Posted on April 18, 2008 by Dennis Snow
Very few industries have achieved the distinction of being universally despised. The airline industry and a couple of others have come close, but none have succeeded quite like the oil industry.
I was watching CNBC this morning and they ran a segment about rising fuel costs. No surprise there since it’s a hot topic right now; but what caught my attention was the news that production is actually being reduced even as we approach increasing demand due to the upcoming Memorial Day holiday and busy summer travel season.
The analysts on the program noted that production isn’t being reduced due to environmental concerns or anything noble like that, but to effect supply and demand, cause prices to rise, and maximize shareholder value. The key phrase in the report for me is “shareholder value.”
As an investor, I am all for maximizing shareholder value. I like to see the value of my investments go up (been pretty disappointed lately!), but I know the best business strategy for long-term shareholder value is not to gouge customers who have few alternatives (for now). Small companies, independent truckers, and other businesses are facing bankruptcy because they can’t afford fuel for their vehicles. Families struggling to make ends meet see the cost of gasoline impacting their ability to pay bills. All the while we watch the parade of oil company executives receiving multi-million dollar bonuses.
This post is not meant to be anti-capitalism. Quite the opposite. What’s best for long-term shareholder value is to create value and customer loyalty. You do that by building trust. And for the oil industry, trust is in the toilet. Oil company executives are actually failing their shareholders because they are causing the public to despise their companies. Right now we are handcuffed to their product, but the movement toward alternatives is accelerating at an unprecedented pace. There will come a time when these alternatives are viable and loyalty will shift, as will shareholder value.
Building loyalty, trust, and long-term success are the responsibility of any organization’s management team. And screwing over your customers is not a good business strategy.a