Stranded assets, stranded egos and stranded careers

Stranded assets are a big barrier to change. Both environmental and economic progress can be stifled by stranded assets. But stranded egos and stranded careers may be even bigger barriers to progress.

Stranded assets

Oxford University defines stranded assets as “assets that have suffered from unanticipated or premature write-downs, devaluations, or conversion to liabilities and they can be caused by a variety of risks.” Simply put, if you’ve got billions invested in the old way of making something, you have a real disincentive to support a new, better way that makes your multi-billion-dollar investment worthless.

PNM San Juan (NM) generating plant [Durango Herald picture]

Climate change is a classic example of the stranded asset problem. Investors have huge sums in firms that depend on coal and oil, from “value in the ground” to extraction to refining to burning them for energy. Not surprisingly, those investors – and the management of those firms – are not eager to see those investments decline in value. Those investors and managers don’t tend to be fans of trends favoring alternative energy sources with lower environmental impacts.

Putting on blinders and denying those trends is a lousy strategy. More elegantly, a 2013 report by the Generation Foundation decried “the false comfort of the status quo” and noted bluntly:

The competitive landscape for fossil fuel-intensive companies is losing its attractiveness at an accelerated rate. … Likely increases in regulation, a boom in more cost-effective (economically, environmentally, and socially) alternatives, and growing unpopularity with the public, should lead any thoughtful investor to reconsider the viability of fossil fuel assets being profitable and growing in the future.”

Increasingly, investors realize that stranded assets are still stranded even if you cover your eyes and shout “no no no”. Denial just prolongs your risk while reducing your ability to manage that risk. Investors are getting the point, demanding that even companies like Exxon Mobil provide “more open and detailed analyses of the risks posed to its business by policies aimed at stemming climate change.”

There are no easy answers here. As Joel Makower noted: “The question of how to manage this transition remains open. How do you wind down the fossil-fuel economy in a way that is equitable to shareholders and doesn’t unduly shock the economy — but still recognizes that time is of the essence?”

Stranded egos, stranded careers

Overflow crowd, NM Supreme Court

I sat in a crowded NM Supreme Court last week and heard lots about stranded assets – but I think I heard even more about stranded egos and stranded careers.

In a nutshell, I was there to hear New Energy Economy argue against efforts by the local utility (PNM) to dig a deeper hole for itself. PNM is attempting to make the ratepayers pay for its stranded assets in coal and nuclear – and to put even more ratepayer money into more of those stranded assets. As New Energy Economy’s Executive Director, lead attorney and all-around dynamo Mariel Nanasi told the New Mexico Supreme Court, this was PNM’s “…attempt to foist uneconomic assets that have enormous associated risks and liabilities from the shareholders to the ratepayers.”

Lawyers argued for hours about what is prudent or imprudent, what is arbitrary and capricious, who had approved what and when, and which precedents applied. That’s what lawyers do.

But underneath all that, I heard something else. I heard the voice of stranded egos and stranded careers from the PNM side. I heard arguments that said, in effect, “we’ve done it this way for 30 years, why change now?” I heard complete denial of not only the negative impacts of coal and nuclear, but of the inevitable policy shift toward renewables. I heard no recognition of the profound shift in costs favoring renewables. I’m pretty sure I heard renewables referred to as “phantom resources.“

I heard powerful echoes of what I’ve encountered over the years: the human problem is bigger than the economic problem. Executives who made their reputations and careers doing things one way are simply unwilling or unable to question that one way. Sure, they have perverse financial incentives to avoid writing down economic assets, at least until they’ve retired and collected their pay-out. But the resistance I’ve seen is deeper and more emotional. It’s when the executives’ identities are so wrapped up in their 30 or 40 years of work, promotions and status. They just can’t cope with seeing that questioned. They don’t want to hear “what you did with your life was great, but it’s not the right answer any more.” They absolutely don’t want to hear “maybe what you did with your life was part of the problem.” I’ve seen it in business, at oil companies and at railroads historically dependent on the margins from coal traffic. I’ve seen it in government, as state and local officials try to force obsolete businesses to keep doing operating when and where it no longer makes any economic sense.

It’s not just executives and leaders. We’ve seen the political consequences of voters whose stranded careers and egos make them eager to believe hollow promises about the return of steel and coal. It now looks like those stranded careers and egos (along with the hollow promises) are leading stranded towns and people to shun retraining and other services that might help them rejoin the world economy.

