By Former NRG Energy CEO David Crane
Last May, the Corporate Eco Forum awarded me its C.K. Prahalad Award for Global Sustainability Business Leadership. A few days ago, I got a very generous note from M.R. Rangaswami praising me for living up to the ideals of the Prahalad Award through the tumultuous events of the ensuing months. He asked me to consider sharing some post-award reflections with our membership. As it took courage for the CEF jury to give its prestigious award to the CEO of a coal-fired power company which—no matter what it hoped to be in the future—was at the time (and still is) one of the largest emitters of CO2 in the United States, I was only to willing to comply.
This is what I have to say.
Being CEO of a Fortune 250 company is a good gig that relatively few people get the chance to experience. It offers the occupant a healthy amount of power, money and stature—at least within the CEO’s chosen industry. To secure such a position, you need to be both lucky and ambitious. I was no exception on either count. For me, the key driver of my personal ambition was the power embedded within the position. Through my early career progression from lawyer to banker to businessman, I always wanted to be the decision maker. And while a CEO’s decision making power is by no means unfettered, it is a lot less constrained as a practical matter than, say, that of a politician or a university president.
But once you secure the position, the first question every CEO needs to ask herself is: what do you do with that power afforded you? Clearly you are supposed to exercise it for the good of your company and its immediate stakeholders, not for the enrichment of yourself and your coterie of lieutenants. But what about tapping the power of the office to take actions that advance the good of society more broadly? What about taking action that may lack an immediate rationale from a short term financial return perspective, but which are nonetheless vital to the company’s long-term business interests?
In our unfortunate era of cash-strapped and dysfunctional government, people are increasingly their focus on big business, expecting corporations not only to do less harm but also to do much more good. For a CEO, it’s a no brainer when your decisions produce short term financial benefit AND advance the greater good of society. Often though, justifying acting on behalf of the societal good requires the CEO to look over the parapet of her company’s immediate financial self-interests and apply a longer-term lens.
In those cases, the right thing for a CEO to do is almost certainly not the safest. And adding advocacy on top of action is the most treacherous path of all!
When I became CEO of NRG in December 2003, I was by no means a climate advocate. It was not that I was a denier or a skeptic, I was just relatively oblivious to the issue as I was singularly focused on giving NRG, foundering in post-Enron Chapter 11 at the time, its mojo back. Somewhat embarrassingly, I did not come around to the issue until 2006, when I could no longer avoid the fact that everything I held dear about my company’s fundamental amd unequivocally positive role was being called into question. As a major electricity provider, we were unquestionably playing a vital role in enabling modern society, but in the process of so doing, we had also undeniably become a major contributor to the melting of the earth.
At the time, the American coal fleet emitted more greenhouse gas than the entire anthropomorphic GHG emissions of all of the countries in the southern hemisphere. And to boot, the American power industry was in the process of trying to permit and build an additional 110 large-scale coal plants across the country while the Edison Electric Institute (the utility industry trade association) was advocating officially for “voluntary” controls on carbon emissions.
I became outspoken on the topic. It wasn’t simply that I didn’t want myself or my company, as matter of our core values, to be associated with the naked hypocrisy of such a “listen to what we say but don’t watch what we do” industry position. It was mainly because I thought the position would do irreparable harm to both my company and our industry in the long run.
Sure enough, a year or so later, a proud and powerful investor-owned utility, TXU, was pushed into private hands after igniting an environmental controversy in deeply conservative Texas by seeking to permit eleven new coal plants. John Wilder, TXU’s charismatic CEO and chief architect of the coal plan—who had been spectacularly successful over the previous couple years creating shareholder value at TXU—stepped down as part of the ongoing private transaction.
Shortly thereafter, I was invited by the premier coal company in the country to address its annual internal leadership meeting. The topic was governmental and public attitudes towards coal. I listened for a couple hours to a series of personal attacks against Al Gore and the other prominent climate advocates at the time and regurgitations of counterarguments (all which have been debunked in subsequent years): “The earth is not actually warming”; “America should not do anything because the Chinese never will”; “Renewables will always be ruinously expensive”; “The grid can’t function reliably with more than 20% renewables”; “Governments don’t care because the voters actually would prefer a warmer world;” etc.
