Business Insight Zone

In February, Fast Company ran a special section on oil companies and their efforts at sustainability. You can find an overview and links to various sections here:

Sensible Investing: Oil

The approach of the section puts me in mind of something I’ve been thinking about a lot lately, namely how business evolves to incorporate elements that were previously regarded as externalities. Sometimes it happens because of new regulation, sometimes in response to the concerns of customers, sometimes in response to events beyond any one company’s control. Some historical examples:

• Two hundred years ago, as the Industrial Revolution got underway, workers in Britain, the United States, and other industrializing countries had little legal protection from accidents on the job. If you lost a finger or a hand tending a loom, those were the breaks. Employers would be concerned about this only insofar as they needed to keep a supply of workers close to hand, or else only out of the goodness of their hearts.

  

• A century ago, the U.S. meatpacking industry underwent huge upheaval after Upton Sinclair published The Jungle, which exposed the industry’s health and safety shortcomings. The Pure Food and Drug Act forced meatpackers like Armour and Swift, along with companies in related industries, to come to grips with the demands of food safety — even when that meant large outlays of money.
• In the postwar boom of the 1950s, many major U.S. employers started offering health insurance and similar benefits as a way of attracting workers. What had once been an externality well outside employers’ purview became a key selling point in recruiting new employees.
• During the 1980s, anti-Apartheid activists forced many U.S.-based companies like Coca-Cola to rethink, revamp, or even retract their activities in South Africa, despite the money that the companies were making there. Coke and other companies were forced to bring political externalities into their calculations about how to do business in a major overseas market.
• Since the rise of the World Wide Web in the early 1990s, more companies than ever are offering telecommuting and other flexible work-life arrangements to attract and retain the best talent. In the old days, a company could afford to ignore issues like this, and indeed to insist that workers pattern their time around an 8-to-5 schedule. That seems to be decreasingly true.

Today, of course, the major issue is climate change. For now, companies like Exxon Mobil continue to focus on pumping hydrocarbons out of the ground, convinced — maybe rightly — that oil & gas will continue to be the world’s key sources of energy for decades to come. Other oil majors, like Shell, are taking substantial steps to reduce their carbon footprints now, since they figure that some sort of regulation on carbon (a tax, a cap-and-trade system, or the like) is probably inevitable.

Once upon a time, the key challenges of life were getting enough to eat, avoiding illness or injury, and raising one’s children to adulthood. These days, most of these basic needs are pretty well met for Americans and their economic peers. Yet the world continues to face major problems, including one — climate change — that could be The Problem for this century and beyond.

No doubt different companies and different governments will take varied approaches to bringing these new externalities inside companies’ circle of concern. But however it unfolds, the whole process can’t fail to be interesting.