Could the Global Community Simply Remove BP from the Economy?
For over a decade I have gone out of my way to buy fuel from BP. They’ve always seemed the best of the bad, with their solar business, climate policy leadership and forward thinking culture and people. The other day I couldn’t bring myself to do it. In fact I doubt I’ll ever drive into a BP station again.
Although BP has rather bigger problems on its mind than whose fuel I buy in Australia, while driving past I started considering a potential development that would certainly get their attention. It all starts with BP’s CEO Tony Hayward now famous approach to leadership on environmental questions. He proudly explained his views in a frank speech at Stanford University last year. He said too many BP people were “working to save the world” whereas they should focus on making money because BP’s “primary purpose in life is to create value for shareholders.”
I understand quite a bit about saving the world and about creating value for shareholders. I’ve spent roughly half my working life as an environmental campaigner, including as global head of Greenpeace, and the other half as a business owner and corporate advisor working with the CEOs of a number of the world’s largest companies. The former taught me how people think and act on environmental issues, the latter taught me about the relationship between profits and good corporate citizenship. BP’s Deep Horizon disaster may bring these two issues together in ways that I never expected. As a result Tony Hayward may, ironically and unintentionally, do more to “save the world” than anyone before him at BP. Here’s why.
We live today in a global market which no one can control. It is too complex and too global for governments to effectively regulate. It also has too many inbuilt tendencies and pressures for even the most powerful and visionary CEO’s or investors to push against the tide except in marginal ways. Yet this powerful beast of a machine is pushing us all towards a cliff, with all key indicators showing the global ecosystem and resource supply, on which our economy depends, is now on the edge of catastrophic, system wide failure – what I call the Great Disruption. The global economic consequences of such failure will be profound, not least of all being the end of economic growth.
As long argued would occur, this has now started with diminishing resources driving us to dangerously drill deeper for oil, dig up dirty tar sands and take more and more risk. In that context, the Deep Horizon disaster starts to look like the beginning of the end, a haunting specter of things to come as we push past our limits in a desperate bid for shrinking resources to feed our gluttonous economy.
With the public now increasingly aware of such challenges, BP’s business strategy under Hayward was seriously misguided. He ignored the clear lessons of decades of global experience in this area by investors and companies: good corporate citizenship boosts profits and companies that do good for the world do better for their shareholders. They attract and retain better people, they get an easier run from regulators, they face less risk, they find investors who are more patient and they are more closely in touch with the values of society and therefore their customers and employees. What struck me as I drove past the BP station was the potential for all those drivers of profitability to be reversed. What would happen if a viral campaign focused the world’s general environmental concern sharply onto BP, as the modern age’s perfect example of the sort of company we don’t want to exist anymore?
What if good people didn’t want to work for BP? If regulators subtly but consistently made life harder for BP, through thousands of little decisions taken by people who didn’t like the company? If nervous investors got worried that BP had a fundamentally flawed culture that made it more risky to invest in? If customers around the world just drove on by to the next gas station? What would happen, if this approach took hold through a viral mind shift around the world, is that BP would quite simply be removed from the economy. BP would become the historic first scalp of a new approach – “Global market regulation, by the people, for the people”.
Hard to imagine? The brutal logic of the market is very powerful. A company like BP lives and is valued on its ability to turn hard assets, in its case oil and gas reserves, into cash. What determines its ability to do this efficiently are its people, customers, regulatory support and capital. If these capacities drop off significantly relative to competitors, the assets are worth more outside the company than within. This translates into the company being valued less than its assets and the company is taken over or its assets are sold. The impact on BP would be fast and simple – it would cease to exist. However, the impact on the broader market and on environmental campaigning might last for much longer and be very deep. What Tony Hayward has done is to create the perfect storm for just this to happen, starting with investors attitudes.
