04/19/2012 11:25 am ET Updated Jun 19, 2012

About Leadership: Environmental Issues

Some issues are specific to a particular company, a geographic region, or an industry sector. But there are issues that transcend all of these, and these are the issues around the environment. Clean air, clean water, land free of toxic chemicals, acceptable levels of noise -- these are issues of priority everywhere, as they must be for every company. Still, we can ask what it means to the corporation to have these as priority issues.

For a long time companies were not bound by any environmental legislation and behaved as if environmental protection was not their accountability. Then legislation began to be put in place, and corporate attitudes changed. Companies took a position that government -- through legislation and regulation -- decided how much pollution is acceptable, and the role of the corporation was to comply. Their position on the environment was, and in some corporations still is: we always comply with the law, wherever we operate.

But this position is flawed in several ways, and by the mid 1990s companies began to see this and acted accordingly. How is it flawed?

First, it allows different standards for operations in different parts of the world, depending on the local legislation. None of us would accept this in safety -- after all if we require hard hats and safety glasses in New York to carry out an operation in a chemical plant, we require the same protection in Belgium, Indonesia, or China. So how can we allow discharge of water from the same sort of plant to carry different levels of toxic materials? I have written elsewhere about cultural and moral relativism. Surely behaviour such as discharging toxic chemicals in one place but not in another is an issue of moral relativism; to my way of thinking it is unacceptable.

Second, it says that the environment is about compliance, and does not recognise that in fact it is a strategic issue. What do I mean by that? Strategic, because taking a leadership position can differentiate one company from another in an industry where the public finds it difficult to tell them apart (see Strategies for Decommoditisation). Strategic too because it affects how the company is regulated and treated by governments, what sort of protests it attracts, how its employees, customers, and shareholders feel about the company.

So there is an alternative to 'We always comply with the law.' And that is 'We need to continuously reduce our emissions.' BP embodied this as part of a simple statement on health safety and environmental goals: no accidents, no harm to people, no damage to the environment, from anything we do. You can't say it much simpler than that. And by saying that we need to continuously reduce our emissions, and acting on that, you translate the goal into company policy. Yes, it is a statement that is aspirational, and one that is doomed to fail -- as BP did in several spectacular ways. But aspiration is the only way to achieve spectacular things.

Now you might challenge my assertion that this is strategic, by countering that it is the easiest thing to copy -- if BP announces (as it did) that it will reduce its greenhouse gas emissions by 10%, Shell can do the same thing a few weeks later (as it did). So how can something that is so easily copied be strategic? Because you can't copy being first! The company that is on this path will always see the environmental vulnerabilities, and will, if it is confident, make statements about what it is going to do about them. It will allow civil society to judge whether it is fulfilling its commitments. Others will only be able to follow, and they will have to follow whether they like it or not. The first company makes front page news; the others don't make news at all. This is leadership.

There is an important footnote to environmental leadership, and it is about employee pride. Our employees are citizens. They are concerned about the natural environment just like other citizens are. They want to be proud of the company for which they work. A progressive stand on environmental issues is motivating for employees. Like you and me, they do not want to be on the defensive about the environment. Instead, when we take a stand on an issue such as climate change, our employees can and do talk to their friends and neighbours about what they are doing -- in their refinery, or chemical plant, or supermarket -- to deal with problems of climate change, local air quality, or clean fuels.

After BP announced its merger with Amoco, John Browne made a point of doing a number of town hall meetings at BP sites around the world to communicate directly with employees about the merger and its implications. At the first one, a refinery, the first question posed to him was this: BP has a very different position on climate change from Amoco. Can you reassure us that the merger is not going to affect this? John commented to me the following week that he thought that was interesting. It became more interesting when the same sort of question came up at every other town hall meeting he did. It was then that the impact on employee pride of our stance on climate change really hit home.

As the merger progressed, we did a lot of surveying of employee attitudes, with employees of both BP and Amoco heritage. When we asked employees to rank the issues that they felt were most important for the new company, BP heritage employees put 'Stance on Environmental Issues' as number one, whereas for Amoco heritage employees it was well down the list.

In my experience we struggle so much to build employee pride and loyalty in a big company, to make our employees feel proud to be part of the larger enterprise, beyond their own site or operation. Progressive leadership on issues of importance, like climate change, can have a huge impact.

But you have to believe it, you have to act on it, not just talk about it, always being sure that your words are more than backed up by actions.

And as BP and others learned (the hard way), environmental leadership is not easy to achieve, and even less easy to sustain. The NGOs that push our companies to higher standards of environmental performance are not satisfied with the steps we take. They always want more, sometimes more than we can give them. It can be very frustrating for the leadership of a company, feeling it has made a big step voluntarily, to get no thanks from Greenpeace but only a demand to do a lot more. Be prepared for this, and stay cool about it.

But there is another danger, and that is a consequence of the many, many things that we do. So a big company like BP acts affirmatively and progressively on climate change, but much of the benefit to corporate reputation and employee pride is lost because of a pipeline leak, an accident at a refinery or a catastrophic failure in deep sea drilling. Again there is a good response to this. The corporation takes a leadership position, and it needs to recognize that this leadership position in one area makes it more vulnerable to attack for its performance in another. The executive and the board need to understand that right up front, strengthening the rationale for always increasing standards everywhere. We take a lead on climate change, and this creates equity for our company and its brand. Let's all appreciate that a fatality in our operations, environmental damage, ethical issues, anything like this, can destroy corporate and brand equity. The higher we raise the bar for ourselves in one area, the higher it is elsewhere, and the easier to trip on the bar. Far from discouraging the bold stand, this recognition helps us to make the whole corporation stronger and more competitive. That BP lost sight of this in its business drive is not, to me, a failure of the strategic role it gave to the environment, but a failure to execute that strategy.

About Leadership:
About Leadership is a series of 52 columns on corporate leadership -- essential skills, leading teams, managing your career, the strategic and business practices to make a company and its leader distinctive from competitors. These columns will be of interest to people leading small and medium sized companies today, many of whom have not had much formal training in management skills and techniques; for the many people in big companies who aspire to senior management; and for anyone who thinks: Give me a hint, how can I do this better?