Archive for the ‘energy’ Category

Why Do (or Don’t) Companies Go Green?

Why do some companies “go green,” while others are satisfied to go grey? Why do some develop robust sustainability programs while others sit back and watch?

Yesterday, as part of my Business Ethics Speakers Series at the Ted Rogers School of Management, I had the pleasure of hosting Hamish van Der Ven, a Ph.D. candidate from the University of Toronto. The title of Hamish’s talk was “Big-Box Retail and the Environment: Why Some Firms Innovate and Others Stagnate.” His main contention was that the main factor at play is the socialization of high-level executives at multi-stakeholder sustainability networks. In other words, what matters is whether the leaders of the company in question make use of opportunities to sit down with a range of folks to talk about sustainability.

The main competing theory of why companies go green is the theory that it all has to do with profitability. Companies go green, on this theory, because they buy into the “business case” for sustainability. That is, they come to believe that reducing energy usage, minimizing packaging and waste, and so on, will be good for the bottom line. Alternatively, they come to believe that being perceived as environmentally-progressive will win them customers, and increase profits that way.

But as Hamish rightly points out, that explanation suffers from a serious defect. Every company is subject to those pressures — they all want to cut costs and reduce waste and attract environmentally-concerned consumers— but only some of them actually put much effort into sustainability programs that will do those things. If the business case is such an important motivator, why don’t all companies buy into it?

Much more significant, Hamish argues, are the opportunities executives take, or don’t take, to open themselves up to internalizing new social norms. The process of socialization involves precisely the process of internalizing social norms. And that happens through social interaction.

And when leaders change their thinking, they tend to do a lot to change corporate culture. As the head of CSR for one major corporation told me, “We talked a lot about going green, but then one day the CEO called and said ‘Make it happen,’ so it happened.”

Of course, this isn’t just just a story about how policy-makers and activists can influence companies by influencing leaders. It’s also a story about how leaders can implement change in their own organizations. As Hamish put it, “If you sit down with people who think differently, you start to see things in a new light. We cannot expect change to result from [instead] sitting around a table with people who think just like you.”

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Update, Dec. 14, 2013: Hamish has now published a paper based on this research. “Socializing the C-suite: why some big-box retailers are “greener” than others,” Business and Politics Ahead of print (Dec 2013)

Is Fare by Weight Fair?

Is it fair to charge airline passengers based in part on weight? That’s the plan recently announced by Samoa Air, and it’s a plan that is raising a few eyebrows.

Yes, it’s an ethical issue. But no, there’s no clear answer.

Interestingly, the mainstream media stories I’ve read about this thus far have made little mention of the obvious moral worry, namely discrimination. On the face of it, this looks like systemic discrimination against overweight and obese flyers. You and I could be in adjacent seats, booked seconds apart, but if you happen to be 20 pounds chubbier than me, you’ll pay more.

Whether being fat is sufficiently under personal control to make it a permissible basis for discrimination is hotly debated. But it’s worth noting that a weight-based policy also discriminates against those whose extra pounds are pure muscle. A heavyweight boxing champ would be about fifty pounds heavier than me, and would therefore pay more. The same goes for someone with the same build as me, who happens to be 4 inches taller. So if this is discrimination, it’s discrimination against those who are heavy, not those who are fat.

The other factor not mentioned in the few stories I’ve read about this is the environment. In aviation terms, weight translates into fuel, and more fuel burned means more environmental impact. So in charging by weight, an airline is basically levying a kind of carbon tax. And while how much you weigh isn’t fully within your control, the amount of luggage you bring with you is, and Samoa Air charges based on the total weight of you plus your luggage. Charging more on that total encourages people to carry less, and in principle might nudge frequent flyers, at least, to lose a few pounds. Such reductions eventually mean reductions in carbon emissions, and that’s a good thing. So even if there is a problematic form of discrimination going on here, there’s at least one factor on the other side of the moral equation.

