In the mid-1980s, the management team at oil giant Exxon stood at a critical crossroads. The company’s managers faced a decision that would alter the course of human history and impact millions. Given the cultural and political climate in which they found themselves, they likely made the most logical decision. To understand why the company took their destructive path, let’s take a look at the culture in which they made this decision.
In 1977, one of Exxon’s top scientific advisors, James Black, warned the company’s leaders that CO2 emissions from burning fossil fuels were causing the earth’s climate system to change. Black explained that this phenomenon threatened the health and welfare of every human on the planet.
As an extensive InsideClimate News investigation revealed, the company heeded this warning and took immediate action, assembling a team to study the potential impacts of fossil fuel emissions. Exxon hired experts from laboratories around the world, worked closely with the newly formed U.S. Department of Energy, and participated in meetings organized in part by the Carter administration.
In 1978, one of the scientists involved, Harold Weinberg, recommended the company initiate a “‘CO2 in the Atmosphere’ R&D program” suggesting that, “This may be the kind of opportunity we are looking for to have Exxon technology, management, and leadership resources put into the context of a project aimed at benefitting mankind.” From 1979 to 1982, Exxon conducted carbon emissions research aboard the Esso Atlantic tanker, which had been outfitted for carbon dioxide research capabilities.
In 1982 another scientist, Roger Cohen, reported to Exxon executives:
Over the past several years a clear scientific consensus has emerged [that]…doubling of atmospheric CO2 from its pre-industrial revolution value would result in an average global temperature rise of (3.0 ± 1.5)°C…there is unanimous agreement in the scientific community that a temperature increase of this magnitude would bring about significant changes in the earth’s climate…the [scenario] will later produce effects which will indeed be catastrophic (at least for a substantial fraction of the earth’s population).
Cohen also said that it was Exxon’s “ethical responsibility is to permit the publication of our research in the scientific literature…to do otherwise would be a breach of Exxon’s public position and ethical credo on honesty and integrity.”
Exxon’s executives and R&D units began researching ways of making oil consumption more efficient and started to evaluate alternative energy sources like solar. Chairman Clifton Garvin publicly expressed his support for a more diverse energy market and in 1984 warned of the greenhouse effect. At this time, the oil industry and U.S. government were turning to Exxon for counsel on carbon emissions. The company was clearly committed to climate change research; its scientists and senior leadership appear to have had a genuine desire to confront the problem.
Many of the researchers were well-intentioned: according to his daughter, Black “believed that big science could save the world.” Senior leadership understood the reality of the situation and was envisioning a new future for the company that would focus on alternative fuels. Exxon was in an ideal position to lead on alternative energy, with the US government and American Petroleum Institute – a major trade group – all appearing to unite with the company.
But then, by 1989, Exxon had quietly tucked away their findings, dismantled the research teams and began diverting R&D money into publicly denying climate change. From this point on, Exxon pumped tens of millions of dollars into climate change denial movements and organizations. Even Roger Cohen, who had been so adamant about the devastating impacts of climate change, backpedaled and became an outspoken climate change denier.
The company would spend the next twenty-five years funding a vast network of climate denial groups that we see operating even today. In 2015, oil companies spent $114 million on combating action on climate change. ExxonMobil alone spent $27 million of that. The company set public understanding of climate change back decades. It cost the world the opportunity to mitigate climate change early on. The devastating consequences of this decision will harm countless lives and impact the planet for millennia.
What happened? What could have compelled Exxon’s management team to make such a sudden, drastic change in policy? What could have made such a destructive decision so appealing?
Certain cultural forces offer clues to what compelled the company to turn from a constructive future to the destructive path it is on today.
Two major shifts in business and economics were taking place around this time that likely played a significant role in Exxon’s decision-making process. One was a revolution in economic thinking that spread rapidly throughout the world and the other was a paradigmatic shift in the perceived role of business in society.
In the years following the Great Depression and World War II, Keynesian economic thought (developed by British economist John Maynard Keynes) dominated economic policy in the developed world. This theory, and the policies that were modeled on it, demanded the public sector play a significant role in the economy. This school of thought revolved around the common good, national pride, and civic responsibility. Economic actors – government, businesses, and consumers – had a sense of responsibility to the country and social welfare. Nixon, with a Democratic Congress, signed into law sweeping consumer protection bills, civil rights legislation, and occupational health and safety policy. In doing so he declared, “We are all Keynesians now.” Presidents Nixon and Carter were both dedicated to environmental protection. The former founded the Environmental Protection Agency while the latter put solar panels on the White House and supported new environmental policy.
But by the mid-1970s, Friedrich Hayek, Milton Friedman, and a group of economists affiliated with the University of Chicago had begun promoting a new economic school of thought, ideas that ultimately supplanted the Keynesian economic thought that had dominated the previous twenty-five years of policy. This new school of thought – the Chicago School, and now often associated with the general term “neoliberalism” – swept the globe. The rise of leaders like Margaret Thatcher, Ronald Reagan, Deng Xiaoping, and Augusto Pinochet in the late 70s and early 80s ushered in a new age of neoliberal economic policy. The simplicity of the theory, its emotional appeal, its seemingly rigorous economics, and its well-funded supporters helped spread the idea rapidly.
