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Published: May 3, 2010
 / Summer 2010 / Issue 59

 
 

Why We Hate the Oil Companies

Yet financial performance is measured quarter by quarter, and although the raw profit numbers for oil companies are huge, earnings — measured as net income as a percentage of sales — are actually fairly modest, in the range of 6 to 8 percent. Even at the peak of crude oil prices in mid-2008, energy company margins were just 6.8 percent. In mid-2009, they fell to 5 percent. These numbers are fairly typical for manufacturing companies and well below the earnings of pharmaceutical, tobacco, and beverage companies.

The disconnect between oil industry top management and consumers comes to a head when things go wrong: when prices rise or supplies are interrupted. Political leaders looking out for their constituents immediately tie top executives to the plight of the consumer. They want desperately to demonstrate that they are doing something, anything, to be on top of the price increase or fuel shortage. Whether that means dragging the executives into public hearings for verbal thrashing or lambasting them in absentia, such behavior feeds consumer disdain and confirms the overall disconnect.

Why Things Will Get Worse

Are we stuck with this paradigm forever, unlovable and unavoidable? Is there nothing that can be done to patch up the relationships between oil companies and consumers, or oil companies and politicians? From where I sit now, and based on my years in the chair where I sat then, I see little hope that things will change for the better, absent some major intervention. Instead, as a realist, I think they will get worse over time. I see two areas where the industry has failed and is unlikely to change course: poor politics and poor public relations.

The industry is stuck in its own political purgatory; it has been shortsighted and one-sided. Rather than engaging and informing government officials across the board, oil company executives tend to seek out their friends in the political arena, complaining about officials who don’t understand them. They essentially compound their problems, especially if their friends are in the political minority, which happens regularly over long cycles. In the U.S., since investigative reporter Ida Tarbell took on Standard Oil in 1904, the industry has lived with a victim mentality, especially when the Democratic Party is in power. Members of the oil and gas industry are perceived as friends to Republicans, not Democrats. Opponents of the industry delight in confronting and publicly humiliating oil and gas executives; this is seen as fair payback for being otherwise ignored by the industry. Feeding frenzy is not too strong a phrase for describing the predicament. Bunker mentality describes many oil company responses to public outcries. Personally, I believed in walking down the center of the aisle politically as Shell’s president. It was, however, a lonely walk relative to the rest of the industry.

Today’s green initiative is seen by some outsiders as the industry’s comeuppance. Politicians have seized on the opportunity to displace a century of investment in the hydrocarbon (oil, gas, and coal) infrastructure with a rush to invest in whatever magical, especially green, formulas can rewrite the future of energy and make new fortunes for their adherents. They see themselves as saviors of the economy and the environment without regard to the fact that they would effectively be disregarding about 75 percent of the nation’s energy supplies. Subtract nuclear power, and it totals 93 percent. As a new breed of populist politicians promote new technologies, industry reminders that we will be dependent on fossil fuels for the next 50 or more years, even if true, sound like automakers’ empty protests from the 1950s that seat belts were an unwarranted expense.

 
 
 
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Resources

  1. Stewart Brand, “City Planet,” s+b, Spring 2006: How the profound consequences of increasing urbanization are changing the way we think about demographics, cultural vital­ity, and economic development.
  2. Viren Doshi, Gary Schulman, and Daniel Gabaldon, “Lights! Water! Motion!s+b, Spring 2007: Rebuilding the world’s urban infrastructure can be done only by integrating energy, transportation, and water.Peter Senge, Bryan Smith, and Nina Kruschwitz, “The Next Industrial Imperative,” s+b, Summer 2008: Why facing up to climate change requires a revolution in business thinking.
  3. World Wide Fund for Nature and Booz & Company, “Reinventing the City: Three Prerequisites for Greening Urban Infrastructure,” (PDF) March 2010: More analysis and ideas on why we need to aggressively pursue urban sustainability.
  4. For more thought leadership on this topic, see the s+b website at: www.strategy-business.com/sustainability
 
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