PERSPECTIVE ON ENVIRONMENT AND BUSINESS : Good Deeds and Good Numbers : In choosing to help shape regulations rather than just complain, ARCO enhances its image and profits.
How did ARCO’s Lodwrick Cook head off the movement to alcohol fuels, win the praise of the Natural Resources Defense Council, rewrite auto-emissions regulations, fatten ARCO stockholders’ portfolios and introduce the concept of “green marketing” to the fossilized oil industry?
In these days of windy presidential debate about environmentalism and the economy, the story of ARCO’s pursuit of cleaner fuels is a down-to-earth metaphor of where U.S. industry must head in the 1990s if corporate environmentalism is to be made real and reliable.
Cook wants us to remain a nation of automobiles, run on gasoline, not methane or natural gas. He also wants stricter air-pollution standards. His answer is yet another new gasoline, known as EC-X. The “X”, according to the company, stands for “experimental.”
Cook says: “Good deeds are wonderful, but I like good numbers even more.”
Currently ranked seventh in the oil industry, ARCO enjoyed $19.9 billion in revenues in 1990, nearly four times its 1986 sales. The return on stockholder equity in 1991 was 29.3%, making ARCO the best performer in the oil industry. Its success is due to an unprecedented new-product development strategy, an environmental strategy. ARCO anticipates environmental regulations to gain significant market advantages.
Compared with the issues that now preoccupy presidential contenders such as safe streets, good wages and steady jobs, the environment is a minor issue seldom earning sustained attention. But the issue is a persistent one, and after continual rebuffs, it will be heard on the campaign trail and throughout the press--or voters will hear about it from Al Gore and his partner in business-based environmentalism, Bill Clinton.
Today’s successful executive understands this instinctively and Cook is one such executive. Rather than reacting to news about violations, fines and industrial accidents, ARCO has celebrated a high-profile role in securing safer fuels for the largest American commuter markets in California and four other Western states.
ARCO has annoyed its competitors with its EC-line of products since Sept. 1, 1989, when EC-1 replaced leaded regular at 700 of its stations in Southern California. A lead-free mixture, EC-1 is designed for older vehicles not equipped with catalytic converters. There are 1.2 million of these clunkers in Southern California. They cause more than 30% of the area’s air pollution. By 1990, ARCO had given the world an alternative image to Exxon’s Valdez spill.
On Sept. 6, 1990, one year after EC-1’s debut, Cook christened ARCO’s EC-Premium, an environmentally reformulated substitute for high-octane gasolines. The chemistry used to reduce the pollutants is similar to the EC-1 formula, but the market is much larger. The product reduces benzene (by 63%), aromatics, olefins and particle emissions. EC-Premium’s lower vapor pressure means 36% less evaporative emissions at the pump. EC-Premium reduces carbon monoxide emissions by 28% and hydrocarbons by 21%. These figures have since been confirmed by state and federal authorities.
ARCO capped its 1989 announcement of EC-1 with an offer to share the new formula with the competition. Shell Oil, Chevron and Union Pacific wasted no time or pride in becoming privy to this tantalizing tidbit. Since ARCO’s introduction of EC-1, eight other companies have voluntarily introduced reformulated gasolines in selected grades.
By July, 1991, Cook revealed his strategy, breaking rank with the majors with a fuel that delivered a more powerful blow than EC-1. ARCO announced EC-X, a fully tested, high-octane performance gasoline for today’s vehicles. EC-X could “reduce gasoline’s smog-producing potential by at least 37% and toxic emissions by at least 47%.” This was a frontal assault on those advocating the more expensive vehicles that use methanol fuel M85. The cost would be 16 cents more per gallon; an increase, but one not as costly as modifying our entire traffic system to accommodate alternative fuels.
According to John H. Lichtblau, executive director of the Petroleum Industry Research Foundation: “In the past, when government ordered changes in gasoline, the response was ‘it can’t be done,’ or ‘it can’t be done this year.’ Now the refiners are moving faster because they’re beginning to see (the prospect of) losing their market share.” In short, ARCO had challenged a sluggish industry to enter an environmental derby or step aside and let alternative fuels win the race to cleaner air.
Clearly, Cook’s reign at ARCO has been characterized by a “structural change in attitude” with regard to the environment as well. He has moved beyond blame and now helps shape superior regulations, rather than just complain about them.
Companies struggling to maintain compliance today will not be around by the end of the 1990s. Those viewing the environment as a strategic issue will be the leaders. Lod Cook is among those few executives who, in his own words, “believe that the greatest opportunity for competitive advantage will be in leveraging environmentally improved products and services to differentiate themselves from competitors.” When one changes by this strategy, good deeds and good numbers are one and the same.
