Last week, executives from all the big oil companies gave sworn testimony to a Congressional committee. Under oath, they were asked if their companies knew that their products contributed to climate change and how long they had known this.
Everywhere you turned, the hearing was being compared to the 1994 Congressional hearing credited with changing the national opinion on smoking and irreversibly transforming the tobacco industry. That was a seminal moment for the tobacco industry; what was said during that hearing led to a whole new, fulsome set of industry regulations that changed how they do business and rippled across the country.
It didn’t turn out that way last week.
The executives were better prepared (clearly had watched the video from 1994 once or twice), whereas the committee was not. It wasn’t the historic moment people had predicted. But it won’t be the last time; these questions are asked of these companies by Congress all the time.
It’s pretty safe to say that being in the hot seat in front of Congress is not where any corporate executive wants to be at any point in time. But why were they there?
Some could credit politics. Others could say that was inevitable.
Don’t ignore the ripples
I would argue, as many do, that the words of an oil company lobbyist saying his employer’s efforts on climate change were just lip service were the butterfly wings of the hearing in the way that a butterfly flapping its wings causes a typhoon half a world away.
Basically, if you were paying attention, the hearing was not a surprise because small actions cause ripples.
You may think that you have contained a crisis, but to look at it as an isolated event is a mistake. At Kith, we know that because we get the phone call when the ripples start to appear.
A distant ripple can throw you off your game — tomorrow or next year. In this case, it is social risk that is threatening the business model of not just one company but an entire industry. Energy industry gatherings will be a lot of fun in the future.
Identify the real cause
Let’s go back before the butterfly flapped her wings, though.
It turns out that the lobbyist wasn’t the butterfly. Instead, the butterfly was the decision somewhere in these companies to take actions that conveyed the message that addressing climate change was just lip service.
The companies never did the work to ensure that their crisis preparation included managing social risk — a new and very costly risk factor. Events that could lead to activist investors, regulatory action, and trips to Congress don’t seem to have factored into their long-term risk assessment. Despite the preparation these firms do in many areas, this was a blind spot when it came to preparation. Consequently, they were unable to prevent these particular ripples from building up.
That prevention means you see the event, regardless of which kind of event it is, and then work two, three, ten ripples out to ensure you see the broad scope of how an event can knock your business off your game.
When the decision was made to not account for this particular social risk, had anyone asked, ‘what if this position leaks?’, ‘what if that leak makes it to our critics?’, and ‘who are our critics’ allies?’
I am sure that similar questions are asked for the myriad crises that befall such a big and controversial industry. This is an industry that contends with oil spills, hurricanes, and activist investors regularly.
They run simulations. They have well-thought-out decision trees, and they know who does what and how. They are prepared for what their experience tells them will come their way. The oil industry PREPARES for crises, all the crises.
Consider your blind spots
So with all of that preparation, how could these executives find themselves having a no good, terrible day in the national spotlight being grilled by Congress over a single comment by one employee?
They didn’t account for the ripples. This particular issue was a blind spot or something too easy to overlook.
Or, as the Monty Python boys say, you never expect the Spanish inquisition.
I would argue that the oil executives would have if they had just watched the ripples.