More than an economic policy, this new school of thought sought to shift hearts and minds. As Thatcher put it, “Economics are the method, but the object is to change the soul.” And the soul did change. Instead of the more civically oriented Keynesian philosophy that placed the common good as a central consideration of policy, this new neoliberal thought put the individual and business at the heart of consideration. This new philosophy dispelled with the idea of working to proactively better societal ills and in its place took the tempting notion that only looking out for oneself and family would ultimately benefit society.
The Chicago School economists also sought to shift the role of business in society. In an influential essay published in the New York Times, Milton Friedman argued that the only “social responsibility of business is to increase its profits.” This idea proved attractive to management theorists and executives and quickly spread throughout industry. Part of the appeal to management was that by tying executive compensation to share price, they could be lavishly rewarded with lucrative stocks and bonuses. In fact, during this period, executive compensation ballooned dramatically.
Management theorists, executives, academics, and the media promoted the idea that businesses have a legal obligation solely to maximize shareholder value. While businesses do not actually have any legal duty to maximize shareholder value, this myth took hold and has frequently been used to justify all manner of corporate decisions. We see this idea prominent in rhetoric from Exxon today. The company’s current CEO, Rex Tillerson, has said that his job is to “make quality investments for [ExxonMobil’s] shareholders,” and that his philosophy is “to make money.”
In the 1970s, amid the economic policies and environmental protection ethos of Nixon and Carter, in a political climate that placed common good as a central policy priority, and at a time in which the corporation was thought to have a responsibility to the well-being of society, Exxon management had many forces encouraging them to address climate change. It made sense to devote resources to confront the problem. Further, it would have been logical, in those years, to anticipate that carbon taxes were an imminent reality. Exxon had been working with the US government and was likely involved in conversations about imposing carbon taxes as a way to reduce emissions.
But when Carter left office, Exxon must have soon realized that Reagan was unlikely to support climate change research and impose a carbon tax. Considering the sizeable investment into their research and development, Exxon was not quite ready to pull the plug on their projects. So the company waited to see what the next administration would do. Would the global neoliberal revolution persist?
It did. When President George H. W. Bush took office, Exxon appears to have quickly realized that the future of US energy would remain oil. With a president who had personal investments and connections to the industry, Exxon had to make a decision, one that would go on to play a significant role in the future of climate change research.
By the mid-80s, management teams at Exxon were thoroughly enmeshed in this neoliberal way of thinking. They found themselves living in a culture in which top economic minds declared that the pursuit of one’s own wealth was beneficial and morally just. But Exxon had proof that their company, and the oil industry as a whole, was driving changes to the environment that would have catastrophic negative consequences for human health and the health of the planet.
Exxon had to make a definitive choice: work with the rest of the oil industry, launch a campaign to deny climate change, and align with governments unlikely to penalize carbon emissions; or, continue to lead in climate change research and alternative energy development. Managers likely saw the second option as gambling with the company’s survival. Should they risk the financial security of thousands of families of employees, or risk the financial, health, and future security of millions of other families? In the neoliberal paradigm, the company only had a responsibility to its own survival and wealth, it had no responsibility to the rest of society.
In this cultural context, the company’s leadership likely assumed that their competitors in the oil industry would not follow Exxon’s pursuit of climate change mitigation. It was, after all, only Exxon that had already invested so much time and money into research and development. Their competitors had nothing to gain from joining them in combating climate change and were also making decisions within this neoliberal paradigm. How could Exxon thrive as the only oil company investing heavily in a clean energy transition at a time when oil remained enormously profitable? How could they ensure that other oil companies would not undercut them? In fact, the American Petroleum Institute and other companies would go on to participate thoroughly in the climate denial campaigns.
Exxon management made the logical decision, one informed by this broader political and economic context. They chose the quick, certain returns of investments in oil. And to protect that investment, they did whatever necessary to prevent others from spreading awareness of climate change, which threatened to disrupt their business model. Had another economic policy predominated, had a Keynesian president still run the country, had there still been an expectation that corporations had a responsibility to their country and community, Exxon management likely would have made a very different choice.
Since Reagan, all subsequent US presidents have maintained the neoliberal ideology that likely played a significant role in Exxon’s decision. The company’s decision made logical and moral sense in the context of the Chicago School ideology of profit first, business first, and individual first. And this decision has paid off. Exxon has thrived in this environment. By abandoning climate research and instead focusing on oil and denial, they have become one of the largest, wealthiest corporations in the world. Their management teams have become personally wealthy and their share prices have provided stable, lucrative investments for countless investment funds. Given the political and economic climate then and now, they made the right choice. Given the actual climate?
The current administration has maintained the neoliberal mandate and the next likely will, too. As long as this ideology persists, that companies and individuals are only responsible for their own wealth and well-being, companies like ExxonMobil will continue operating with this way of thinking. And according to this ideology, denying climate change makes logical sense. Until that ideology changes, we are unlikely to see another era like that brief moment when an oil company almost led the world in a transformation to safe energy and a stable climate.