Finally, it’s worth noting that to the extent that we’re worried about discrimination against bigger people (regardless of why they are big), being charged extra for their weight is far from the only price bigger people pay. Sufficiently large people also “pay,” for example, in the form of pain suffered by squeezing into airline seats not designed for people their size. That’s one of innumerable ways in which people who are outside the norm suffer in a world of products and services that are mass produced. But then, if the unusually large person pays a price for being squeezed into a seat designed for smaller folk, the person next to them pays a part of that price, too.

Of course, Samoa Air is a tiny airline, based in a tiny country. And commentators suggest that the company’s example is unlikely to be copied by major airlines. Indeed, it’s probably next to impossible: Samoa Air not only charges more to heavier passengers, it gives them more space — something likely impossible on standardly-configured passenger jets. But it is precisely for this reason that Samoa Air makes for a good case to use in ethics training and education. Before coming down on one side or the other, it’s important to tease out not just that there’s an ethical issue at all, but that there are in fact a range of ethical questions here.

The Paradoxical Anti-Keystone Billionaire

The role of wealth in politics, and in particular wealth derived from corporate sources, has reared its head again. It was recently reported that a US billionare is throwing a $5,000 per person fundraiser for President Obama. And it’s no secret that said billionaire, Tom Steyer, is an opponent of the Keystone XL pipeline, and is likely to use the opportunity to press Obama not to approve Keystone.

This story is noteworthy for a couple of reasons, beyond the mere fact that some pretty heavy hitters are weighing in on the Keystone issue.

The first of course is that Steyer himself made much of his money in oil. In particular, he was founder of Farallon Capital Management, and reportedly left the fund — “which had invested in a range of oil and pipeline companies, including BP, Nexen and Kinder Morgan, as well as an oil-carrying railway” — because those investments were at odds with his new-found environmental commitments.

It’s also interesting to wonder what psychological and moral tension created for the American left by the involvement of Steyer — a billionaire — in trying to influence policy. Not that there’s anything unusual about the rich trying to flex their muscles. But Steyer embodies something of a value conflict for the American left. Opposition to Keystone, after all, has come primarily from the left. But so has opposition to what is seen as the growing influence of wealth in American politics.

So it’s tempting to poke fun, here. What must be going through the minds of those who are both opposed to Keystone and opposed to the wealthy having disproportionate influence in politics? Can someone who went ballistic over the Citizens United decision really be happy to see a rich guy like Steyer using his wealth (and his wealthy friends) to try to influence the president? Of course it helps that Steyer is associated only with companies most Americans have never heard of. So when Americans hear that a rich guy is hosting a fundraiser for the president, at least it’s not a rich guy from General Motors, or from Walmart, or from Goldman Sachs. That would raise worries not just about the role of wealth in politics, but of specifically corporate wealth. But of course, Steyer’s wealth didn’t exactly come from running a successful paper route after school, or selling organic apples at the local farmer’s market. But for opponents of Keystone, at least he’s on the right side. So in effect what you have is a sort of Bruce Wayne figure, the billionaire businessman with a heart (not to mention wallet) of gold.

But the important lesson, here, isn’t about the role of wealth in politics. It’s about ideology. It is attractive — but a mistake — to believe that all points of view that are in any way ‘anti-business’ have to hang together. It is entirely consistent to want environmentalists to win over industrialists in matters of pipeline approval, and yet share a widely-held ambivalence about the pronounced role that the wealthy will inevitably play in shaping that debate. And it is dangerously polarizing to assume otherwise.

Kinder Morgan and the Ethics of Public Consultation

Energy company Kinder Morgan ran head-first into the complex ethics of public consultation last week. The company shut down an information session in Victoria, British Columbia, in response to what the company is calling “vandalism” of some of its on-site signs. The so-called “vandals” tell a slightly different story: they say all they did was peacefully replace the company’s signs with their own placards.

