16th Mandeville Lecture 20 May 2010
‘Leading for Energy’
By Jeroen van der Veer, laureate
Houston (USA) was the place where I first became aware of Bernard Mandeville. Shell staff stationed there were expected to donate part of the yearly bonus to a good cause, in this case United Way, a large charity for needy Americans. Donating a relatively large sum would entitle to a place in the exclusive Mandeville list.
As “leading chief’ you could thus set a good example of what to do with your bonus: this is leadership, too, and it gives energy to others.
For that matter, Mandeville was little known in Houston: he had briefly visited the newborn USA and had something to do with social thinking. That he was born in Rotterdam and had studied at Leyden University …. I dare not think so.
As an evening student and alumnus of this university I feel honoured to present the Mandeville lecture this afternoon. My theme is: taking the lead in relation to energy. My thoughts are largely based on my Shell experience. An essential aspect of leadership is its power to give mental energy to followers. And then, in Shell, taking the lead for energy of course also provides material energy to the consumer.
Is there a universal recipe of leadership in every situation? This would be ideal for students; just read the one book and that is that. But no, leading is situation-bound. The definitive book on why people acknowledge and are willing to follow someone as a leader, will be found wanting for ever. To me it is clear, however, that you can learn to lead. Examples or role models may help, but be aware that 1 to 1 copying often fails to do the trick. Your style of leading should fit with your personality. Those under your leadership will immediately sense any misfit.
In short, leading is situation- and individual-bound. This is why I first will go into the energy situation in today’s world and next move on to what did the trick for me as leader of Shell. In passing I will cite some cries from the heart often based on professional irritations.
The world’s future energy situation is complex and multi-faceted. Still it is important to concisely and clearly communicate the key messages. Which often is an art in itself.
Shell’s scenario writers have managed to put these key messages in clear words; the essence is summarized in what we call ‘The three hard truths’. In just a few words: the world population will grow and so will their standards of life, resulting in much higher demand of energy. CO2 emissions will consequently increase, too, which requires action. Another truth: conventional oil and gas supplies cannot meet the demands, so new, sustainable sources of energy need to be developed.
Between now and 2050 energy consumption worldwide will double. A population growth from over six to over nine milliard [billion ?] people is foreseen, as well as greater personal prosperity for many of them. This means higher energy consumption per head, in spite of the predicted acceleration in energy savings.
Does the energy future consist of oil, gas, coal, nuclear, wind, solar, bio fuels or of a source still unknown? The answer is: ‘all’. However, the energy mix will differ per situation, often per country. Bio fuels are a logical option for the Brazilians. Nuclear energy fits the French, which have hardly any oil or gas under their feet. Solar energy will pay its way in sun-drenched regions. The Russians and Iranians abound in gas.
The mix is often determined by a weigh off between one’s own available sources of energy, security of supply, consequences for the environment and, last but not least, economics. Decision makers, however, often underestimate how technology may take unexpected turns.
As a nice example, not so long ago predictions saw a great shortage of natural gas in the USA, requiring huge imports. However, the picture looks quite different now after the unexpectedly fast development of “tight gas”. Such aspects differ among countries and therefore the optimal energy mix largely differs among countries.
I used to get irritated if Shell was said to determine energy mixes or should do so. This is not true; it is rather the authorities, preferably on a global level, who should decide on the energy mix. For they are the ones who may grant or refuse permits for e.g. nuclear plants, may impose heavy duties on gasoline or subsidize bio fuels and wind energy. Still, companies like Shell have a task here. They can provide insight into remaining volumes of oil and gas; possibilities to capture and store CO2; and the functioning of a CO2 trade system. At the end of the day, however, it is the governments that decide on the type of energy mix.
Others will say: “Please Shell, take your hands off oil and gas and put all your money and knowledge in the development of sustainable energy.” I believe this is not done and even is irresponsible.
Imagine that Shell and others should abandon oil and gas. Energy prices would quickly soar because apart from Brazilian ethanol, which is made from sugar cane, all sustainable sources of energy are currently much more expensive than the now available sources, even after discounting a high CO2 levy, let’s say some 50 euros per ton.
Moreover, other side effects of sustainable energy will become prominent; none of the sources of energy is free of disadvantages. For example, the first-generation bio fuels may well enter competition with the food chain.