This isn’t inevitable. It’s not easy to get out of a dead end, but you can do it – as long as you don’t try to just plow ahead blindly. There are often routes to what a respected colleague (in a company weighed down by stranded assets) calls “strategic adaptation”. Those routes are seldom easy and painless. They do have one common first step: recognize the hole you’re in and stop digging.

But if that pig won’t fly…

We’d all like to help our colleagues, clients and others find those peaceful routes to “strategic adaptation”. Sometimes, though, that just doesn’t work. Sometimes the stranded egos and careers keep you from rational progress. Those in control of key institutions continue to defer, deny, delay in order to defend the way they’ve always done business.  That may leave you with no choice except to defy and even disrupt. If you’re dealing with a PNM, and it resists change at all costs, then maybe you have to question whether the PNMs of the world can be trusted with the monopoly status they’ve been given over the years.

PNM web site []

When I started work in central Illinois after graduating from Harvard 40+ years ago, I started my real education in politics.  One lesson I learned quickly was that not everyone is willing to change.  As I was told: “Never try to teach a pig how to fly.  It won’t work and you’ll just irritate the pig.”  Listening to PNM’s advocates last week, all I could think was “That pig ain’t gonna fly.”

I then heard New Energy Economy’s Mariel Nanasi say the same thing more eloquently to the Supreme Court justices: “Essentially PNM invested in an old used non-functioning Ford Pinto — when ratepayers could have had a brand new Tesla for half the price — without any comparison shopping.”

Clearly solar makes no sense in New Mexico…

Stranded egos and stranded careers can make very smart people want to not only buy that Pinto, but then drive it down the highway (as fast they can get it to go) looking through the rear-view mirror of past practice instead of looking through the windshield at the future that’s coming at them faster and faster.  It would be great if you could talk them out of it.  But at the very least, make sure they don’t make you pay for the Pinto – and don’t get in the car with them.

[Opinions in this blog are solely those of Scott Nadler and do not necessarily represent views of Nadler Strategy’s clients or partners, or those cited in the post. To share this blog, see additional posts on Scott’s blog or subscribe please go to]

Safety is Job 2?

Safety isn’t Job 1, as so often claimed. If safety were Job 1, we’d never leave the house. We’d never cross a street. We’d never get in a car or on a plane.

If safety were Job 1, companies would go out of business rather than send employees out to drill for oil, mine iron ore, operate a drill press or a band saw, or drive a truck in New Jersey.

Let’s admit it. Doing the job is Job 1. Doing it safely is Job 1 ½, or Job 2, or Job 1.2, or whatever you want to call it. Are there times that the safety risks are such that the job shouldn’t go on? Sure. Is it every employee’s responsibility to make those decisions at times? Yes. Is it leadership’s job to help ensure those decisions are made properly and supported? Absolutely.

Even more importantly, it’s leadership’s job to minimize the likelihood that front-line employees and managers have to make those difficult decisions about walking off the job or doing the job unsafely. But it’s also leadership’s job to ensure that customers are pleased, shareholders and lenders are satisfied, employees are respected and treated fairly, and laws are obeyed. At different times, those are all Job 1. Balancing those jobs is difficult in the best of times.

That’s the challenge leaders face every day, but especially in companies under stress. When the price of your product drops by half, survival is Job 1. We all know it. Companies under stress face huge demands to cut costs, reduce margins of safety, and do whatever it takes to get the job done faster and cheaper.

There are no easy solutions. But there are some important questions to ask and steps to take. I explore those challenge and questions in a new article on “Managing Risks Under Stress: Challenges for Leaders.” I invite you to take a look at the article and share your own experiences and insights here.

As that article notes, leaders cannot be paralyzed by these risks; if they are, their companies will not survive. The companies that succeed are the ones who adapt, not abandon, their risk governance.

[Scott Nadler is a Senior Partner at ERM and Program Director at US BCSD. Opinions on this site are solely those of Scott Nadler and do not necessarily represent views of those quoted or cited, ERM or its partners or clients, or US BCSD, its members or partners. To share this post, see additional posts on Scott’s blog or subscribe please go to I also invite you to follow me on Facebook or Twitter.]

Risk, resilience and the rear-view mirror

Over the last month, in client work sessions and in conferences in San Francisco and Chicago, I’ve had conversations with over 40 corporate EHS/sustainability leaders. Behind closed doors, despite lots of hard work and good progress, there is more unease than complacency. I heard three related aspects of that unease.