Public consultation is a regular part of business for many companies these days, especially those in the energy and extractive industries. In some cases, public consultation is required by legislation; in other cases, it’s just good business sense. But none of that means that all companies are going to be at ease with the process. To say that public consultation is common is not to say it is easy. For starters, the word “public” is too broad to provide clarity about what the process even amounts to. You’re not really going to consult the entire public. So who should you consult? The activist public? The educated public? The elected or appointed representatives of the public?

For that matter, how do you even label the process? Without harping too much on words, consider the difference in attitude implied by the terms “public consultation,” “public information,” and “public engagement.” The public’s perception of the process is liable to vary considerably depending on the way the process is labeled, never mind what it implies about the role the thing is going to play in a business’s operations.

From an ethical point of view, public consultation has two distinct objectives. First, consultation is a sign of respect, a way of saying to concerned individuals and groups, “We think you matter.” The other ethically-significant reason for public consultation is to gather input that might actually affect decision-making. Unanticipated concerns can easily come to light; asking people what they care about can be much more effective than guessing. These twin objectives — expressing respect and seeking information — provide hints as to how the process needs to go.

Of course, the information gathering goal is the easy part. Give people a microphone and they’ll talk. A company still needs to make an effort to get the right people in front of the mic, but that’s not rocket science.

The harder part is how to show respect, especially when the project at hand is a controversial one over which tempers are likely to flare. Like, say, a pipeline. And that’s where Kinder Morgan ran aground, in a mutual failure of respect. It’s not nice to mess with someone’s signs, but it behooves a company to respond to such things by taking the high road. After all, a company in the energy sector needs to not just show up; it needs to be good at this stuff. In public consultation, the kind of sophistication that befits a first-rate company means more than glossy handouts. It means being able to roll with the punches, because sometimes that’s what respectful dialogue requires.

Pipeline Whistleblowing: Getting the Ethics Right

It was reported recently that an engineer for TransCanada, Evan Vokes, has now gone public with claims that the pipeline company has been lax in the standards it applies to having its pipelines inspected.

Whistleblowing is among the most complex ethical issues in the world of business. Whistleblowers are people who demonstrate that there is — there must be — a limit to the loyalty of even a dedicated employee. Whistleblowers go outside the boundaries of their organization to report actual or immanent wrongdoing. They often prevent grievous harm, but in doing so they inevitably impugn the character of their organizations, and sometimes of their co-workers. And of course, there’s always the worry that the self-appointed whistleblower is actually just a malcontent bent on revenge. But such cases aside, whistleblowers perform an essential public service.

A few points are worth making about the TransCanada case in particular.

The first is that, at least as the story is told by the CBC, Vokes is the perfect whistleblower. He’s got the relevant expertise (he’s both a welder and an engineer) and he’s got a reputation for honesty and integrity. Further, Vokes carried out the whistleblowing properly: he proceeded in perfect ethics-textbook fashion by first making his concerns known to his superiors, and then escalating up chain of command. Only when it became clear that internal channels weren’t working did he go outside of the company to bring his concerns to the relevant regulatory agency.

Second, the fact that Vokes felt the need to blow the whistle suggests a failure of leadership within the company. According the the CBC’s report, Vokes made his concerns clear all the way up the corporate hierarchy, and everyone “right up to the chief executive officer refused to act on his complaints.” A

“It’s fine” — just like NASA’s space shuttle Challenger

The latest update to this story, of course, is that TransCanada has now temporarily shut down its Keystone pipeline, citing safety concerns.

Vancity vs Enbridge

It was recently reported that Vancity Investment Management is divesting its shares in beleaguered Canadian oil company, Enbridge.

Enbridge has made the news repeatedly over the last few years because of leaks in its pipelines. Not unrelatedly, the company has faced opposition from native and environmental groups with regard to its planned pipeline across northern Alberta and British Columbia. The combination of errors in its past and risks in its future is apparently just too much for Vancity, and perhaps for other socially- and environmentally-conscious investors.