Alternatively, others might leap into the vacuum left by Shell. There is no guarantee that these ‘others’ would be operating as conscientiously as Shell. And then, the shareholders, among whom many pension funds, would be in for a nasty surprise if Shell were to abandon oil and gas all of a sudden.
In other words: anticipating the disadvantages of energy sources is a good thing. However, singly steering a different course while the demand for oil and gas is still growing would seem quite naïve.
CO2 emission presents a difficult and complex problem. While politicians advocate short-term reductions, we still see coal-fuelled power plants being built. This is why the policy goals of 20 or even 30 per cent CO2 reduction in 2020 will not be reached.
I don’t yet have a cheap solution in mind, except energy savings.
Saving energy will help, is important therefore, but does in itself not lead to new technology that provides for new, affordable and sustainable sources of energy. If people reach higher standards of living, they may be able to reduce energy consumption, although this only holds true for the added consumption. Their total consumption still will increase!
Here, too, Shell may help to gain insight into the handling of CO2 and the best and economical techniques to this end. Currently we hear quite conflicting voices on new energy techniques. At times I cannot be but amazed at what is put forward. For example, the CO2 performance of oil sands is not at all too bad in comparison to other energy sources when considering the whole ‘well to wheel’ chain, i.e. from winning to consumption.
Another example: buying a smaller car equipped with a modern gasoline, and certainly a modern diesel engine, is really of much greater help in reducing CO2 emission than purchasing a heavy hybrid car.
What is the best avenue to explore when it comes to CO2 and the climate? In any case we should continue with conferences such as the one held in Copenhagen last December. These meetings are essential to achieve international coordination, for CO2 is not a local problem. In addition, CO2 cap and trade systems are as effective as long-term strict standards for energy savings, large-scale CO2 storage and more research into commercial options. Besides, we should develop more technology to produce sustainable energy without continuous subsidizing.
Before moving on to “leading” I would like to touch upon a separate issue: is there still enough oil and gas down there or are supplies running to an end? Both are true!
How come? ‘Easy’ oil or gas, think of Groningen gas, is running out. Nonetheless there are still huge supplies of ‘unconventional’ oil or gas: perhaps even for hundreds of years counting the present use. We will need to develop a great deal of new technology to be able to exploit these unconventional reserves technically and economically. And then, we must see to it that the costs of dealing with the environmental or social aspects of tight oil or gas will not run out of hand.
You get it, we’re talking about a paradise for capable engineers and economists.
The more difficult the winning of oil and gas, the higher the financial investments and numbers of necessary brain cells per barrel or cubic metre. Companies like Shell consequently will become even more capital and knowledge intensive than they are now. Therefore, for companies to be successful they must be leading in technology and being able to carry out large and complex projects. Another essential requirement is good performance on safety, environmental and social aspects. Oil companies are operating in a glass house, being watched and talked about by the entire world.
After this present and future exploration of energy I will now turn to leadership. As I said earlier, Leadership is situation-bound. Managing Shell, for example, is largely a matter of long-term technology, foot-print thinking and strong financial management. The financial balance provides for the simultaneous running of many projects each amounting to milliards [billions ?] of euros. Shell in this respect is quite different from Unilever, for example, of which I am non-executive director.
Against this background and situation I will be pleased to share with you six leadership concepts that worked out well for me.
1. From A to B
What am I referring to? Your company or department finds itself in situation A and intends to go to B. The key strategy in this situation: first make clear why A does not suffice, then what B looks like and why it is better than A. This is not enough, though, you should have next steps at hand, too. I will expand on this.
Some leaders proceed to B right away -- the ‘where to go’ -- sometimes even before they started their jobs. This will not do for the followers. They will wonder: does this person have any idea about how things are done here; does he grasp our situation? For many this is a reason to pursue a wait-and-see attitude.
It would seem a better policy to define situation A right from the start. This will bring you as a leader into contact with your staff and will gain you credibility. Don’t be too positive, however, as people may soon tend to think: “This new chief fails to see the problems”. Or: “He/she walks with the head in the clouds”.
On the other hand, don’t be too negative either. The common reaction may be: “This new chief has no respect for us and our company; is bound to close it down, sell or opt for another unreasonable alternative”.