Risk: What’s keeping us up at night?

When asked “what’s keeping you up at night right now?” the leaders gave a surprisingly consistent answer: Basic performance. No matter what the numbers say, are we going to hurt or kill someone? Is everything really working as well as we’d like to believe? If it isn’t, will we find out before something really bad happens? Will we find out in time to fix it?

When asked “what keeps you up around the longer term?” they gave much more varied answers. There was a common thread around emerging or rising expectations and regulations. The details varied but included carbon, safety and sustainability-related reporting (including SASB).

Resilience: Are we prepared to cope with those risks?

Resilience is getting a lot of play. Whether resilience is an important concept or “just the new buzzword” (as one Environmental Director suggested skeptically) is open for discussion.

Resilience can be an important concept. There is important work being done around it, including how resilience might provide a different way to interpret and apply sustainability.

At the same time, it is a popular buzzword. Some use resilience as jargon to dress up “just recover from bad stuff faster than the competition.” That’s important, but it’s way too narrow.

Resilience raises key issues. Resilience is the ability not only to survive, but to thrive in the face of change which may be disruptive, discontinuous and dissonant. That change can come from anywhere, including in your organization, geography, business, or the climate (political, physical, regulatory or economic). At its best, resilience is not just getting better at reacting, responding and recovering when bad things happen – a fatality, a devastating release, loss of a key part of your supply chain. Rather, resilience is anticipating, adjusting and adapting to changes without having that fatality, devastating release, or loss of a key part of your supply chain in the first place.

In one conference, I illustrated that by pointing out a friend in the audience. Let’s call him John. I said I hoped I never had to go to John’s wife, whom I know, and tell her that John had been hurt on the job – and was never coming home. If I did have to do that, though, I didn’t think it would help her much if I then added brightly: “But the good news is, we’re resilient. We recovered so quickly that we replaced John already. John’s dead, but we lost only a few hours of production. Isn’t that great?” That’s not the kind of resilient I want to be.

Resilience therefore poses a challenge to your management systems: Do your management systems help “risk-proof” your company, or are those systems themselves something you have to worry about risk-proofing? Do your management systems help prepare you for the things you can’t prepare for?  Do they actually give you capabilities that are resilient, or just more rigid plans?

Put another way, do your management systems help you sleep at night – or are they something else that keeps you up at night?

Rear view mirror: Where are we looking for insight into those risks?

If resilience is about anticipating and adapting, not just responding better, how do we anticipate the changes and understand the risks?

There’s a big focus on data and information systems. Clearly, we learn more each day about Big Data’s capacity to gather more information about everything (including us, like it or not). Focusing on data has its own risk, though: existing data, by definition, is historical and backward looking. Focusing too heavily on data is like driving down an urban freeway at rush hour with duct tape over your windshield, looking only in your rear view mirror.

The interesting question is, can information systems help you understand the past, manage the present, and anticipate the future? There’s a lot of energy going in that direction, especially in intriguing things like predictive analytics that might help you look forward.

Then, at a dinner with some new ERM Partners (now new friends), I had the most energizing conversation of the month. They reminded me of the most powerful tool for looking forward: gathering smart people with different perspectives in structured ways to create powerful, insightful interactions. Getting and using that insight is subtle. You can mine data; you have to harvest insight. By creating the right platforms and processes we can help our people articulate, compare and combine insights. We can get better at sniffing out the weak signals already coming our way, and finding ways to amplify them without distorting them.

That may create a foggy and messy view through the front windshield, but it sure beats looking backward.

[Scott Nadler is a Senior Partner at ERM.  To share this post, see additional posts on Scott’s blog or to subscribe please go to Opinions on this site are solely those of Scott Nadler and do not necessarily represent views of those quoted or cited, ERM, its partners or clients.]

Sitting here in (strategic) limbo…

Many of us are sitting here in limbo (with all due respect to the reggae management guru Jimmy Cliff).  Senior management faces an uncertain and uncomfortable economic outlook.  It’s not a recession, but it’s not really a recovery. It’s… limbo.

In response, many companies are trying to continue growing, but caution and even hesitation are growing too.  The feeling is far from smooth.  Companies aren’t taking their foot entirely off the accelerator.  But the other foot is simultaneously starting to tap the brakes.  Inside many companies, you can feel the friction, the drag, even some jerky starts-and-stops.

