Windows on the world


Enemy of the People

Over the last decade there has been growing unrest from certain sections of the global community concerning the role played by commercial multi-nationals.  The fact that they provide employment and add value in countries where they choose to operate is over-shadowed by the power they wield, strong enough in some cases to stand up to the largest governments.

The various protests, often staged to coincide with international conferences, are largely unfocused.  The enemy of the people has been identified as power, rather than the abuse of power.  Short of breaking up conglomerates just because they are big, politicians appear helpless to act.  That might not be the case if the enemy were more clearly identified; specifically, the large multi-nationals who abuse their power.  The logical place to start is with those that wield the most power and make the biggest profits: the oil companies.

The Global Community

Any community can function in harmony provided that individuals, in exercising their individual rights, do not impinge on the rights of others.  In the global community the four large oil companies consistently impinge on the rights of others.  Whilst the world attempts to reduce greenhouse gasses the oil companies invest ever larger sums in exploration for new deposits of fossil fuel.  In the process fragile ecologies and poor nations are exploited, and repressive regimes rewarded. 

Exxon Mobil, alone of the big four, claims that global warming has not been proved.  But even if we accept their unsubstantiated denial the world faces huge problems which are being ignored.  It has been estimated that only one barrel of oil is being discovered for every four consumed.  Reserves are likely to start reducing by 2005.   And if we listen to the environmentalists, burning twenty-five percent of current known reserves will produce catastrophic climatic change.

Lessons for a Strategist

The first lesson for a strategist is to understand the enemy: strengths, weaknesses and needs.  The second lesson is to use his strengths against him and exploit his weaknesses whilst (apparently) fulfilling his needs.  The strength of a large corporation is obvious, its size and power.  Its weakness and needs can be deduced from its most important statistic: share price relative to the industry sector.  Share price is determined by the Price/Earnings multiple, and the P/E is based on anticipated growth in profits.  The executives of an oil company have to continue to generate profitable growth, without which the stock price will fall, the value of their equity and options will plummet, they will be less able to acquire other companies and more vulnerable to hostile takeover.  This is the information that can be used to protect global stability.

Ban Oil & Gas Exploration

A majority of the world's governments has accepted the need to tackle global warming.  Action so far has been limited to encouragement for clean renewables and attempts to persuade energy users to exercise restraint.  But if governments were prepared to act in concert it would be far easier to reduce the quantity of fossil fuels being extracted from the earth.  All they have to do is call a moratorium on new exploration.   There is no need to prevent oil companies from seeking a return on their expenditure to date, or to cut off current activities, but a global ban on exploration for ten years could be imposed from (say) 2005.  This would give the oil companies time to produce their own evidence that extracting and burning fossil fuels is not harmful to the environment or mankind, failing which the ban could be extended indefinitely.  Meanwhile, to provide the profitable growth to which they are addicted, they will have to look to alternatives.

Growth for Oil & Gas Corporations

This is not such an unlikely scenario.  BP owns the largest solar energy company in the world, having bought Solarex Corporation for $45 million.  Solar energy is still not commercially attractive, even though the cost has fallen by half over the last decade.  But by introducing mass-production, costs could come down by a further 80 percent, and the growth potential would be exponential.  Compared with oil and gas exploration the investment required is modest, but so far has not been provided.  It would probably happen very quickly if growth from fossil fuels were to be blocked.  And there is no reason why these same oil and gas corporations should not take up strategic positions in, and dominate, the expanding industries of wave, wind and hydrogen energy.

As developing nations acquire a taste for more sophisticated lifestyles world demand for energy continues to rise, and there is no reason why energy corporations should not continue to grow.  If the only option is to invest in clean, renewable energy, by protecting their P/E multiples they would also be protecting mankind and his environment.  It has to be concluded that the real enemy of the people is government inaction.

Harvey Tordoff
June 2001