Nevertheless, if you as leader should manage to define the current situation for what it’s worth, and next lay bare its shortcomings, people will take up start positions to follow you on the way to B.
Sketching ‘Situation B’ is not a mere PowerPoint presentation. It requires clear, straightforward and also personal communication, as well as an ‘elevator speech’ clarifying where we are up to. Let me assure you that Shell in the Netherlands is housed in low-rise buildings.
You must also tell why B is better. In the case of Shell for example this led to the relatively simple credo: “more upstream and profitable downstream”. Which goes to say that finding and developing oil and gas fields requires most capital and that we will only actively pursue refinery, chemicals and marketing domains that will yield robust profits.
And then, as leader you must definitely have defined the ‘next steps’. Thus you will be able to communicate in concrete terms what will be done differently tomorrow. Failing to do so will have people sitting on the fence with none or too slow progress to B.
I find that A is usually handled well, but communication about B is often far from clear too complicated and many leaders fail when it comes to the next steps.
2. Job tenure
A young mechanical engineer, I first worked in Shell as a process technologist, then as a maintenance engineer and next in sales -- in energy saving, even that far back. Then I landed a Supply and Economics job in our Curacao refinery plant. All this within the span of seven years. Fantastic for my own development but inefficient for the company.
Later I met line managers who didn’t shrink back from staying in a position for two years or so because they had ‘high potential’. They needed to reach the top in no time; at least this is how they viewed things themselves. These managers often did not progress beyond making plans. Not seldom it occurred to me that presenting these plans to the bosses was their idea of an end product, rather than what they had managed to come up with in the field of concrete change. That was left in the care of their successors.
So the general opinion of people working for these ‘job hoppers’ was the following: “They are of no use to us, are bound to be leaving soon”.
On top of this we saw the recruitment of the mba’s. Redesigning organisation charts and the selling or purchasing of company units rather seemed to be their main tasks. But what about reinforcing work processes? -- don’t mention it.
A limited number of mba’s is useful, nevertheless, but what a company really needs is managers who fully understand the concept of operational excellence and are able to improve on it. A truth that had escaped many of us at the beginning of this century.
My solution was rather simple. Right after my appointment as CEO I issued the following rule: ‘Leaders preferably stick to their posts for four to six years’. Shell’s average at the time was 2 to 2.5 years.
The ‘only-planning high potentials’ have to own up when everyone sticks longer to their posts, whereas those who achieve changes are the ones that gain the respect of their people. Those persons really deserve their bonuses. Longer job tenure means that eventually a different type of individuals will find their way to the top. All in all, longer job tenure is a leverage tool with great impact. Still, the process must be monitored top-down to get the desired result.
What is ESSA? It’s an acronym that stands for Eliminate, Simplify, Standardise and Automatize.
If the leader of a large company lets things go, the organisation will continue to make itself more complex. From my student days I recall that a professor gave an example of a group of company managers confined without any assignment or goal to a beautiful castle with a golf course. After two days they were so busy with anything and everything that they had to cancel their rounds of golf.
Just a simple remark like “Send me a copy” adds complexity to the process. Many top leaders underestimate the amounts of time spent on questions from the management – though often only asked casually. My snippet of wisdom is that good leaders lead by not stopping to eliminate. The focus must be on the company itself and the clients; it’s no use to waste time on non-essential activities.
An example of something that made me feel irritated was the abundance of Shell magazines. Supposedly these were produced to enhance client contacts, but I suspect they rather served as a vehicle for the boss to show off his picture to his colleagues, friends and family…
One more example: a company’s multitude of development or improvement programmes. Usually these go up a blind alley and should have been stopped far earlier. However, stopping is a top-down process seeing that not many people will end their jobs or activities of their own accord.
4. Leaders must lead
Big companies have matured through long-term growth phases. These phases might have seen quite a few managers floating up who actually do little more than facilitating. True, facilitating often fits well in the overall process of getting to B, but has minimal added value when it comes to speeding up or tighten the change processes.
Particularly when leaders aim at a swift change of course they must show true leadership by organising the process with decisiveness, speed and efficacy. There is no room for endless tolerance of those who slow down things.