Under Hayward, at the direction of the Board of Directors, BP shifted its focus sharply onto generating cash for shareholders. For BP employees the message was clear – cut corners, cut costs and deliver in the short term. No more saving the world, people, get back to making cold hard cash. In response to this very public shift, the company’s owners, the pension funds and other investors, stood by and watched. They didn’t raise the warning that should have been obvious to any modern investment risk manager. They should have said: yes, we want shareholder returns, but don’t send a signal to your people that protecting the environment doesn’t matter, because if you do, our investment will be at risk. If BP ceases to exist as a result of this chosen direction, no investor will make that mistake again.
Hayward’s approach also sent clear signals to BP’s employees and executives. BP’s leadership role on climate change and sustainability resulted in many of the company’s people becoming passionate advocates on these issues. Indeed, I’ve worked with many BP executives and they are some of the most committed corporate people I know on sustainability. They have felt BP was a place they could make a difference to the world and prove that good business and good environmental performance go together. Under Hayward’s short-term cash focus, many of these people, including top executives like Viv Cox, have moved on while many others will be questioning if they still belong there. Losing such creative and forward thinking people seriously undermines a company’s culture and its value creation prospects.
With the US oil disaster, customer and brand risk will be high on the risk screen at BP. Soon after I left Greenpeace in 1994, the Shell oil company faced a barrage of criticism for trying to dump a disused oilrig in the North Sea. Greenpeace occupied the rig and a largely spontaneous consumer boycott erupted in Germany, costing Shell tens of millions of dollars, every day, in lost sales. With the share price falling, Shell backed off and the consumers returned.
BP will likewise assume any boycott that erupts now will be short lived and will fade once the media and political storm dies down. They maybe right, but they may be very, very wrong.
Environmental groups around the world have historically struggled with boycotts. They were hard work to maintain, draining resources for years before having an impact, if they ever did. But in today’s world two things have changed that should have the risk people at BP scurrying for their web monitoring services.
The first, as outlined above, is that the evidence is clear on how to run a campaign to deliberately undermine a company’s value by mobilising and focusing public concern for environmental issues and corporate responsibility. It is broader and easier than a consumer boycott, instead focusing on employees, investors, regulators and consumers, all targeted at once. This would be modern, market focused, non-violent guerilla warfare. No one has ever organized such a deliberate value destruction campaign, but plenty of people know how to do it if they chose to.
The second and the key to likely success is the connected world of the internet. When I was at Greenpeace we would need to send activists to visit individual outlets urging a boycott, picket offices to engage employees and approach each individual investor. Today a powerful idea can spread like wildfire, recruiting quiet supporters deep inside the global economy – inside investment houses, inside government and most worrying of all, inside BP.
The scary thing for BP is that such a movement may not come from a mainstream environmental group, all of whom BP has relationships with. The threat is more likely to grow through a spontaneous web based, viral movement, probably driven by people they’ve never heard of, like the guy in Louisiana who set up a Boycott BP Facebook page that now has 650,000 supporters. This is scary for BP because these movements are based on ideas and are organized by informal networks of friends. There’s no one to call, no one to negotiate with, just a viral cancer that steadily eats away at BP’s value, until one day it’s all over.
Why would such a movement take hold? Simply because nothing else is working. Despite unprecedented levels of public support, government action and corporate engagement on climate change and sustainability, nothing of consequence is actually changing. CO2 emissions are rising, companies like BP are investing in filthy tar sands oil and governments appear powerless to stem the tide. So with all the old tactics failing, there is a huge vacuum in what is effectively a free market of campaigning approaches. In that context, there could be great appeal in global market regulation by the people, for the people, with a company’s removal from the economy a kind of environmental capital punishment.
BP is perfectly positioned to be the guinea pig. I’m sure the US oil disaster will be shown to be the direct result of cash grabbing compromises on environmental and human safety. So there is arguably no company more deserving of such punishment and certainly no more powerful symbol for the consequences of putting short term shareholder value at the centre of business strategy.
Who knows if such a movement will erupt in this case, but it no doubt will before long. When it does, the world, and the market, will be a very different place. If the Deep Horizon disaster signals the end of the old economy, then a popular movement that brings down BP would be the beginning of the new one.