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Leadership2050 Edition 4, For CEOs, Executives and Board Members: Stakeholders Matter(s)


If you have been reading the financial press over the last few weeks, it has been impossible to miss what has been going on within the Oil and Gas industry (O&G). There have been a number of developments that have taken place, which are likely to have a major impact on the future of this industry. No longer, it seems, is there a debate as to whether or not the industry has to change; rather, it is the speed and scope of this change that is up for discussion. 

To begin with, the company Shell put forward a vote to their shareholders concerning an Energy Transition Strategy. The Strategy contained plans and a mandate for Shell to reach its net zero emissions by 2050. Another plan was put forward by the activist investor Follow This, which contained more ambitious plans and was defeated, with only 30% voting in favour. However, Follow This had proposed the same in 2016 and gained just 2.7% support, and again in 2020, when the in-favour rating rose to 14.4%. There is clearly a growing sense of disagreement within the shareholder community as to the speed and scope of Shell’s progress[i]

Later, in May 2021 a court in the Netherlands ruled that Shell must cut its C02 emissions by 45% (relative to 2019 levels) by 2030. According to Friends of the Earth (who brought this case to court), this was the first time that a company had been legally obliged to align its strategy with Paris climate accords.

If we then look across the Atlantic to the US, we can see major developments taking place there as well. ExxonMobil lost a vote with its shareholders regarding two director seats, when a small activist hedge fund, Engine No. 1, ran a campaign to appoint directors who wanted to drive faster and deeper change around the company’s C02 emissions. Their rival, Chevron, saw similar developments, where ‘shareholders voted in favour of a proposal to cut emissions generated by the use of the company’s products’, according to a Reuters article[ii]

What is interesting to me is the emergence of several factors that we see in these developments. For a number of years we have been led to believe that it is shareholders who are holding executive leaders back from bringing about changes in their companies that would address the climate challenge facing the world today. It is now clear that, in many cases, this is not the case, and that shareholders no longer see addressing climate change and achieving strong profitable businesses as two different aims. It now seems reasonable to conclude that there is a fundamental problem with the scale and urgency of the imagination and ambition of the people leading these businesses. When you look at this situation, it is not difficult to believe that, if they had a stronger vision for the transformation of their companies, then the stock markets around the world would place a higher valuation on them. We might even go so far as to pose the question – is their lack of ambition and urgency destroying shareholder value? 

If we step back from the O&G companies in question, what can we learn about what it means to lead and govern in today's world? In a recent Harvard Business Review article, some colleagues and I discussed ‘10 Provocative Questions Every Board Member Should Be Asking’[iii].

The essence of the article was that too many board members are passive in their roles and simply ask questions that respond to what the executive presents to them. Often these questions are closed in nature and don't address the bigger existential opportunities and risks that many companies are facing today. What is clear from the recent developments in the O&G sector is that, now more than ever, stakeholders matter. They are not merely groups who need to be consulted; rather, they are waking up to the fact that they have real power to drive change within companies. Be it through the courts, regulation or shareholder votes, the days when ‘the importance of stakeholders’ was an idea propounded by a small majority of people is no longer. I suspect that we're going to see more of this type of action across different sectors, as the challenge and opportunity of climate change become more overt in different industries. 

So, what can executives and board members do in the face of this challenge? I would suggest that they should begin by conducting a thorough review of the future of their businesses: not a controlled strategy review as they may have done previously, but rather asking some difficult and fundamental questions as to why they exist, who they exist for and what they need to change to align with where the world might be in the coming decades. 

The questions below come from this article and are an attempt to explain what this ‘review’ might look like: 

1.     If you designed the board agenda, what would be on it? 

2.     What is the executive not telling you that you feel you need to know? 

3.     How is the external world changing in ways that are not reflected in your board conversations?

4.     What don’t you know about the company that you’re most concerned about? 

5.     What do you see always being discussed, but never resolved? 

6.     What are you not discussing that you need to talk about? 

7.     Are we addressing all the stakeholders, not just the shareholders? If so, how, and what’s the order of priority? 

8.     Are we adequately discussing longer-term issues, both internal and external? 

The questions are designed to be difficult to answer, because they are bringing items onto the agenda that the executive might not be comfortable with. This is because often there are no easy answers to these questions. There is an art to changing the culture of a board so that it becomes at ease with these types of discussions and board meetings are no longer based on papers that generate predictable outcomes: in essence, a shift from board members being passive to becoming active drivers of change. This shift will require a different mindset from board members, and from the executive, and necessitates both groups, individually and collectively, to think about their roles and the legacy that they want to leave. 

As we can see from the examples described above, it is all too easy for a company to get on the back foot with either legal cases or shareholder votes. However, there is an opportunity for the company to inspire its employees, its shareholders and wider society with a vision for what it could be. This begins with a very thorough review of where the company is at, through asking the difficult questions described above, and then a considerable amount of ambition and imagination regarding where it could be. To be honest, many companies have become too comfortable with ‘cranking the handle’ on an existing business model that produces a regular flow of dividends for shareholders. It's clear that this is no longer what many shareholders are looking for from them, and it may be that these need to be reclassified as ‘growth’ rather than ‘dividend’ shares for a period of time, as they go through this transition. What these companies might also need to consider is whether or not they have the right leadership ‘on the bench’. Many of the people moving into senior jobs have developed as leaders by being very good at delivering within the constraints of the existing business. To transition the business to something quite different may require people who have a different set of capabilities. Future CEOs and other senior executives may need to come from outside the industry in order to bring the mindsets and capabilities that these companies need. It is clear that the world needs the engineering excellence that these companies possess. However, this excellence should be re-orientated towards different types of technologies, which will be at the very heart of how these businesses operate in the future. 

In summary, what this situation is showing us is that it is all too easy to fall into the trap of being a defender of the status quo. This often happens when leaders look to other people (e.g. shareholders, customers and employees) for answers as to why things can't change, whilst an insipid passiveness eats away at the heart of how leaders create value. This is not good for the companies that they lead, the people whom they employ, their customers, shareholders and wider society. Now is the time for these CEOs, executives and board members to step up and lead, or step out of their roles, to shift from being passive protectors of existing business models, to being proactive creators of the business models that will underpin commercial success for decades to come and have a positive impact on people and the planet. What is emerging is that this is something over which they will have less of a choice, and anyone who lacks the necessary ambition and urgency is likely to be forced out at ever-increasing speed…

Finally, you may be interested to know why I am asking these questions? As a Senior Fellow of Management Practice at Said Business School (SBS), University of Oxford, my research and teaching focuses on how leaders transcend such 21st century challenges as disruptive technology change and the climate crisis; also, how leaders create cultures that are diverse, inclusive, resilient and high performing, alongside the ongoing challenge of delivering profitable growth. I direct the Oxford Advanced Management and Leadership Programme and, in this capacity, I work with leaders from many countries, industries and governments. All this has given me a deep understanding of how good leaders create value and bad leaders destroy it, as measured from multiple perspectives. One could argue that never before has this been so important on a global stage, hence the reason that I am undertaking this work. 

[i] https://www.cnbc.com/2021/05/18/shell-secures-backing-for-climate-strategy-but-growing-minority-rebel.html

[ii] https://www.reuters.com/article/chevron-agm-idCNL3N2ND3WU

[iii] https://hbr.org/2021/04/10-proactive-questions-every-board-member-should-be-asking