Water for thought

Lake Eyre tributary

Lake Eyre remains in a state of dry hibernation for years and then occasionally explodes with life after tributaries flow.  Birds somehow know when to take the long journey across deserts, inland, to feast on the bounties.  We humans have developed numerous analytical tools, supported by highly skilled individuals, so that we can predict months in advance whether or not Lake Eyre is likely to have water. But in the midst of all these frameworks and indicators, are we losing our intuition, our ‘common sense’?

Recent years of financial turmoil, have shown that predictions based on past trends have limitations.  As illustrated in a data points risk map published in the New York Times, risk is now so interconnected that it has become very risky to rely on data from single sources without thinking about how it all ties together.  And then it becomes very complex, and there will be many Unknowns.

In an article Beyond Petroleum, Why the CSR industry collaborates in creating the BP oil disaster, it is argued that “Placement on awards and rankings allows companies to keep up with their competitors and produce annual reports with shiny statistics and nice pictures. But they don’t bring us nearly as close as needed to building the low-carbon, sustainable economies of the future.“

I believe this is partly because ‘glossies’ provide a false sense of security, we think we are in control, that we can manage the future, we can manage risk. But we can only control little sections of very complex interconnected systems (and even that is often fanciful). Organisations can prosper by focusing more on thinking skills – what does the data mean and engaging in cross-sectoral discussions to get a more systemic picture of the environment in which they operate.  It is the ability to adapt and learn from a crisis that ensures the survival of species.  By focusing on developing intuition and diverse networks of thinkers, we can not only reduce the likelihood of disasters but we can improve our ability to recover and adapt beneficially.

Fools gold – watching the watchdogs

Boards maybe focusing on increasing diversity, driven partly by gender imbalance and a need to better represent shareholder diversity, but are those responsible for choosing expert panels listening to these lessons?

A new report by Oxfam concludes that expert panels in the oil and gas sectors are falling short on their ‘watch dog’ credentials.  Some lacked local representation and gender balance was not evident in several panels. Of more concern for expert watch dog credibility, the report found conflict of interest among panel members. They cite the example of Hunt Oil, ‘the company responsible for setting up the panel for the Peru LNG pipeline, violated its commitment that panelists not hold posts with companies engaged in the oil exploration and production industry.’

One response is Why bother, its just lip service to stakeholders and dealing with newcomers in expert panels is time consuming.  But I argue that there is value, it’s just not well quantified, if at all, in most bottom lines.

Prof. Witold Heinz of Wharton Business School has quantified the stakeholder bottom line in a recent study of gold mines, ‘The financial returns of stakeholder engagement”. He concludes that the value of the relationship with politicians and community members is worth twice as much as the value of the gold that the 26 mines ostensibly control’.

As the pressure increases to find minerals for high growth economies, or just to maintain infrastructure in developed economies, mining options are decreasing.  This in turn increases the power that stakeholders can yield over corporate bottom lines. So gold can be found in building relationships not just in the ground.

Wood vs coal?

Dominion Virginia Power, a subsidiary of Dominion (NYSE: D), is planning to convert three Virginia power stations from using coal to biomass.  While this has merit because it uses a renewable resource, trees, and the fuel switch would reduce nitrogen oxides, sulfur dioxide, mercury and emissions, and all of the stations would meet stringent new emissions standards established by the U.S. Environmental Protection Agency, is it a longer term Sustainable solution?  What are the consequences of transporting tons of biomass to the power plants? Have the impacts on other sectors, paper pulp, housing construction and so forth been considered? For example, the wood products that are going to feed the power stations could by turned into fertiliser to produce food.

Competition between food and energy is not going to be easily addressed. While public opinion supports renewable energy, exactly what are we sacrificing to achieve this outcome?  Will the public value using a bio-mass resource over a mineral resource if food shortages kick in?