And then, I believe that the shop floor rather prefers potent leadership than a slow tagging along with external change factors. Notably these days of economic crisis offer opportunities for more active leaders to energetically adapt the company to the new reality and to achieve sharper competitiveness. The adagio runs as follows: “Never lose the chances offered by a fine crisis”.
My next point is that leaders are supposed to lead by exemplary behaviour. Good exemplary behaviour works is bound to reinforce the troops’ morale. Fatal to a company’s morale and workers’ willingness to comply with changes is the image of a leader who sees himself as ‘special’ and therefore feels entitled to unnecessary privileges.
I often told my people: “House wine usually will do. Do not book special hotel rooms and take lunch in the staff restaurant when you can”.
5. ‘Me first’ or the ‘Enterprise first’
Often you may hear people say: “This is great for the company”. So far so good. However, on following them for a longer time you may find that some them in fact are more concerned with ‘me first’. Their individual career or personal influence is more important to them than is the enterprise they work in.
The ‘me first’ person is not always easily recognisable. Furthermore, some may have had a relatively more ‘enterprise first’ and teamwork oriented attitude when they were younger, but may have gradually developed a ‘me first’ mind-set. The why and how is of interest to psychologists but fortunately the Shell selection system has quite a good eye for ‘enterprise first’ minded individuals, albeit that perfection is still lacking. This is my message: you would do well to carefully consider whether job applicants are ‘enterprise first’ persons, particularly in top-level appointments.
6. Direct communication
Looking back at my years as CEO amidst far-reaching changes in the Shell organisation and culture, sending personal short email letters to all employees proved successful.
Yearly I wrote some eight letters, each on a single subject. For example on working more safely; how can Shell grow; quarterly or annual results; and of course the economic crisis and the strongly fluctuating oil price. These letters were just one page long.
“Is this something special?” you may wonder. Well, when I started my career, this was really a special feat. From various quarters I was advised that it was impossible to write short letters that would be effective for someone from Asia, Texas, Nigeria or Rotterdam at the same time: the cultures were said to be too diverse to guarantee the message was received well.
Or I was told that direct communication from the CEO to the shop floor would weaken the roles of the managers in the intermediate levels.
Fortunately it turned out that the employees highly valued these self-composed letters, not least by their genuine authenticity and the fact that they were put in my own Dutch-English words and tended to be rather straightforward. Good managers used my letters to communicate to their own staff any additional information about the situation in a specific company unit.
In short, it was a success: direct communication from the top raises involvement, focus and the sense of ‘we’.
In conclusion: Taking the lead for energy
We may conclude that we need more energy, physically and mentally. Earlier I have shown that the world’s energy supply will grow in size and will become more complex from both an environmental and a social point of view. This means that we are facing a permanent change that must be led by focussing on the long-term policy and putting the company interest first.
Being highly complex and internationally oriented, this challenge can only be met through strong team efforts.
Let’s not forget, however, that new technology will bring more opportunity for change than many of us now realise: technology often is your friend of old. Nevertheless, many people today fear the future and developments in technology – without any reason, I would say.
Taking the lead means having an eye for the shifting situation your company or institution finds itself in. The leader will next convince and inspire his staff and other stakeholders by telling them which way to go from A to B. All important here is recounting the deeds that fit the new reality, rather than coming up with tall stories.
Ladies and gentlemen, how would Bernard Mandeville have appreciated our world? He was a philosopher, political economist and satirist. And held up, among other things, the principle that satisfying self-indulgence is an essential condition for growing economic prosperity.
This view was to land him in direct confrontation with the Church hierarchy in 18th-century Great Britain.
Mandeville also was the originator of the concept of shared labour as a basis for prosperity; individuals who each produce part of a clockwork together make a better product than someone who single-handedly performs all steps.
Later it was Adam Smith, in his The Wealth of Nations, who further elaborated on this shared labour philosophy, agreeing with Mandeville’s stand that collective action of individuals would lead to economic growth.
Even 21st-century top managers still fit in the economic model of shared labour: in my view they are an integral part of the group they are heading, and should not assume a separate or even higher position.
A leader’s role, then, is to enable his company, institution or organisation to adapt ways of thinking and perceptions to the ever changing facts and influences. This can only be achieved with the support of all people around him or her.
This, ladies and gentlemen, is to me the essence of “taking the lead for energy”.
Thank you for your attention.