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Monday, November 19, 2012

Off-Shore Drilling off Virginia’s Coast: Stakeholder Framework Applied

By the early 1990’s, the U.S. had banned drilling off the Atlantic coast. In the wake of BP’s deep-water-drilling disaster in the Gulf of Mexico in 2010, President Obama cancelled his go-ahead of drilling leases off Virginia’s shore. A few years later, Doug Domenech, the Secretary of Natural Resources in Virginia, and that republic’s head of state, Bob McDonnell, teamed up with Virginia’s two delegates in the U.S. Senate to “put Virginia’s coast on the energy map through an act of Congress.” Domenech said, “I personally believe that the East Coast of the U.S. does have the ability to be the prolific economic basin.” The Bureau of Ocean Energy Management estimated based on two-dimensional seismic surveys that 3.3 billion barrels of recoverable oil exist under the Atlantic’s outer continental shelf and 31.1 trillion cubic feet, or 886.3 million cubic meters, of natural gas. However, the executive arm of the U.S. Government alone is more than that bureau. Moreover, lest this conflict over drilling be viewed as primarily between Virginia and the U.S. Government, it should be noted that the East Coast is not exclusive to Virginia.

Although the dispute would seem to be based on federalism, the opposing interests involved were really those of seven oil companies, including Global Geo Services in Texas, up against the U.S. Navy in Norfolk and some endangered whales fervently represented by some environmental groups. The oil companies may even have been behind Virginia’s role. “The energy industry, eager to find out how much oil and natural gas exists under the Atlantic sea floor,” was “pushing the [Obama] administration to allow seismic companies to survey the area.” Strangely omitting the matter of his company’s profit, a spokesperson for Exxon Mobil said, “With the right policies, development of those resources can provide substantial new energy supplies to power our economy while supporting millions of new jobs.” Even though Virginia was “a vocal supporter of drilling,” hoping it “could become the gateway for Atlantic production,” the oil companies were likely in the driver’s seat in pushing the Obama administration to allow seismic tests at the very least. In other words, the question of federal encroachment on Virginia’s vested or residual sovereignty is not particularly salient in the dispute. Rather than being centered on conflicting interests between a state and a federal union, the question of allowing drilling leases off the east coast of the United States pitted big business against the U.S. military and environmental groups—plus a federal president doubtlessly determined that something like the BP explosion in the Gulf not be repeated, at least under his watch.

Accordingly, the stakeholder framework used by business is a closer fit to this case study than is federalism. This does not necessarily open the flood-gate to “shared decision-making,” even as particular stakeholders are identified in the process. Pointing to one major stakeholder, the New York Times observed, “Virginia is home to Naval Station Norfolk, the world’s largest naval base, with 75 ships and 134 aircraft. A February 2010 Defense Department report said oil drilling in the area off Virginia that had been designated for leasing would interfere with military operations.” The U.S. military is thus a stakeholder. Also, “(a)dvocates for marine mammals” wrote “thousands of letters and testified at public hearings, arguing that seismic surveys of the outer continental shelf would hurt endangered whales.” A major oil gusher obviously would not do the animals any good either. Therefore, environmentalists constitute still another stakeholder.

To get at the societal relations between the stakeholders, the stakeholder framework from strategic management must be modified structurally to remove the focal firm at the hub to occupying instead one of the spokes. Concerning societal problems, a web-like framework wherein several entities, including corporations, governments, interest groups, the military, and even whales, is more fitting than the stakeholder model that has a firm in the center. Next, I discuss the stakeholder concept after which I relate the stakeholder framework used in societal leadership to the stakeholder framework in strategic management. Lastly, I apply the resulting model, which can be regarded as one of societal and strategic leadership, to the case study of off-shore drilling.

Stakeholder entities are those which can either materially affect, or would be affected by, the U.S. Government granting of drilling leases off the Atlantic coast. This definition is not perfect, as it could invite a seemingly endless list of groups that are indirectly affected or could have at least some impact on the leases. Adding “directly” to the definition would exclude groups that are affected greatly, albeit indirectly. Perhaps it is advisable to add to the definition that a stakeholder is an entity of significant importance to the decision as well as the decision-maker using the framework. Although most advocates of the stakeholder framework who come from the standpoint of corporate social responsibility assume (or prescribe) that consensus or a right of co-decision is implied in the framework or even the very notion of stakeholder as if having a stake in something includes a sort of power-sharing right, the model itself implies no such prescriptions and could therefore be used by a person or group that has exclusive decision-making authority on the problem.

The web-like adaption of the stakeholder framework comes from shifting the “unit of analysis” (i.e., scale) from that of a firm to the societal level. Whereas an oil company would use the “hub and spokes” structure, a government official, being oriented to a societal level (e.g., Virginia, or the U.S.), would want to view the players arranged as they are in society (i.e., without a focal organization at the “hub”) to get a sense of the political forces and interests involved and how they interact as well as how they would interact under alternative decisions. At the same time, the government official would want to keep an eye of his own interests, as well as that of the government of which he is a part. For this purpose, the “hub and spoke” structure works well, with the government at the “hub.”

