the second url below suggests that at least Exxon understands it is losing the battle of perceptions:

 

"Exxon Mobil will donate $1 million to a campaign promoting a tax to curb emissions of planet-warming carbon dioxide to U.S. lawmakers and the American public. … The plan advocates for placing a fee on carbon emitted by companies, which would start at $40 per ton and rise gradually. Revenues from the tax would be returned to Americans in the form of regular, automatic dividend payments."

 

Although, $1 million might only be a rounding error for a firm the size of Exxon, and there is plenty of evidence to suggest the firm sees this move as a quid pro quo and has not significantly shifted its position:

 

"The final pillar of the plan calls for rolling back the Environmental Protection Agency's authority to regulate carbon emissions and repealing rules like President Barack Obama's Clean Power Plan, which the Trump administration is already in the process of dismantling."

 

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (4e)

© Sage Publications, 2017

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

 

 

Exxon Is Running Low

By Bradley Olson

July 14-15, 2018

The Wall Street Journal

Late Edition – Final

B1

https://www.wsj.com/articles/exxon-once-a-perfect-machine-is-running-dry-1531490901

 

Exxon Mobil pledges $1 million to campaign to promote carbon tax

By Tom DiChristopher

October 9, 2018

CNBC

https://www.cnbc.com/2018/10/09/exxon-mobil-pledges-1-million-to-campaign-to-promote-carbon-tax.html