Karl Marx once remarked, “The last capitalist we hang shall be the one who sold us the rope.” However, Marx had no idea the rope would be corporate social responsibility (CSR) and not greed.
In keeping with CSR doctrine, CEOs are opening their doors to activist groups with great fanfare in hopes of maximizing both “the social good” and corporate profits. Regrettably, these CEO’s are maximizing neither.
Social activists are not concerned with corporate profits, shareholder returns or economic growth. Their sole mission is to transform corporations into agents to advance their social and political agenda.
By allowing social activists to influence business decisions, CEOs are choosing socialism over capitalism and by doing so; they are undermining the very foundations of our free society.
General Electric’s CEO, Jeff Immelt, is a classic example. His management of the $350 billion company using an outdated 1960’s style conglomerate model is failing. Since Immelt took the helm in 2001, GE has significantly underperformed the market – GE’s share price has not increased while the S&P 500 index is up 30%. On top of all this, he is under pressure to fill Jack Welch’s shoes.
Immelt desperately needs a new strategy for growth. Enter CSR. In 2002, a group of Catholic nuns filed a shareholder proposal asking the company for a report on GE’s greenhouse gas emissions and ways for the company to address climate change. According to The New Capitalists: How Citizen Investors are Reshaping the Corporate Agenda, the nun’s proposal made Immelt recognize the reputation and revenue opportunities by addressing climate change.
Three years later, GE announced Ecomagination – a marketing campaign that promotes environmentally friendly fuel-efficient products including engines, locomotives, wind turbines and clean coal processing technologies.
Not taking any chances with the free-market system, Immelt wants government regulation to guarantee Ecomagination’s success. GE is a member of the United States Climate Action Partnership (USCAP) – a coalition of corporations and environmental activist groups “that have come together to call on the federal government to quickly enact strong national legislation to require significant reductions of greenhouse gas emissions.”
Immelt’s rent seeking math is simple: limits on carbon dioxide will drive sales for his products and the Left will adore him like Al Gore. Unfortunately, for his employees and shareholders, Immelt’s statism strategy is backfiring.
While global warming fears may aid one part of GE’s business, the macroeconomic impact of high-energy prices and the hysteria surrounding climate change is harming its other businesses. For example, last years’ high-energy prices gave us a preview of the business impact of future global warming regulations on the company. GE’s most recent earnings were hurt because the high cost of oil-based raw materials squeezed margins from its plastics business. Because of its drag on earnings, GE is looking to sell its plastics unit.
Then there is the legislative threat posed by politicians looking to exploit the global warming frenzy by banning the incandescent light bulb. Ironically, not only is the incandescent light bulb a GE product, it was created by GE’s founder Thomas Edison.
A worldwide movement to require fluorescent bulbs because they use far less energy and reduce the amount of carbon dioxide emissions is gaining momentum. A California legislator introduced legislation to ban incandescent bulbs; Australia plans to ban traditional light bulbs by 2010; and Greenpeace wants India to follow Australia’s lead.
Making matters worse, Wal-Mart is looking to use its muscle to score global warming public relations points by pushing florescent bulbs into 100 million homes. By doing so Wal-Mart is putting GE’s traditional bulb business in jeopardy. According to a New York Times story a “meeting with executives from General Electric, Wal-Mart’s largest bulb supplier, the message from G.E. was, ‘Don’t go too fast. We have all these plants that produce traditional bulbs’ …”
Finally, GE’s clean coal technology for power plants is also in question. So far, utility companies are unwilling to gamble on the new technology because of its expense and questionable reliability.
Immelt’s scheme of leveraging climate change for both profit and popularity is flawed. His quest to create new markets by fueling global warming fears has unleashed the uncontrollable force of politicians, media and activists. Immelt’s lobbyists are now working at cross-purposes: his federal agents are lobbying for global warming regulations while his California lobbyists are trying to save the light bulb.
However, on the popularity front, Immelt is winning the hearts and minds of the Left. At the 25th anniversary dinner of the World Resources Institute (WRI), Al Gore presented Immelt with the “Courage to Lead Award” for his leadership on tackling global warming.
Like James Taggart, the villain in Ayn Rand’s classic Atlas Shrugged, Immelt will discover that relying on government favors and appealing to “the social good” is the path to destroy both his business and capitalism – leaving everyone in the dark.