This new announcement is, on the surface at least, a good example of the connection between ethics and business. It is often pointed out that, in order to stay in business, a company needs to maintain its ‘social license to operate.’ But more specifically it needs to retain the goodwill of key stakeholders, and investors are very high on that list.

But of course, investors can turn on a company for all kinds of reasons; the perception that the company isn’t doing well socially or environmentally (or more generally, ethically) is just one. Companies can take a hit to their shares for any number of reasons. Even if we limit ourselves to broadly “social” reasons, there are good and bad reasons, reasons about which there is broad social consensus (e.g., child labour) and ones that are socially divisive (e.g., contributions to pro-choice or anti-abortion groups). And so on.

This points to an interesting question about the obligation that managers and boards have to manage risk. It is increasingly clear that the obligation to manage risk includes not just financial risk, but just about any risk to which the company might be subject. That includes environmental risks and reputational risks. Understandably, the two are intertwined. According to the story cited above, one “ethical investment” company (Northwest & Ethical Investments LP) has expressed concern about Enbridge not (just?) because of the risks its pipeline poses, but because of the risk posed by opposition.

Should Enbridge (and its shareholders) be concerned about the Vancity divestment? That’s unclear. The divestment itself doesn’t sound catastrophic, but things could change if other investors follow suit. How likely that might be is also unclear. The interesting question is which kind of worry is more likely contagious: worries over environmental risks (and financial risks that go with those) or worries over risks of opposition.

In the end, it may not matter much. As I’ve argued before, oil companies need to do a better job of managing environmental risks. If they can succeed at that, they may well see the risks of social opposition melt away at the same time.

Needed: A High-Efficiency Oil Company

A Nimitz-class aircraft carrier is a hellishly complex piece of machinery. Picture a boat the length of three football fields, carrying several dozen heavily-armed aircraft into a war zone. It’s a boat with a crew of 3,200 plus an additional 2,400 involved in flying, maintaining, and launching aircraft. Oh, and it’s powered by a pair of Westinghouse A4W nuclear reactors.

As it happens, the US Navy has 10 such carriers. And on these unimaginably complex machines, errors of any significance are practically unknown. Time after time, F/A-18 Super Hornets laden with missiles are literally catapulted from the flight deck, sent out on missions, and then land again on the carrier’s super-short runway. And failure is practically unknown. This requires amazing skill on the part of pilots, but it also requires an incredible team effort, and a system built to include multiple redundant safeguards. The safety record of nuclear aircraft carriers is so good that they are now a standard example of highly-efficient, low-failure, complex systems, the kind that other complex systems should aspire to become. They are systems in which failure is simply not an option, and smart design makes sure it just doesn’t happen.

Next, let’s look at another complex system, namely an oil company and its network of pipelines. Let’s look in particular at one Canadian company, namely Enbridge. Enbridge’s pipeline system, as far as I can tell, is significantly more prone to failure than an aircraft carrier. Just under a year ago, I wrote about a leak in an Enbridge pipeline running past the tiny northern Canadian town of Wrigley. That was a small leak, but one that raised serious concerns for the local native community that eked out its living from the now-polluted land. That leak involved maybe a thousand barrels of oil. But just a year earlier, an Enbridge pipeline running through southwest Michigan spilled 20,000 barrels into a creek leading to the Kalamazoo River. And now, this past Friday, another significant leak was reported. This time, the company’s “Line 14″ spilled about a thousand barrels of crude into a field in Wisconsin. And this is just to name a few of the company’s pipelines over the last decade.

Of course, there’s no special reason to pick on Enbridge. Other companies in the oil exploration and refining industry have spotty records, too. BP is perhaps the most dramatic example that comes to mind. It was the company behind the explosion on the Deepwater Horizon, and the subsequent spill that devastated a big chunk of the Gulf coast.

