Introduction
Today’s column brings together the manifest debt deformations of ExxonMobil [its zombification] on the one hand; and other deformations more directly related to the firm’s culture, its management performance, social and cultural interactions in the wider society, and consequently its reputational risk exposure. Adding its classic zombie debt status [as defined in finance, business, and economics] to its other recognized deformations, produces synergies, hence my designation of ExxonMobil as a zombie plus corporation. The addition of the two features compounds the negative effects of being a highly leveraged corporation and therefore immediately rules out such standard solutions as bailouts. The question that this now poses is: can Guyana’s petroleum sector sustain a turnaround of this compounded outcome?
At this juncture, two observations readily come to mind. One is that, the other deformations indicated above seem to focus on reputational risk as applied in business. And, second, they appear similarly, to be heavily centred on ExxonMobil’s response to the global energy transition as a priority. There remain several alarms which are raised at the corporation’s seeming wanton damage to the environment. These arise from the very essence of its operations; namely, producing fossil fuels.
Readers will recall that in my column of March 13, I had pointedly observed ExxonMobil has been, justifiably in my opinion, quite brutally chastised in the social and mainstream media as representing possibly the worst and ugliest of ‘big oil global robber barons” when that grouping of firms constituted the dominant players in the world’s oil and gas [energy] market. This held true whether considered separately or taken collectively as the infamous big oil grouping of oil multinationals.
While that grouping remains today nowhere as commanding, as it was decades ago, the legacies of big oil excesses continue to haunt ExxonMobil going forward Further, the detrimental role ExxonMobil is playing in global efforts to constrain the exponentially rising negative impacts of man-made global warming perhaps best illustrates this negativism. I’ll discuss some of these issues in today’s and next week’s column as I treat with ExxonMobil as a zombie plus corporation.
In what follows today, I briefly highlight three reputational episodes I have previously raised in regard to ExxonMobil. I do this to illustrate the range and variety of reputational episodes or risks involving ExxonMobil, outside of the main area of focus for its reputational risks; which as noted above is its dealings with the global energy transition. This will be directly addressed in detail in next week’s column.
Reputational episodes
Based on historical experiences there are many excellent reasons why reputational risk is considered the “business risk above all risks.” The reason for this is that, such risks can appear literally from anywhere, at any time, and can destroy any business. ExxonMobil’s business risks while centred on its performance in regard to the global energy transition affects other areas as well. In this section I draw brief attention to four recent reputational episodes, which I have previously flagged. The frequency of these episodes signals to my mind an aura of reputational frailty that surrounds the corporation today.
The first episode comes from my February 13 column’s reference to the activist assault on ExxonMobil’s Board of Directors. Writing under the compelling Header: “Exxon in Crisis, Angry Shareholders are Rebelling”, Matt Egan [CNN] had asserted, “for decades ExxonMobil [was] an unstoppable machine and the envy of the oil industry.” By December 2020 “that machine has broken down” Activists [Engine 1, Church of England, D E Shaw, and the California Teachers Retirement System] fought for changes to the composition of the Board of Directors. This effort raised a hornet’s nest of alarms about the future of ExxonMobil going forward.
The second episode I reference here is the August 2020 removal of ExxonMobil as a component business in the computation of the Dow Jones stock index. This occurred after more than nine decades in that role. Not surprisingly there are investors who would ponder on the question, why now? The third episode I reference here is similar; that is, the 2021 reporting of the Fortune 500. There it is reported that ExxonMobil fell seven places from Number 3 to Number 10.
ExxonMobil’s Guidance
It would be useful for readers if at this juncture I report on ExxonMobil’s management guidance to its shareholders and stakeholders on the role management of reputational risk performs in the business. For the sake of complete accuracy, I reproduce below, the firm’s published guidance on February 5 2022.
ExxonMobil: Guidance on Reputation
“Our reputation is an important corporate asset. Factors that could have a negative impact on our reputation include an operating incident or significant cybersecurity disruption; changes in consumer views concerning our products; a perception by investors or others that the Corporation is making insufficient progress with respect to our ambition to lead in the energy transition, or that pursuit of this ambition may result in allocation of capital to investments with reduced returns; and other adverse events such as those described in this document. Negative impacts on our reputation could in turn make it more difficult for us to compete successfully for new opportunities, obtain necessary regulatory approvals, obtain financing, attract talent, or could reduce consumer demand for our branded products. ExxonMobil’s reputation may also be harmed by events which negatively affect the image of our industry as a whole.”
Source: ExxonMobil, February, 2022
Conclusion
Next week I continue this interrogation of ExxonMobil.
