UNO April 2014

Political cost and economic and social profitability



Many UNO readers probably do not know Rex Tillerson. He is the CEO of Exxon Mobil Corporation, one of the leading and most profitable oil and gas companies in the world, with a market value of USD 417 billion and exploration and production operations throughout the world. Mr. Tillerson himself fell victim of the NIMBY syndrome: “Not in my backyard” on February, when he opposed, during a neighborhood council in the town of Texas where he lives, installing a water tower whose operation was close related to an extraction operation of shale gas, a rather important business on Exxon’s portfolio. Some years ago, in an interview for the Fortune magazine, Mr. Tillerson said that while their operations were generally well received abroad as it entailed economic and social development, in the U.S. they had to face an opposition he could not understand.

This fact reflects how sensitive community relations are for gas, oil and other natural resources operators. It also shows how difficult it is to deal with micromanagement and fragmentation situations when trying to obtain administrative authorizations, where the political cost of the decisions determines whether projects that will greatly impact the development of a specific community will be ultimately implemented. But leaving this episode aside, I would like to go far beyond.

Firstly, both the sector and the industry should be taken into account, as any company that exploits natural resources in any form (whether mineral, solar, wind or other, more or less environmentally friendly) has a high impact on the social environment on which it operates, although its scope might differ. However, they are all expected to show the same zeal when managing their facilities, and often –almost always– they do so well above the required level.

Any company that exploits natural resources in any form has a high impact on the social environment on which it operates

Over the years, business have learned to see this requirement as a competitive advantage in the field of business reputation, to value their operations with authorities and institutions, to demand logical and reasonable considerations for their social and economic contribution.

Many companies decided –when facing this debate– to favor private interest in detriment of public one. Others decided to hide behind an industry whose firmness regarding the defense of certain arguments was weak and unconvincing, a common issue in business organizations where the general will acts as a counterweights to determination and resolute action.

This is a race to the bottom in which long-term planning has tangible and concrete benefits

Secondly, there is the eternal dilemma of dealing with political authorities. It is the pressure exerted by the companies to raise the political cost of the decision, but also their ability to detect other agenda items that may act as a bargaining chip.

There is an open, global debate regarding the limits of public and private interest. The legitimacy of the state, when defending the general and social interest of the population, has to face companies that defend a modus operandi which promotes social and economic development. In many occasions, there is a common ground, reasonable and sensible, where the opposition of small groups sometimes works against the aforementioned position. That is the path to be explored, which requires an understanding of the position of both parties. It also calls for explanations by both sides, something lacking when we act hastily and urgently.

011Finally, and in addition to the work of the media as a social control organ for businessmen and businesses, we can find the public opinion. Marches and demonstrations in the past, and social networks nowadays, act as an alarm or concern amplifier of the population worries, tensing, in many occasions in an irrational manner, public debate and entailing undesired actions.
The casuistry that a natural resources business has to face when trying to implement a project is complex and varied. There is no common manual of procedures. The main point is to perfectly understand the interests and position of all interested parties (communities, investors, government, politicians and employees) and know how to properly equalize their needs in order to obtain a coherent and logical strategy, avoiding any irreparable damage to its reputation.

Similarly, the analysis of the facts must be objective and leave all emotions aside. External expertise facilitates this task, because in many occasions the implication of businesses or political actors in certain projects is disproportionate, hindering the rational view of the situation. We tend to magnify events or ignore situations that definitely pose a critical risk to the process.

Finally, it should be noted that this is a long-distance race in which long-term planning has tangible and concrete benefits. This is not a scenario in which short-term planning or media games can be successful. There might be some success in terms of perceived image, but not regarding established reputation.


Juan Rivera
Partner and Managing Director of LLORENTE & CUENCA in Mexico
Mr. Rivera is Partner and Managing Director of LLORENTE & CUENCA in Mexico. During his over 20-year-experience he has advised more than 120 companies in the field of corporate and financial communication strategies, whether merger or acquisition processes, initial public offerings or corporate restructuring. He started his career in IBM and held many different positions in a communication consultancy American multinational company. Before joining LLORENTE & CUENCA, he was the Director of Communication and Corporate Affairs in a financial institution. He is graduated in Communication and completed his training with a program of Corporate Communication and in Business Administration and Management in IESE. @jriverallyc

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