[Editor note: Part I in this series examined praise for BP and Enron from the Worldwatch Institute. Part III examines a Harvard Business Review article linking BP’s ‘beyond petroleum’ strategy to special government favor, including drilling on government domain.]
Consumer boycotts of Shell and pressure from Greenpeace … [and] speculation that Shell might shift its position on climate change led BP CEO John Browne to look more closely at climate change. He decided to set a new company policy that would set BP apart from the competition—the product differentiation strategy.
– Gary Gardner, “Accelerating the Shift to Sustainability.” In Worldwatch Institute, State of the World 2001 (New York: W. W. Norton, 2001), p. 101.
With great big blobs of oil washing up on the shore, it is almost comical—no, it is comical—to see some of BP’s erstwhile friends in academia and other centers of high-minded thought running for cover. To cite one example, thanks to BP sponsorship, 300 researchers in white lab coats at Berkeley are busily searching for ways to make green fuels that will reduce our dependence on oil. In 2007, BP set up the Energy Biosciences Institute, saying it would spend $500 million over the next ten years to support research into plant-based fuels at Berkeley and two other universities. This is the largest corporate donation ever for university research.
– Andrew Wilson, “Beyond Pathetic.” The Weekly Standard, June 28, 2010.
For more than a decade, Left environmentalists and trendy business ethicists have touted BP’s “beyond petroleum” mantra as an example of public-interested corporate progressivism.
For example, Joe Romm in Cool Companies: How the Best Businesses Boost Profits and Productivity by Cutting Greenhouse Gas Emissions (Island Press: 1999) devotes several pages near the end of the book to “climate leadership at British Petroleum.”
Romm refers to John Browne’s “remarkable May 1997 speech at Stanford University” (p. 206) before describing this episode:
Browne noted in a February 1998 speech that immediately after the Kyoto conference, he wrote to all 350 leaders within the BP group, the people who run BP’s business units, to get their ideas on how BP could reduce carbon emissions. Browne said, “Two weeks ago I got the response and I was stunned by it. It consisted of 200 pages of the most detailed and serious proposals…. Every single one reflected the view that we were doing the right thing in trying to tackle our own emissions and to make a positive constructive contribution to the public debate” (p. 207).
Romm continues: “One of the primary messages of this book [is what] Browne has learned… ‘It is clear how frequently environmental logic and commercial logic coincide” (p. 207).
BP’s Misdirection
But now we know what happens when a corporation gets distracted and tries to be all things to all people. It happened to Ken Lay and Enron, and it happened to BP.
Tony Hayward cut back BP’s renewables push, which put pressure on the company’s ‘beyond petroleum’ greenwash. But evidently Hayward did not or could not do enough to reverse the unfocused corporate culture toward safety and true environmentalism.
Why did BP try to square the circle regarding its fundamental core business? Why wasn’t it truthful and focused as sustainable corporations should be? Why did it go for Enronish style points in the serious business of producing energy? Warned Charles Koch:
Decisions should be made using economic and critical thinking, rather than emotion or gut feeling…. Elegantly articulated but complicated mental models, arguments and ideas that do not deliver profitable results have no value. Style should never take precedent over substance. (The Science of Success, p. 117)
And applied to the public policy realm, Koch’s Principled Entrepreneurship™ model esches the political means to business success in favor of the consumer-driven economic means to success.
In short, BP offers a case study of why oil companies should not try to go beyond petroleum.
Gary Gardner (Worldwatch Institute)
What factors were at work to seduce BP go for fool’s gold? Gary Gardner offered this analysis in a 2001 essay for the Worldwatch Institute.
Several of these business strategies were used when British Petroleum (BP) recently reversed its thinking on climate change. In the mid-1990s, the company had no intention of saying anything about climate change—but then it witnessed Shell’s public relations fiasco surrounding the Brent Spar, an offshore loading buoy that Shell planned to sink off the U.K. coast in 1995.
Consumer boycotts of Shell and pressure from Greenpeace brought home to BP the intensity of public feeling around environmental issues. This, together with speculation that Shell might shift its position on climate change, led BP CEO John Browne to look more closely at climate change. He decided to set a new company policy that would set BP apart from the competition—the product differentiation strategy.
Browne made a landmark speech at Stanford University in 1997 acknowledging the risks of climate change. His remarks, and the subsequent activities of BP, demonstrate how the company maneuvered to advance its interests while reducing its environmental impact. Browne was careful to preserve the company’s flexibility. Citing the “effective consensus” of leading scientists about the role of human activities in climate change, he nevertheless noted that “there remain large elements of uncertainty” surrounding the issue. And Browne set no deadline for abandoning the oil business.
BP also advanced its own interests when it set out to reduce company-generated carbon emissions by 10 percent below 1990 levels by 2010—a waste reduction strategy whose goals were roughly in line with those agreed to by industrial nations at the Kyoto conference on climate change. (The move is actually quite ambitious, amounting to a 50-percent reduction in projected emissions by 2010.) The company set up an internal emissions trading scheme, which established carbon emission allowances for 12 BP business units. The allowances tighten with each passing year and allow efficient
BP units to sell unneeded allowances to other units that are hard pressed to meet the emissions goals. The idea was to give the company experience with emissions trading, a tool the company hoped would become a central part of international carbon reduction agreements. “We have a chance to influence the regulatory apparatus,” according to a company consultant. “We influence the emissions trading debate because we have real practical experience to bring to the table.”
Finally, the company remade itself—at least rhetorically. It promotes itself as a “green energy company” rather than an oil company, pointing to its increased investments in gas and its ownership of the world’s largest solar company, Solarex. But BP’s bread and butter is still oil—recently it spent 588 times as much to buy ARCO, an oil and gas company, as it did on Solarex—and it says its transition to renewable energy will take time—decades, perhaps.
– Gary Gardner, “Accelerating the Shift to Sustainability.” In Worldwatch Institute, State of the World 2001 (New York: W. W. Norton, 2001), p. 101.
More insight on the BP play will be presented in tomorrow’s post, “Harvard Business Review Article: BP As Role Model.”
It’s ironic how things turn out. In essence, BP was pursuing a rational course, one recommended by management gurus like Tom Peters. (remember him) What business are we in? Traditionally the folks at BP would say the awl bidness (excuse my Texas drawl). But they are actually in the energy production and distribution business. Exxon/Mobil folks asked themselves a similar question which led them to place more investment into natural gas. I’m not so bold as to assume there is one answer. There may be nothing wrong with an energy company investing in and developing alternate forms of fuel. After all, they have worldwide distribution so the idea of filling their network with algae derived diesel or something similar could turn out to be brilliant. Where they go wrong is in presuming that seed corn investments in technology that is clearly in its infancy somehow puts them beyond petroleum. That’s just silly. And I’m not saying they shouldn’t have marketed their commitment to alternative fuels. Seems to me that its good corporate PR to highlight their investments and the potential to do well from doing good. But beyond petroleum is hubris. I also have no argument over them using some sort of emissions trading scheme inside their company. Reducing waste (ie what we used to call being more efficient) makes good financial sense. But that in itself is a good. It’s not about experience with emissions trading, using an internal market where things are enforced with corporate discipline and financial controls tells me nothing about how an actual market place would perform. That really sounds like a rationale in pursuit of meaning.
To me, the critical questions are yet to be resolved. Did BP drill using best practices and industry standard safety controls?
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