At GE, It's Not Easy Being Green

During a time of increasing concern over environmental degradation, many companies find themselves facing a difficult challenge: What role should they play as stewards of the environment? After all, they rely on natural resources for everything from energy to raw materials, so it seems they have a vested interest in the long-term health of the ecosystem. But, if they should play a role, the crux of the issue is to what extent they should utilize shareholder money.

For a multinational company like General Electric, it's a decades-old dilemma, and one that's been particularly vexing for its current CEO Jeff Immelt since he took the baton from Jack Welch in 2001. Going "green," at least at GE, has been anything but easy, but for reasons that might surprise you. The real challenge, so it seems, lies more in the communication than the implementation of "green" practices. And GE's experience could serve as a lesson for business leaders facing a similar dilemma.

GE's LEAP engines, which the company claims will provide a 15% reduction in fuel consumption and CO2 emissions versus today's engines. Source: Safran.

A controversial conundrum
On the surface, the debate over the environment seems to boil down to the bottom line. In supporting environmental causes, are companies doing what's ultimately in the best interests of the owners of that business -- i.e., the shareholders?

Of course, in the modern-day business world that's an incredibly difficult question to answer, because of the complexity and geographical reach of international companies. And, complexity aside, it's not clear this is the main issue that truly rankles investors.

An interesting example occurred recently when tech giant Apple took a bold stance during its shareholder meeting on the dispute over using capital for conservation efforts. CEO Tim Cook claimed that when it comes to things like the environment, it doesn't boil down to "the bloody ROI." In other words, if Apple chooses to spend time and money on environmental causes, there's no guarantee of a return on that investment -- ROI -- for shareholders.

The statement set off a heated debate. Some outlets lauded Cook's response, while others countered by questioning his ability to raise the "bloody stock price."  

The latter argument, a critical one written by the reputable NYU finance professor Aswath Damodoran, is particularly interesting, because it questions Cook's "green" spending on several levels: lack of transparency, lack of clear economic benefit, and lack of priorities given a lull in "'major' new products" at Apple.

But ultimately, Damodoran -- a longtime Apple shareholder -- appears more concerned about Tim Cook's tactics than his stance on the environment or transparency. He concludes the post by highlighting three "troubling things" regarding Cook's leadership, the last of which reads as follows:

[T]here is a hint of Messiah complex in Tim Cook's answer, a mix of hubris and elitism that he not only knows what's best for society and how Apple can deliver that benefit, but he can do so, without letting Apple stockholders be privy to the details.

Damodoran's not thrilled with Cook's decisions, but ultimately he's as critical of his style and tone as much as his strategy. All three of his concerns relate to Cook's communication more than anything else. Further, shareholders had the opportunity to require Apple to up the ante on disclosure, and 97% voted against the resolution recently.

While this is one isolated incident, it speaks volumes about where we stand on the environmental discussion today in corporate America. As a hot-button issue, it requires management to walk a delicate tightrope, and environmentally conscious leaders need to be up for the task. For another case in point, look no further than General Electric's experience in this arena.

GE gets scorched for its Earth-first agenda
GE's environmental track record has been scrutinized for practically as long as the company's been around. When the legendary CEO Jack Welch stepped out of the spotlight, in fact, GE was in the middle of a high-octane battle with the EPA and the state of New York over a decades-old chemical spill in the Hudson River. It's an incident that the company's worked to resolve ever since, and an illustration of how Jeff Immelt tried to clean up GE's image upon taking the helm.

Like the cleanup of the Hudson, however, GE's "green" initiative turned into a monumental undertaking. If you look at the sequence of events, it's clear Immelt's been faced with a more daunting task than he imagined at the outset:

  • In May 2005, GE launched its "ecomagination" initiative to boost development of clean technologies and reduce the company's environmental footprint. Immelt proclaims that "things that are good for the environment are also good for business" at GE.
  • In October 2007, Time magazine named Immelt a "Hero of the Environment" for leading "the way toward a future of business-driven environmental advances."
  • In February 2009, President Obama named Immelt to Economic Recovery Advisory Board. Immelt would go on to become chairman of the board in January 2011 and pushed for a price on carbon to spark a green energy revolution. He also supported comprehensive energy reform.
  • In May 2011, Immelt did an about-face on his approach to discussing clean energy. Said Immelt at the time: "If I had one thing to do over again I would not have talked so much about green. ... Even though I believe in global warming and I believe in the science ... it just took on a connotation that was too elitist; it was too precious and it let opponents think that if you had a green initiative, you didn't care about jobs. I'm a businessman. That's all I care about, is jobs."

    He went on to note, "I'm kind of over the stage of arguing for a comprehensive energy policy. I'm back to keeping my head down and working."
  • Last month, GE, under pressure from the National Center for Public Policy Research, a minority shareholder and self-proclaimed conservative think tank, pledged not to pursue environmental projects for the sake of addressing climate change. GE revised its corporate policies, but a spokesperson from the company noted: "We clarify different policies all the time. ... We've always said that these projects have to make business sense."

GE's "Brilliant Turbine" which the company predicts will generate 5 percent more energy annually than its predecessor. Source: General Electric.

Is GE really backtracking?
Taking this public narrative at face value, GE has seemingly lost ground in its efforts to clean up its image. The dialogue with the media and shareholders reflects a company that's shied away from any "green" goals or environmentally conscious efforts.