Strategic leadership attends to the interests of the decision maker’s organization (or organizations where decision-making is shared) while also providing a view of the societal interplay of the contending interests without the distortions of one’s own position being “front and center.” In other words, both frameworks should be used where strategic leadership has a societal component. This can apply not only to governments. A CEO, for instance, may find that taking a societal rather than firm-centric perspective—bracketing it off from, while relating it to, the firm’s strategic “hub” interests—can result in a balancing of societal credibility, a long-term intangible asset, with more immediately-pressing strategic interests. While not relevant to every decision, this “dualistic” approach, depicted structurally in my diagram below, is most valuable where a decision involves a problem that is salient at the societal level.
Respecting the integrity (i.e., valid claims) of both frameworks requires integrity, or self-discipline.   Worden 
In the off-shore oil-lease decision, the White House or a member of Congress could use the “societal leadership” framework to identify more stakeholders and assess how they relate to each other politically (the government being included among them, but merely as one, rather than being focal). Ideally, a vision of the society itself, improved in a way touching on the dispute, can come out of this “non-distorted” perspective. Abstractly speaking, a structural framework is merely the basic contours of a perspective. A perspective that reflects society in its own terms is consistent with, and perhaps can even trigger, a societal vision of the sort that is in visionary leadership.
A government official oriented exclusively to a societal vision that is “undistorted” by his or her own political interests and those of the government risks not being around long enough to “preach the vision.” Strategic interests must also be considered. Hence, the official(s) would want to use the traditional “hub and spokes” stakeholder framework.  In assessing how each stakeholder can affect or be affected by the government (and the official) politically, the self-protective and aggrandizing instincts of the decision-maker kick in even at the expense of a societal vision. In this regard, stakeholder management in government is actually a way of systematizing a political calculation akin to a position paper that lists the pros and cons on a particular piece of legislation, associating particular stakeholders to the various arguments for and against the legislation. Although the political relationships between the stakeholders can be considered, the primary emphasis here is on the bilateral relationships of power where the official or government is on one end—hence “the hub.”
After taking both perspectives—societal and strategic—the decision-maker optimizes the approach by weighing the importance of the societal vision (as well as the undistorted political relationships) against strategic imperatives of the official and/or the government. The vision is not merely societal implications of a government’s or corporation’s strategic interests. Rather, societal leadership is based in society’s own terms, and is thus not merely an implication or aspect of a firm- or government-centric perspective. Which level is given more weight by the government official or corporate executive can be expected to differ from decision to decision. Problems have different degrees of importance at the societal level. Additionally, a government’s or firm’s need for reputational capital or societal credibility relative to satisfying strategic interests can change both temporally and in terms of the matter under consideration. In short, the two frameworks can be managed such that both societal and strategic leadership are given their due—without viewing the former as a mere implication or aspect of the latter. Serving as a societal leader and tending after one’s own strategic interests are both legitimate; moreover, they can be managed such that an overall optimality can be achieved with respect to reputational capital and power or profit.
In the case of the off-shore drilling leases in the Atlantic off the U.S. east coast, including but not limited to Virginia, the White House could use the stakeholder frameworks as a basis to craft a policy that both improves society (even beyond “the sum of the parts”) and protects and perhaps even enhances the White House’s political power.
For instance, the U.S. Navy indicated it would allow drilling on a case-by-case basis. The White House could use this position as leverage to gain political power with the oil companies by accommodating them (and Virginia’s government officials) without compromising influence with the military chiefs, the cooperation of whom the White House would need to implement military policy. The case-by-case basis would take some of the wind out of the oil industry’s lobby and Virginia’s delegation pushing on Capitol Hill for legislation to allow unfettered drilling. Societally speaking, such drilling would introduce too much risk of catastrophe, including to the whales, and could make the U.S. less inclined to shift to cleaner sources of energy. At the other extreme, forbidding drilling altogether would work against the U.S. achieving less reliance on foreign oil-producing governments. A societal vision that represents an improvement for the society as a whole would thus be more in keeping with a case-by-case method to be decided by the military or a regulatory agency depending on the area at sea at issue.
Lest it be observed that I gave the environmental groups relatively little consideration, the political calculation of a second-term Democrat in the White House might play for more influence outside of his base instead of placating groups already in the fold. Here we can see a leaning on the strategic framework perhaps at the expense of that of societal leadership. Such a weighing has been implicit, however, throughout this example of the analysis. The resulting decision, while not shared, is apt to be hybrid of sorts that reflects at least some influence from each framework—that is, of societal and strategic leadership.
Alison Fitzgerald, “Virginia Tries to Circumvent Obama to Allow Energy Drilling,” The New York Times, November 14, 2012.

Tennille Tracy, “Oil Industry Renews Push For Drilling in the Atlantic,” The Wall Street Journal, November 20, 2012.

Skip Worden, “The Role of Integrity as a Mediator in Strategic Leadership: A Recipe for Reputational Capital,” Journal of Business Ethics, 46, no.1 (2003): 31-44.