A look back at 2015 reveals some shocking corporate scandals, notably in September, when two of the world’s most powerful companies were spectacularly caught with their pants down.
On 16 September, Inside Climate News revealed that ExxonMobil, the world’s fourth largest oil company, was aware of the environmental effects of burning fossil fuels as far back as the early 1980s. Instead of acting, however, it had chosen to spearhead climate denial.
Just a few days later, car giant Volkswagen admitted to installing emissions test cheating software in up to 11m of its diesel cars. A study by scientists at West Virginia University had shown that Volkswagen’s diesel cars’ on-road NOx emissions were several times the legal limit.
While these two revelations may be unrelated, they reveal common threads that have created a business environment conducive to such repeated wrongdoings. Brought together, these threads – I would argue – can be viewed as four behavioural traits that have come to define today’s corporation:
1. Relentless pursuit of size
The search for scale was typified over a century ago by Ford Motor Company. The term Fordism was coined to describe a strategy of growth to achieve economies of scale.
A century later, Volkswagen’s declared goal was to be the world’s number one car company by 2018. Volkswagen bet on its “fuel efficient” diesel-powered cars to achieve this and made an unethical choice to fit these cars with defeat devices, while pursuing a misleading advertising campaign around “clean diesel”.
For its part, ExxonMobil clearly saw the consequences of pursuing fossil fuels, but still chose to lead the denial lobby as that best served its financial interests in oil and gas. It spent more than $30m (£20.3m) between 1998 and 2014 funding climate scepticism, according to Greenpeace.
No doubt it recovered those costs many times over as it grew to become one of the largest corporations in the world, but it did so at immense public cost – the advancing upheavals of climate change.
2. Aggressive and unethical lobbying
Exxon’s brand of “scientific” lobbying obfuscated reality, reduced the urgency of climate change responses and was downright unethical.
Despite agreeing to stop funding climate denial in 2007, the company was since found to have donated $2.3m (£1.5m) to members of Congress and climate denying lobby group the American Legislative Exchange Council. The company also donated millions annually towards election campaigns. 85.5% of their US political donations in 2014 were directed towards the Republican Party, of whose remaining 2016 Presidential Candidates, none accepts climate science.
The VW scandal has thrown a spotlight on the relationship between car makers and regulators. The responsible investment charity ShareAction mobilised a coalition of 19 investors with £625m assets under management to write to car companies including VW to ask for clarity on their lobbying position around emissions legislation.
Even today, lobbying is seen in the corporate world as a fundamental right, and shamelessly so. Corporate lobbyist Grover Norquist famously said, “I’m not in favour of abolishing the government. I just want to shrink it down to the size where we can drown it in the bathtub”.
A corporation does have a right to be heard, but at what cost? The kind of lobbying that furthers private profits by frustrating regulation that protects public wealth is morally questionable. It is also economically questionable when it destroys more public wealth than it creates private profits.
3. Ignoring external impacts
This brings us to the penchant for internalising profits while externalising costs.
When VW decided to install emissions test defeating devices, it appears not to have considered the negative environmental consequences of
emitting around 1m tonnes of pollution every year, or the financial loss to US taxpayers, who were billed $51m for VW’s green car subsidies.
And what might the cost be for what Bill McKibben called the “wasted decades”, when Exxon – one of the world’s biggest, most powerful companies – knew about the dangers of climate change and chose to look the other way?
4. Advertising: keeping consumers in the dark
Corporate externalities are the biggest free lunch in human history and, like all free lunches, cannot go on forever. Consumers need clear information if they are to choose which products to buy based on transparent, quality-assured information on the true costs of different products, not just the shelf price.
Unfortunately, such information is rarely provided. In our media-dominated world companies routinely misinform their customers through unethical and unaccountable advertising.
Almost a hundred years ago, Listerine was credited for the “invention” of chronic halitosis as a health condition to promote its production of mouth washes. Its ad campaign from the 1920s – “Can I be happy with him in spite of that” – helped raise their revenues from $115,000 to $8m in just seven years.
The underlying purpose of advertising is to influence consumers’ decision-making, so it cannot avoid being manipulative. It preys on human insecurities, converting them into wants and wants into needs from which arises demand, which feeds production, volume and profits.
Gradually, a realisation is dawning that our dominant model for business is fatally flawed.
But all is not lost. Corporations can and sometimes do define social purpose. They can and sometimes do create positive externalities, such as the training of hundreds of thousands of aspiring young Indians by Infosys, or Tesla’s declaration of intent to make public its battery technology patents.
These are not instances of mere philanthropy, but examples of doing business in a way that creates smart strategic advantage while at the same time delivering public value. They show that a new world is possible: that of a corporation which delivers shareholder profits but not at the cost of stakeholders.
First published in the Guardian Sustainable Business blog on 31st December 2015.