Out-Law News 2 min. read

Lord Browne: future of energy industry depends on leaders 'learning from mistakes of the past'

Large energy companies should take the lead on action to tackle climate change, rather than wait for or even resist government intervention, according to Lord Browne of Madingley, the former chief executive of BP.

Speaking at a lecture that is part of the Horizon series run by Pinsent Masons, the law firm behind Out-Law.com, Lord Browne said that business leaders had to "learn from the mistakes of the past" ahead of this year's UN climate change conference in Paris. He said that the success of any international agreement on climate change would depend on "the support and cooperation of the energy sector".

"From the breakup of Standard Oil to climate change, and from transparency to human rights, regulation and oversight are too often seen as things to be avoided," said Lord Browne.

"That demonstrates an element of naivety, because the energy industry is a frequent beneficiary of other forms of government intervention, such as tax breaks. It is also a strategic mistake, because it is the sort of behaviour which encourages societies to think that we have something to hide. The opposite is in fact true: the energy industry should be proud of the contribution it makes to society," he said.

Lord Browne said the most successful firms in the future would be those that planned for the long term, by making the most efficient use of existing resources while rethinking their exploration strategies. During the last oil price crash, BP did this by focusing on fields with "very large reserves and low unit costs", he said. However, today's firms could consider lower carbon forms of energy generation, such as natural gas, he said.

"Low prices have an extraordinary ability to focus minds on efficiency and value, and I think the sector will emerge from this period stronger than ever before," he said.

"Today, oil majors must again look at their balance sheets and decide how best to generate value. That is already happening by way of short-term market forces, as costs of production come down and marginal activity is stopped. But long-term structural changes will be needed. Standardisation must replace costly bespoke engineering projects, and companies must find ways to use labour more efficiently," he said.

Lord Browne, who take a particular interest in boardroom diversity and has recently published a book on lesbian, gay, bisexual and transgender (LGBT) inclusion in the workplace, said that forward-looking businesses required directors and executives who "led by example". He said that he had "failed to lead my teams with the same degree of authenticity as I led the abstraction that was BP" by denying his own sexuality during his 12 years as chief executive of the company.

"The evidence suggests that in spite of great progress, constant vigilance is needed not just to maintain momentum, but to prevent societies from going backwards," he said.

"New challenges and different circumstances always have the potential to take us back to damaging ways of thinking. Progress can be undone as quickly as it is made, so it is the responsibility of leaders - particularly business leaders - to lead by example," he said.

During a question and answer session after his prepared remarks, Lord Browne said that the natural consequence of his idea of "authentic leadership" was a more inclusive workforce and better engaged teams. He quoted research conducted while writing his book which found that inclusive workforces outperformed those that were "disengaged" by a "significant margin" of about 2% per year.

This week, Lord Browne was appointed as independent chairman of the UK arm of Chinese telecommunications firm Huawei. During the question and answer session, he said that corporate transparency would be a particular focus of his work with the company.

"The board I chair has two other independent directors from the UK, and one of my board members is the CEO of the Huawei group – and I think that probably shows just how seriously they are taking this," he said. "It's very unusual to have a subsidiary board, chaired by an outsider, with the CEO of the entire group sitting on the board."

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