But this couldn't be further from the truth. As my colleague Daniel Kline pointed out last week, GE's ecomagination efforts are more relevant today than ever before. They're central to the company's commitment to reducing its environmental impact, and according to GE they've generated more than $160 billion in revenue since 2005. GE's spent $12 billion on the initiative to date and recently committed to spending an additional $10 billion by 2020. At the same time, the company claims it's one of their "most successful cross-company business initiatives" that's helped GE reduce greenhouse gas emissions by 34% since 2004.

For GE, perception and reality provide a stark contrast. On the outside, the semantics, the tone, and the dialogue indicate the company's dramatically reversing course. Down in the trenches, however, real progress is being made, on the environmental front and on the bottom line.

Foolish takeaway
To shareholders in GE, including myself, the company's green ambitions appeared to throw a wrench in the company's game plan over the past decade, especially from a public and investor relations perspective. It's clear now that leadership did not have a thorough understanding of its shareholder base and how to connect its green initiatives with our objectives as investors.

GE's WattStation, which aims to reduce net CO2 generated by automotive transportation and lower operating costs. Source: General Electric.

If every single shareholder shared the same vision as management, there would be no need for a dialogue. But that's never the case, so leaders have to find an approach that resonates across the board. As GE and Apple prove, sometimes it's the style of communication that matters more than the precise effect on the bottom line.

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  • Report this Comment On March 15, 2014, at 4:03 PM, makelvin wrote:

    Immelt, "...I'm a businessman. That's all I care about, is jobs..."

    Hmm... I am not sure if some is a businessman, all they would care about is jobs. I thought a businessman primary concern is actually profit and cash flow. If it so happens that they need to create more jobs in order to do so, then so be it; but it is clearly not a typical businessman's primary objective.

  • Report this Comment On March 17, 2014, at 11:40 AM, TMFLomax wrote:

    This is an awesome article Isaac! It's a really interesting examination of GE's program over time. And a really great discussion of tactics and communication versus what is REALLY happening in the business.

    (It seems that a big thing we need to tackle is the prevailing and continued sense that green initiatives are always pretty "add-ons" that add no value to bottom lines. That's by no means a rule, and just like any other business strategy, they often are great for business OR may either be too long term to show the value right now, not executed well, or what have you.)

    One thing that jumps out at me is the aside about Apple and Cook, namely Damodoran's comment regarding the recent dust-up about environmental initiatives:

    <i>[T]here is a hint of Messiah complex in Tim Cook's answer, a mix of hubris and elitism that he not only knows what's best for society and how Apple can deliver that benefit, but he can do so, without letting Apple stockholders be privy to the details.</i>

    I'm pretty sure that it's easy to argue that Jobs had a bit of a "Messiah complex," a "mix of hubris and elitism" in his personality and how he led Apple.

    He "knew what's best for [consumers] and how Apple can deliver that benefit." (I replaced "society" with "consumers." Many of the products weren't proven in the marketplace when Jobs decided he would deliver them -- i.e., who the heck knew they wanted an iPod before they existed?)

    There have been plenty of things that Apple shareholders were "not privy on the details" on -- it was a pretty big deal that management and the board waited to disclose Jobs' health issues for as long as they did.

    I just find that interesting. I thought it was "non-Jobsian" that Cook talked about environmental initiatives in this way, since Jobs never seemed particularly interested in those issues at all. I find Damodoran's response fascinating though, since it seems that if it's Cook, it's somehow a terrible thing to act in a similar manner about something that is more difficult for traditional investors to grasp, I think.

    ...And it's probably not a pure positive -- from a shareholder point of view I would say that "my way or the highway" in management isn't always a great way to go about things. But, some companies do behave that way, and Apple under Jobs certainly did function that way.

    That's just something that jumped out at me. It's off the main thrust of the GE issue, which is so well-researched. Thanks for the great article, Isaac!

    Alyce

  • Report this Comment On March 26, 2014, at 6:43 PM, TMFBoomer wrote:

    Thanks Alyce!

    Re: the "add-ons" issue, I definitely agree. You have to study companies closely, but if you do their real motives become immediately obvious.

    With so many you can look at a slick corporate sustainability report and realize there's very little substance behind it. On the flip side, companies like Chipotle are out in the farmer's fields evaluating their supply chain and they don't bother putting together CSR reports.

    http://www.businessweek.com/articles/2014-03-06/how-does-chi...

    Shareholders and customers of companies like CMG don't need tons of labels and formal reporting because their efforts are communicated in other ways and they strive for transparency.

    Secondly, I'm with you on the Jobs comparison. I don't think anyone's a fan of the 'my way or the highway' approach, but CEOs of major companies don't sit there and give line-item detail on their dealings with specific suppliers or provide exhaustive insight into executives' health (as you mentioned). This 'green' issue does seem to strike a nerve, though. I guess in analysts' minds environmental efforts are too far-fetched unless the companies buying solar panels or something with a straightforward ROI payoff.

    Researching this article was interesting. Really pointed out the importance of recognizing who your audience or shareholders are. I guess you have to definitely factor in the media backlash too with companies like GE/Apple. And just reinforces the idea that "Communication IS Leadership" as Kip Tindell at The Container Store has said time and again.

    I appreciate the comment and insight.

    Isaac

    @TMFBoomer

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