By Institute for Energy Research ——Bio and Archives--June 17, 2009
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Listening to the dissident shareholders leading the proxy fight to recast Exxon Mobil Corp. as a political energy company, it's tough not to be reminded of the meteoric rise and operatic fall of the Enron Corporation. That is what comes to my mind when I read the shareholder resolutions asking ExxonMobil to buy into climate alarmism and splash into uneconomic but politically correct renewable energy investments. Renegade shareholders Sister Patricia Daly, Neva Rockefeller Goodwin, et al. dress their case in the language of maximizing longer-run profits, asserting that the future of ExxonMobil is not in its traditional, very successful activities. But they are wrong on both business and public-policy counts. In my 16 years at Enron, I watched the company shift from its core natural gas operations to investments in solar power, wind power, and other "green" energy activities. Time and again, environmental groups lauded Enron for practicing "energy sustainability." The politically correct company received a climate-protection award from the EPA and a corporate-conscience award from the Council on Economic Priorities. I remember how an Enron lobbyist asserted that passage of the U.N.-sponsored Kyoto protocol in 1997 -- with its unrealistic mandate that the developed world cut greenhouse-gas emissions -- would be "good for Enron stock." He predicted that Enron's wind, solar, and emissions-trading investments would take off once Kyoto came into force. "We bet on the future," he crowed, "while others have bet on the past." Chairman Ken Lay, in fact, announced at a management conference that Enron's vision was "to become the world's leading renewable energy company." Meanwhile, ExxonMobil (founded by the legendary John D. Rockefeller, Sr.) plodded along with its consumer-driven hard-asset energy model. It made steady progress by avoiding the energy fads that so captivated Enron. The tale of two companies has played out. None of Enron's "green" initiatives was profitable, and the "new-economy" company imploded. The smartest guys in the room were not so smart after all. ExxonMobil has proven itself to be sustainable in both the boom and busts of the present business cycle. There is a deeper lesson in all this that both dissident shareholders and company supporters should take to heart: Reject political rent-seeking. A business can make money via the free-market means of voluntary consumer patronage or via the political means of special governmental favor. The first is the way of capitalism; the second, of political capitalism. None of the wind or solar projects Enron pushed were economically competitive with its natural gas business. And the energy-efficiency contracts peddled by Enron Energy Services turned out to be a mirage. ExxonMobil is doing just fine, thank you, without a forced change in business direction. BP and Shell, in fact, have moved toward their rival's business model by de-emphasizing their renewable-energy investments because of the field's subpar profits (as determined by consumers). All the major oil companies are now focused on their core natural gas and oil activities, including offshore drilling and heavy oil production. Nobody, including BP, has gone Beyond Petroleum. And this is good news for consumers. The International Monetary Fund and the International Energy Agency have concluded that the world needs trillions of dollars of oil and gas investment. The Energy Information Administration of the Department of Energy sees hydrocarbons as continuing their dominant role in the United States and the world for decades. Successful companies stick to their core strengths and avoid profit centers that depend on special government favor. That was John D. Rockefeller's philosophy a century ago, and ExxonMobil shareholders deserve to be the heirs to his genius, not to the flawed business model of Ken Lay and Enron.Bradley, a former Enron employee, is founder and CEO of the Institute for Energy Research and author of "Capitalism at Work: Business, Government, and Energy."
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The Institute for Energy Research (IER) is a not-for-profit organization that conducts intensive research and analysis on the functions, operations, and government regulation of global energy markets. IER maintains that freely-functioning energy markets provide the most efficient and effective solutions to today’s global energy and environmental challenges and, as such, are critical to the well-being of individuals and society.