There’s little doubt that, for the foreseeable future, oil companies like Enbridge and BP are a practical necessity. Like it or not, our economy depends on them. They are as necessary to our economy as an aircraft carrier is to the US’s naval supremacy. But the fact that those companies are so essential is precisely the thing that dictates that they must do better. They must seek the kind of never-fail efficiency exemplified by carriers like the USS Harry S. Truman and the USS Abraham Lincoln.

There are of course important differences between an aircraft carrier and a system of pipelines. For one thing, an aircraft carrier exists in a single place, under the watchful eye of a single Commanding Officer; a pipeline can stretch for thousands of unobserved miles, necessarily subject to only infrequent inspection. For another thing, various corporate motives summed up very imprecisely by the term “the profit motive” mean that there will always be temptations for oil companies to cut corners. But the example is there, and the body of knowledge is there. Oil companies can, and must, do better.

The Right Amount of Waste

A recent story in the NY Times provides some encouraging anecdotes about companies that are moving to take greater responsibility for recycling. Companies like Starbucks and Coca-Cola, for instance, are finding new — and in some cases profitable — ways to take responsibility for the waste that their product packaging generally becomes. More recycling generally means less waste, less energy used, and less pollution.

Waste and pollution are business-ethics topics about which there is some room for agreement between the moralist and the economist. The moralist points out that it’s unfair to make innocent bystanders suffer the ill effects of your factory’s pollution. The economist points out that market inefficiency can result when costs, financial or otherwise, are not internalized (i.e., when costs are instead imposed on innocent third parties).

But an economically-savvy point of view must also recognize that there is in fact a socially-efficient level of waste and pollution, and that that level is not zero. Waste and pollution could only be driven to zero by shutting down industry (of all kinds) altogether, and that would have disastrous effects. In other words, we would have to sacrifice things we care about, like the ability to raise world-wide standards of living, in order to reduce pollution and waste to zero.

Consider this analogy: economists likewise sometimes argue, rightly I think, that there is an efficient level of crime. The methods by which crime could be driven to zero are both enormously invasive and enormously costly. It is not efficient — not a good use of resources — to drive crime to zero, even if we think it technically possible.

So waste and pollution, we might say, are always bad, but not always wrong. They are features of a system the overall productivity of which is an enormous boon to humankind. It would be crazy to say that gains in productivity must be sought at any cost, but it is likewise crazy to value anything else (e.g., the environment) so highly that it drowns out all considerations of efficiency.

Now none of this tells us about whether particular efforts at waste reduction or pollution abatement are good or bad. But it helps frame the issue. What we’re looking for is the right level of pollution and waste, and that level is not zero. It is also likely to shift over time, as affluence grows and technology evolves, and as companies like Coke and Starbucks and a thousand anonymous start-ups find new ways to make environmental protection efficient, in the broadest, most ethically-significant sense of the word.

Why $100-million Is Too Much

It was widely reported yesterday that former CEO of Nabors Industries Ltd., Gene Isenberg, will be the recipient of a $100 million severance payment. Except, he’s not leaving the company — he’s staying on as Chairman of the Board. Confusion and criticism has ensued.

For the most part, I think that executive compensation, even outlandish executive compensation, is in principle a private matter. If a bunch of shareholders want to pay their CEO a gazillion dollars — whether because they think he’s the one guy who can build long-term value or because they just think he’s a swell guy — well, that’s none of my business. I may think those shareholders are fools, or spendthrifts. But there’s little reason for me to be morally concerned. I don’t tell you how much to spend on your babysitter or your dry cleaning or your car. And I shouldn’t tell you how much to spend on your CEO.

In principle.

But two factors get in the way of applying my in-principle argument to the present case.