So what are EHS/Sustainability leaders supposed to do in this strategic limbo?  While they are “…waiting for the tide to turn… waiting for the dice to roll”?  Charging ahead seems risky.  But sitting still – and perhaps becoming a sitting target for cost-cutters – is even riskier.

Some EHS/S leaders are taking advantage of this strategic pause to refresh their programs and teams.  As I explained in a new article in the on-line EHS Journal, they’re taking five concrete steps:

  • Look backward: catch up with the changes that came at you too quickly.
  • Look forward: think about what’s coming.
  • Look to the bottom line: think about how you help the company make money.
  • Look inside your program: in light of the past transactions, future scenarios, and bottom-line impacts, what does your program need to do?
  • Look at your people: all of these actions may give you new insight into what your group needs to do and, therefore, what you need out of your team.

A client used this 5-step approach yesterday to help define his strategic priorities. We produced a practical action plan that will help him break out of strategic limbo – and may yield important improvements in his EHS/S programs in the coming year.

For the full article, and more insight into what some companies are doing, check out “Is Your Strategy on Pause?”

[Opinions on this site are solely those of Scott Nadler and do not necessarily represent views of ERM, its partners or clients.]

“Don’t worry about job security…. You’re self-employed.”

1999 was a long time ago — at least two tsunamis, two recessions, several wars and multiple terrorism events ago.  Pundits hadn’t yet declared the world flat, and the biggest technology challenge we faced was the doomsday forecast for Y2K.  1999 was so far back that Apple only made computers then.

In April of that year, ERM held its first Business Integration Forum, kicking off a decade-long series of client events on three continents.  To wrap up that first Forum, James Kelly (a respected expert in management and then an ERM Board member) led a discussion on organizational and personal transformation.  Looking forward, he presciently told the 28 corporate environmental Directors and VPs:

“The business models that emerge will be…more connected but less rigid.  We will be more free to define our own jobs and make our own connections.  We will also be required to make our own connections.  Within our corporations, we will move from a concept of employment to one of self-employment – both in internal and external marketplaces.”

That’s not the future any more; that’s reality.  Hundreds of corporate EHS (environment, health and safety) leaders participated in our Forums in the decade after 1999. I’ve gone back recently to look at what’s happened to some of them since.  Some have retired, of course.  Some have remained in the same positions. Some have flourished, and are leading EHS or Sustainability programs in bigger or more dynamic companies, or are Senior Vice Presidents in the same company.  Others – respected colleagues and good friends –are on the job market.

What differentiates those who flourished from those who struggled?  On the surface, that is hard to answer. These people were all smart and hard-working; that doesn’t separate them.  Certainly some were luckier than others; good people had bad things happen to their companies through no fault of their own.  So I looked for different factors that might explain the different outcomes.

The biggest differentiator, I found, is who seized the initiative, defined their own jobs and made their own connections.  By and large, the EHS leaders who have flourished are those took on more challenges, who built new networks both inside and outside their companies, and who pushed themselves to tackle issues well outside their technical comfort zone.  For some, that meant creating their own luck, leaving seemingly comfortable jobs rather than waiting for events to dictate their career.

EHS leaders now are facing a period when defining their jobs may be mandatory, not optional.  As I wrote in an article just posted on the EHS Journal, the EHS VP may be an endangered species in the US.  The survivors are likely to be those EHS leaders who shape and embrace the emerging hybrid models that combine EHS skills with other pressing business opportunities or risks.

I don’t pretend this is easy.  In 2009 I “fired” myself from ERM’s global leadership team to carve out a role as a full-time ERM consultant.  I made a conscious decision to stay with ERM but in a different role. There was no clear precedent or path for returning to full-time consulting after giving up my clients, projects, teams and sales pipeline.  I had to define my job and build new connections. Taking my own medicine wasn’t fun.  Even with strong management support, it was hard and scary.  (Along the way, I learned some useful lessons that I’ll share in a future blog.)

As I felt all too clearly, the risks of making changes with our jobs and careers are daunting.  “The reality, though, is that the risks of not changing are probably greater,” as James Kelly said back in 1999. “Don’t worry about job security.  There is no job security.  You’re self-employed.”

Opinions on this site are solely my own and do not necessarily represent the views of ERM, its partners or clients.