The 2013 Energy Trust Barometer: Mixed Readings

Yesterday's panel discussion in Washington, DC on "The Trust Factor" in energy couldn't have been more timely. The stakes for lost trust seemed especially apparent against the backdrop of an EU probe into allegations of price fixing in the spot oil market, involving some of the industry's largest players, and coverage of the IRS and Associated Press wiretapping scandals.  The session was hosted by The Energy Collective and communications firm Edelman, which presented the energy-related findings from its latest annual Trust Barometer.  The theme of this year's survey was a "Crisis of Leadership."

Edelman found a small improvement in the US public's trust for the energy industry, compared to last year.  Yet energy's trust level of 59%, which is slightly better than government's 53%, falls far short of the 80% trust score for the technology sector, followed by the automotive, food and beverage, and alcoholic beverage industries in the 70%'s. Energy's position isn't encouraging, considering its importance to the overall economy, but the details resist a blanket assessment.  Meanwhile, non-governmental organizations (NGOs) enjoyed a big jump in trust from 2012 to 2013, up to 70%.

Trust levels within energy differed widely by energy source, with a 30% gap between renewables, which garnered 65%, and oil at 35%.  Natural gas and utilities came in near the average for energy as a whole, reflecting closer customer connections for the latter, and the technology-driven, cost-saving growth of the former, notwithstanding concerns about hydraulic fracturing.  Although renewables have been involved in some messy bankruptcies and an ongoing debate over subsidies, their reduced environmental impacts and links to cutting-edge R&D puts them closer to the technology end of the trust spectrum.  Oil--arguably just as technology-focused as renewables--suffers from the fallout from events like Deepwater Horizon, and perceptions of inadequate stakeholder engagement.  Yet this disparity in trust levels also creates mutually beneficial opportunities for partnership.

I thought the most surprising findings were those describing how the factors that affect trust have evolved in recent years. In the past trust could be earned by simply focusing on operational results, including financial performance and company rankings; now that's just the cost of admission. Engagement with customers and employees, along with business ethics and transparency, topped the list of today's trust factors. This might explain at least part of the gulf between oil and renewables.  In my experience, oil executives live and breathe operations and shareholder returns, although broader definitions of stakeholder relations have been gaining ground in the last decade or so.  Yet the insular nature of these businesses, which have lived under decades of regulatory and anti-trust scrutiny, works against their embrace of new media and other tools of open engagement with both customers and critics.

The panel discussion that followed the Edelman presentation was also quite interesting.  Paula Gant of the American Gas Association memorably described the synergies between natural gas, renewables and energy efficiency as a symphony.  Jason Walsh of the Department of Energy's Office of Energy Efficiency and Renewable Energy addressed concerns about the reform of subsidies for renewable energy, while reminding the audience that private investment in renewables stood at $269 billion last year.  Peter Nelson, communications director of Resources for the Future, a nonpartisan, highly trusted NGO, offered his thoughts on the politicization of environmental issues, which seems linked to polarization over climate change.  Robert Dillon, communications director of the US Senate's Energy and Natural Resources Committee, pointed out that much of the current debate is over facts, asking, "Who owns the facts?"  The panel was moderated by Paul Bledsoe, a veteran of Congress, the White House and policy circles.  His comment that, "It's a stakeholder world, not a shareholder world," encapsulated what might have been the key takeaway of the day for companies. 

As good as the panel discussion was, when I left I was still mulling over an implication raised by Amy Hemingway of Edelman in her remarks at the start of the session.  Energy policy involves the intersection of government and energy companies.  It surely complicates the challenging tasks we face, with regard to resource management and environmental stewardship, that much of the public doesn't trust government or energy to solve our important problems.  Both institutions suffer from serious trust gaps, while NGOs, who as one panelist observed have significantly fewer constraints on their statements and actions, enjoy more trust than either one (or both together?)  Especially for the energy industry, getting things done increasingly requires more than good plans and solid returns. Its "license to lead", as another panelist described it, must be earned by engaging in activities that usually aren't second nature for experienced engineers and finance experts.

Crossing the Rubicon?

Although I haven't made any great study of the history of shareholder revolts, I suspect that it is fairly unusual for one to occur when a company is enjoying record earnings, not only relative to its own past performance, but when compared against the performance of any firm in any industry at any time. And yet, that's where ExxonMobil finds itself today, with no less a group of stakeholders than the descendants of the firm's founding dynasty weighing in on the subject of its investment choices, particularly with regard to alternative energy. The Rockefellers have been joined in this effort by other investors and shareholder advisers. Whatever you may think about the shareholder resolutions in question, or indeed about the issues that they raise, the corporation's Annual Meeting is precisely the right venue for addressing them.

You might recall that when I wrote about a recent Congressional hearing on oil prices, I wasn't terribly sympathetic to the way that Chairman Markey pilloried ExxonMobil for pursuing alternative energy less enthusiastically than some of its competitors, or than the Congress might wish. When the Congress or the President can direct the portfolio decisions of publicly-traded companies on matters that do not involve their compliance with any known law or regulation, our political and economic system will have lost all resemblance to the one established by the Founders. However, the management and board of a corporation are still answerable on such issues to their shareholders, however silent the latter may be most of the time, especially when a company's fortunes are prospering.

Many of my readers regard investing in renewable energy as an obvious choice at this juncture, in light of the uncertainties of climate change and Peak Oil, more restrictive access to resources, and the rapid technological changes sweeping the global energy sector. I have long believed and advised that any integrated energy corporation that doesn't participate in the development of alternative energy puts its future success and image at risk. However, that doesn't mean that a company's management can't weigh all of these factors and conclude that it is still better off focusing on the areas in which it has excelled, a strategy that the landmark business text, "In Search of Excellence" referred to as "Sticking to the Knitting"--one of a handful of key lessons the authors gleaned from their study of successful companies. (Among other things, Peters and Waterman also extolled "A Bias for Action" and experimentation.)

The question that ExxonMobil's shareholders are effectively posing is whether its otherwise admirable capital discipline prevents management from seeing the long-term potential of a set of developments that could prove as significant as the original oil boom 150 years ago. John D. Rockefeller's vision of the growth of an oil-based economy, and how to capitalize on it, made Standard Oil--the precursor of the modern ExxonMobil--one of the most successful organizations in history, even after being broken up and only partially reassembled in the late 1990s. Even if you are skeptical, as I am, that we are on the verge of ending oil's key role as a source of primary energy and a superior energy carrier, it seems quite likely that the winners of the ongoing competition to crack the challenges of biofuels, solar power, and other alternatives will make new, Rockefeller-scale fortunes. A company should only turn its back on that kind of opportunity after some serious soul-searching and a frank discussion with its owners.

Some perspective seems necessary, as well. While the shareholder challenge to Exxon's management is a significant event within the larger trend of the greening of business, it would be a mistake to view it as a crusade. If the proposals currently being voted on by ExxonMobil's owners succeed, they will not end America's addiction to oil or bring the millennium. If they fail, that will not signify that we have passed the baton of moral or technological leadership to any other country or group of countries. The alternative energy revolution will stand or fall on its own merits, with or without Exxon. The company's shareholders must now decide whether or not the reverse is also true. Although I'm not endorsing any of these resolutions, I sincerely hope that both sides treat this as a unique and valuable opportunity to rethink their assumptions, scenarios and strategies concerning the future of energy.


I don't own any ExxonMobil stock, except in the manner in which millions of Americans do, as a component of various mutual funds.