Mays Impacts

In 1973, global energy giant Chevron was in a difficult situation with its then 50 percent stake in affiliate, Caltex, in South Africa. The United States Congress, as well as concerned citizens groups, were pressuring U.S. companies to leave South Africa as their presence could be seen as support for the oppressive apartheid laws. Through its interest in Caltex, Chevron had a longstanding presence there, since 1919. Caltex employed 1,500 people in-country and was producing 100,000 barrels of refined product per day. Should Chevron stay and hope to impact change, or should it leave and protect its brand? That was the question S. Shariq Yosufzai ’74, president of global marketing for Chevron, put to Mays MBA students.

“I would stay,” said one student. “Your competitors are gone.”

Chevron President of Global Marketing S. Shariq Yosufzai “74, seen here with South African president Nelson Mandela, credits his company’s decision to act as an agent of change as a chief reason for their current success in South Africa.

Another student agreed. “I would stay and try to bring about positive reforms.”

A third took an opposing view: “If you stay, you risk damaging your brand image. Leaving may put more pressure on the government to make changes. Then the company could reenter after the changes have been made.”

Yosufzai said Chevron weighed all of the options, and chose to be one of the few U.S. companies to stay in South Africa during those tumultuous times. It proved to be a wise move as, over the years, Caltex became a business role model in the area. The company began systematically recruiting and expanding job placement opportunities for black and “colored” South Africans, trusting that the unjust régime would come to an end, and when it did, they would have ready-made leaders in place.

Using the Sullivan Principles as a guide, Caltex opened business opportunities to all employees regardless of race, creating a workforce and management team that more closely resembled the society. “We actually became not only an agent for change, but someone that the new South African government trusted, and could look to for leadership skills. Today, this is one of our best performing businesses…We are reaping not only the benefits of social engagement–we are delivering business results,” said Yosufzai.

Brand management

Yosufzai visited Mays recently to talk to undergraduate and MBA students about the value of strong branding efforts. In his role at Chevron, he is responsible for the company’s fuels marketing, commercial and industrial marketing, and convenience retailing operations worldwide. Chevron markets fuels and convenience retailing products and services in more than 70 countries through three brands: Chevron, Texaco and Caltex.

He asked students: What is a brand? Students responded: it’s a signal, a perception, a promise, a logo, an intangible asset. It’s all of those things, he agreed, but it’s something more: brand is the emotive (not logical) connection between customer and company. It involves the relationship that is built through each interaction between customer and company, which takes years to develop and moments to destroy. Like any relationship, it involves trust.

“We don’t own our brands,” Yosufzai told a room full of Mays Full-Time MBA students. “Our customers own our brands.” (view more photos)

Take Coca-Cola, for example, Yosufzai says. If you add up their PP&E—all their tangible assets—the number is X. Their market cap is Y. The difference between X and Y is several billion dollars. That’s the significance of a brand.

“You can destroy brand value by taking a linear process approach. You must examine how a brand asset, which some describe as a non-tangible asset, can create tangible value to the bottom line.” A brand is about managing relationships that customers have with brands they trust. “We don’t own our brands. Our customers own our brands,” he says, explaining that each brand has a unique value proposition. For the Chevron brand, which is marketed in the U.S. and Canada, the brand personality is “engaging and likeable.” For Texaco which is marketed in Europe and the Americas, the brand represents “enduring performance.” For Caltex (marketed in Africa and Asia Pacific), the brand is “respectfully helpful through the journeys of life.”

“Each of these brands has unique relationships with the customers it attracts, a perception that the company has built up over 130 year. Replacing one with another in a specific geography would not only be costly but would destroy value,” he said.

Yosufzai discussed “The Chevron Way” and other elements of the company identity that play a part in brand, such as their emphasis on safety, sustainability, and philanthropy.