One factor begins with the observation that shareholders don’t, in fact, generally make the decisions regarding how much total compensation the CEO gets. That task is delegated to the Board of Directors, who in turn generally delegate it to their Compensation Committee. Now again, in principle, this is purely a private matter. If the Board isn’t serving the shareholders well, the shareholders have cause to complain, and (yet again, in principle) they can always fire the Board if they feel sufficiently poorly served. But we have ample evidence that shareholders very often aren’t well-served by boards. Add to that the fact that proper functioning of corporate governance (and hence of capital markets) is clearly a matter of public concern, and you have at least the beginnings of a public-interest argument for interference in what would otherwise be a private matter.

The other reason why excessive pay isn’t always a purely private matter has to do with the government’s (i.e., the public’s) role (and support of) an industry. Note, for example, that Nabors is an oil-drilling contractor. So the $100 million that Isenberg is getting isn’t merely a share of privately-gained profits. It’s a share of the profits from a heavily-subsidized industry.

So boards of directors do have some public obligations related to how they choose to compensate executives (even if, as I’ve argued before, outsized compensation isn’t automatically unfair). Corporate directors are not just part of private institutions; they’re part of a system justified, in part, by its public benefits. And the more they seek to gain private benefits in the form of subsidies, the greater their obligations to the public become.

Which Oil is the More Ethical Oil?

It’s a clever marketing strategy. But is there really such a thing as ethical oil?

In today’s National Post, the Fraser Institute‘s Mark Milke argues that there is, and that “the ethical oil tag is useful shorthand for why Canada’s oil is preferable to that extracted elsewhere.” But “preferable” is a pretty grand, global conclusion. It implies that, all told, Canada’s oil is better, ethically. And that may well be, but it’s certainly not obvious. Don’t get me wrong — I’m a patriotic Canadian, proud of my country and its accomplishments. But I’m also a critical thinker, and a critical thinker can’t accept unreflectively a conclusion that happens to coincide with his own biases. Indeed, the fact that Milke’s conclusion conforms so neatly to my own biases is a strong reason for me to look at his argument more closely.

His argument is basically that Canada’s oil is ethically preferable to the oil produced in other places, considering especially places with serious histories of violating human rights.

OK, so let’s try it out. Let’s look at a rough sketch of the perceived negative ethical implications of oil from the top 10 countries listed by oil production….

Russia — widespread political & economic corruption;
Saudi Arabia — oppressive regime; human rights abuses;
United States — capital punishment; crazy war on drugs; irresponsible financial institutions;
Iran — human rights violations; insane political leaders;
China — human rights violations;
Canada — environmental degradation; poor treatment of indigenous peoples;
Mexico — widespread corruption; ongoing drug war;
United Arab Emirates — undemocratic;
Brazil — crushing poverty; immense social inequality;
Kuwait — undemocratic; human trafficking and abuse of migrant workers.

Feel free to add your own potential points of criticism to the list. And, of course, you can add significant environmental concerns to the worries for all oil-producing nations. That goes with the turf.

Now we absolutely must not make the mistake of treating this like a checklist, or treating all of the ethical “bads” listed above as equally bad. They’re not. And the other problem with this list is that it presumes that the only alternatives are various countries’ oil. Presumably much of the criticism of tar-sand oil isn’t that it’s so environmentally-evil that it’s ethically worse than, say, Saudi oil. Rather, the criticism has to be that tar-sand oil is worse than renewable energy sources that we ought to be developing, like solar and wind and geothermal.

So while I think the “ethical oil” label is rather, well, crude, I think the people promoting that label are at least doing us the unintentional service of reminding us that it’s far from clear what counts as an ethical source of energy. (If you use slave labour to build a wind turbine, is that an ethical source of energy?) As my friend Andrew Crane points out there are many dimensions along which to evaluate the ethics of any product — including not just the intrinsic properties of the product but also things like the process of production and nation of origin. That certainly applies to oil. I just wish I could believe that the people pushing the “ethical oil” label for my country’s oil were doing it to advance the debate, rather than to score points in it.

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Update: Take a hew poll on this topic, here: Oil Poll: Human Rights or Environment?

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