In a thrilling Super Bowl, the New York Giants upset the New England Patriots for the championship of the National Football League (NFL) and the Vince Lombardi Trophy.
Tom Coughlin, the head coach of the Giants, developed a winning game plan using realistic assumptions and scenarios based on careful study of the Patriots strengths and weaknesses.
Surprisingly, unlike NFL coaches, CEOs frequently base business strategies on faulty assumptions and unrealistic expectations. This is especially true when business plans involve government regulation.
A case in point are the companies pursuing a national law to address global warming by participating in the United States Climate Action Partnership (USCAP) – a coalition of corporations and environmental activists seeking a cap-and-trade regulatory scheme to reduce greenhouse gas emissions.
While the resolution of global warming legislation is far from over, it’s clear, however, that proactively seeking regulation is a losing game plan for USCAP member companies.
The failed strategy is attributable to the faulty assumptions found in the corporate social responsibility (CSR) playbook. With CSR, business objectives never conflict with the goals of social activists, competing businesses, or headline seeking politicians; everyone works together for a common good.
Because businesses operate in the real world, it’s not surprising to see the social and political reaction to global warming fears backfiring on companies.
Duke Energy, a USCAP member, provides a useful example of the failed CSR game plan. In a recent press statement, CEO Jim Rogers disclosed their strategy: “as the third-largest coal consumer in the United States, and one of the largest greenhouse-gas emitters, Duke Energy has a responsibility to be part of the solution. That means looking at not only how climate change affects our business today, but also the implications for the future.”
Embracing climate change regulation is a risky strategy for Rogers since the utility generates over 70 percent of its energy from coal – the fossil fuel that releases the most carbon dioxide.
Sure enough, Rogers was sacked by Warner-Lieberman – the first climate change bill to pass a Senate committee. The legislation requires companies to purchase part of its carbon allowances – the amount of carbon dioxide each company is allowed to emit - through an auction.
The proposal puts Duke Energy with its coal dependency at a huge disadvantage – the company wanted its carbon allowances free of charge.
Now that the legislation has escaped his grasp, Rogers is aggressively playing defense by describing the negative impact of the legislation on his customers:
“Duke Energy estimated its customers’ power bills could increase by up to 53 percent when the legislation became effective in 2012. Power bills would continue to escalate in subsequent years as allocations decreased and more allowances had to be purchased through auction.”
“The focus of climate change legislation must be to protect Main Street consumers rather than to enrich Wall Street traders, who are eager to participate in a carbon auction and who profit from volatile markets.”
Duke Energy was also blindsided by environmental activists. The activists are capitalizing on global warming fears to oppose construction of any new coal-fired electricity power plants. According to a study by anti-coal groups, climate concerns were responsible for some of the 59 coal-based power plants canceled in 2007.
Making matters worse, some of the USCAP “teammates” are piling on Rogers. FPL Group, another USCAP member utility, feels companies like Duke Energy should pay more for carbon allowances because it is among the biggest polluters. FPL wants to be rewarded for its investment in wind energy. Natural Resources Defense Council – an environmental group participant in USCAP – wants more aggressive emission targets.
Duke Energy is not the only USCAP member to feel the regulatory backlash: PepsiCo’s bottled water is facing restrictions and taxes in some cities because making and transporting plastic bottles “contributes to global warming.” GE’s investment in carbon dioxide capture technologies, one of the company’s bets to make money on global warming regulation, is threatened by the cancellation of coal-fired power plants.
While there is still time on the clock, Rogers needs a new game plan based on reality. In the current political environment, it’s extremely unlikely that the utility is going to be rewarded by Congress for its reliance on an unfashionable fuel such as coal.
Accordingly, the CSR playbook and the USCAP members need to be replaced with a coalition of companies that put customers and economic growth ahead of politically correct views of global warming. Unfortunately, most CEOs are afraid to challenge global warming alarmism.
However, working as a team makes any aspirational goal possible.
As Vince Lombardi, the legendary coach of the Green Bay Packers said, “People who work together will win, whether it be against complex football defenses, or the problems of modern society.”