• Safety: “No mobile while mobile” policy: Whether you’re driving a tanker truck full of flammable materials or a company car, it’s against company policy to use a mobile device (even hands free) while in motion. Since this policy has been in place, the company’s serious and catastrophic motor vehicle crash rate has dropped by 90 percent.
• Sustainability: Chevron invests billions of dollars each year in green technology exploration and development, including non-food-based biofuels and advanced solar, wind, and geothermal energy. (Chevron is the largest producer of geothermal energy in the world.) Yosufzai himself is on the National Petroleum Council’s Fuels of the Future committee, which seeks sustainable solutions for a cleaner energy mix for the U.S. by 2030. He describes the company’s commitment to sustainable energy as disciplined and focused.
• Social Responsibility: Chevron invests heavily in education at all levels, including contributions of more than $20 million to A&M in recent years. Yosufzai is committed to giving back to A&M personally, too, as he currently serves as the Association of Former Students chair of the board of directors and served on the board of the A&M College of Science. In 1999, he was named both the Outstanding International Alumnus and a Distinguished Alumnus of the university.

The future

The oil and gas industry faces challenges in the coming years. The U.S. consumes a disproportionate share of the world’s energy, but demand is increasing in the BRIC (Brazil, Russia, India, and China) countries that are driving up the requirements for energy long-term. Plus, demand for energy is down worldwide because of the economic downturn. At the same time, several world-class refineries have recently come online. This confluence of reduced demand and additional capacity has created economic pressures in the refining industry.

Demand will catch up with supply, says Yosufzai, as he reminded students that energy as a commodity is valuable. “Sustainable, affordable energy helps make human advancement possible.”

Even with the current challenges, the industry is an attractive career choice for Aggies. Yosufzai noted the high number of Aggies in top leadership positions throughout the company. In fact, A&M is one of the top schools where the company recruits. “You’re at a place that is highly regarded by the oil and gas industry.”

I have been reading a very interesting book by philosopher Daryl Koehn on thinking and acting ethically in a world of unintended consequences. She refers to unintended consequences as a “live dragon” based on J. R. R. Tolkien’s warning, “It does not do to leave a live dragon out of your calculations, if you live near him.”

And yet unintended consequences are left out of our moral calculations all the time. As an auditor, I find it humorous to watch the Congressional Budget Office trying to predict the impact of Congressional bills, most recently the health care bill. Since the CBO is constrained to use a certain set of assumptions, and since those assumptions are largely known to Congressional staff, key provisions of bills are structured so that they will pass muster under CBO provisions. But these estimates almost never represent reality, largely because they do not take into account the changes in behavior that will rationally take place once a law is implemented.

Koehn divides unintended consequences into those that are foreseeable and those that are unforeseeable. Many states that are going bankrupt are magically discovering that public employee pensions are having a huge impact on their deficits. It is not just that these pensions are generous, but that the provisions are set up so that the annuity received in retirement is based on the last few years’ average salary. Predictably, public servants are working almost impossibly high levels of overtime in their last few years, pumping their retirement payments sometimes above what their actual annual salaries were. This is a perfectly predictable unintended consequence of structuring pension plans this way.

Other consequences are not so easy to predict. Koehn gives the example of mosquito nets that were donated to Zambia to reduce the spread of malaria. Instead, villagers sowed the nets together to make large fishing nets, resulting in overfishing that will likely lead to longer-term hunger for Zambians.

When we make ethical decisions, it is tempting to think short-term, and to constrain our minds in terms of potential unintended consequences. There are several reasons for this. First, short-term consequences are the most available to us mentally; they are the easiest to picture. Second, we may actually be able to picture some short-term unintended consequences that we could include in our calculation; this is less likely to be true for long-term unintended consequences. Third, short-term calculations are the easiest to do, and they are the most likely part of the total calculation to be accurate.

I have experienced unintended consequences of my own decisions. I have sometimes made decisions for noble reasons and had a string of bad outcomes as a result. Of course, I can learn and benefit from these outcomes, but it does not necessarily follow that a well intended decision will result in good outcomes. And, in my life, that has led to disappointment.

Someone I know recently decided to leave his wife and change the course of his life dramatically. Besides the expected outcomes of a decision like that, that family’s life is raining unintended consequences, and likely will for many years to come.

I would be interested to know what you think on this issue. Have you experienced unintended consequences that have dramatically impacted your life? Is my friend responsible for all the unintended consequences resulting from his decision?