When it was my time to speak, I reminded the coal guys that a great American utility, TXU, had been brought to its knees because it had built its future planning around the use of the very product that they produced. I suggested they might consider that a harbinger of things to come, and advised them to redirect their substantial spend on “clean coal” PR campaigns to invest in developing and deploying carbon capture technology—which in my opinion was the only way coal would enjoy a long-term future in the United States.
I was graciously thanked for my opinions…and never invited back.
Fast forward ten years to today and the American coal industry is flat on its back. Most of the companies that comprise the industry are in or near bankruptcy. Coal has experienced years of marginal cost pricing, continued dramatic loss in domestic market share, and dreams of an export market have been shattered. Their customer base—America’s aging coal-fired generating fleet—is under relentless economic and environmental pressure, with not a single new coal plant having commenced construction in more than half a decade. Last but not least, Wall Street, the ultimate arbiter of public company behavior, has virtually abandoned the sector—having completely lost faith in the coal value chain, from mine to breaker. Coal companies and coal IPPs are now trading at historically low valuations.
History never proves the alternative, but imagine a scenario where the coal industry leadership embraced the idea of a carbon-constrained world sooner and worked harder to innovate around decarbonized coal fired generation. It may not have worked in the end—but it couldn’t have ended up much worse than the predicament they are in now.
It may be too late for the coal industry, but it surely is not too late for the oil and natural gas industry. While the U.S. and global economy are still highly dependent on liquid fossil fuels, a tectonic directional shift away from fossil fuels is clearly underway. As the economic and social costs of runaway climate change grow, so too will pressure to stop combusting the liquid fuel carried as proven reserves on the balance sheets of the world’s oil and gas companies.
The oil and gas sector has strong and capable executives in its leadership positions. Yet, as far as I know, no oil and gas company has acknowledged the obvious point that it is anachronistic—and probably not in long-term shareholder interest—to continue to invest billions of dollars in proving up fuel reserves which, absent carbon capture, society ultimately is going to insist be left in the ground uncombusted.
In short, the long-term future of the oil and gas companies requires a “big pivot” (thank you Andrew Winston)—either commercially to a wholesale embrace of renewable energy, or technologically to decarbonized fossil fuel combustion.
The motto of Britain’s legendary Special Air Services (SAS) is “Who dares wins.” It is a call to results-oriented leadership meant to apply to every soldier, no matter their rank. Too many CEOs, following the desultory example set by the majority of our elected officials, think they are leading because they inhabit leadership positions. It is not the same thing. To be a leader, you actually must lead, which means staking out – on an important issue – a position which is in some way unconventional or uncomfortable and then pulling your people and your organization along in a quest to accomplish it.
For the vast majority of you reading this, you hold a leadership position at a company that is a big consumer of energy. Yet, in the hierarchical world of corporations, you can not on your own set your own BHAG for your company. Your CEO can. Today, after Paris, you have a clear opening to coax your CEO into a full-throated embrace of clean energy, as the new cornerstone of a comprehensive sustainability program. Clean energy offers a golden opportunity for your CEO to assert clear principled leadership, internally and externally, on an issue paramount to our society. And unlike for me, if they exert leadership from the consumer side, it is not likely to have job-threatening consequences, as energy procurement for most companies is not likely to incur the ire of a retrograde Board of Directors.
On the other hand, if you happen to work for a conventional energy producer, my example is not a helpful one. From John Wilder, being pushed out of TXU ten years ago for embracing coal too enthusiastically, to me, last year, arguably being fired as CEO of NRG for being too green, we have a public perception trend line heading in the wrong direction. But I think that over time, what happened to me will be perceived as an outlier in the irresistible and inexorable march of the energy sector towards clean energy.
Your counsel to your CEO should be just that: given where the world is going as dramatically illustrated by the unexpected success of COP21, next time a CEO or Board of Directors in the energy sector gets removed, it in all likelihood will be for being too weak on clean energy—not for being too strong.