Articles, Newsletters and Advisories
(by Mychal S. Schulz)
In early August 2019, the West Virginia Department of Environmental Protection (WVDEP) announced that oil and natural gas production in West Virginia reached record levels in 2018, the latest of 10 straight years of production increases.
Just a few weeks later, the Business Roundtable, an association of CEOs for some of the largest companies in the United States, released a new Statement on the Purpose of a Corporation (“Statement”) signed by 181 of the association’s members.
How are these events related? And how, together, can they significantly shape the future of West Virginia?
By now, the natural gas within the Marcellus and Utica formations no longer represents a “potential” source of energy. That potential is being tapped, as represented by the announcement from the WVDEP that over 1.8 trillion cubic feet (Tcf) flowed from wells drilled in West Virginia in 2018, a 17% increase over the previous year.
The scramble on what to do with all that natural gas continues to play out throughout the region, from increasing the capacity to carry the gas away through the Mountain Valley and Atlantic Sunrise Pipelines, to the construction of a cracker facility in Beaver County, Pennsylvania, and (perhaps) Belmont County, Ohio, to the continued efforts to build large underground storage areas such as the Appalachian Storage Hub and the Mountaineer Storage Facility.
Each of those efforts, however, assumes something that is already happening — the production of a tremendous amount of natural gas beneath West Virginia’s surface.
Even a casual observer of West Virginia history sees parallels between this moment in time and the period when West Virginia produced coal that fueled American industrialization starting in the late 19th Century. With the benefit of hindsight, few West Virginians want to repeat the blueprint of development that left communities adrift and, in some cases, devastated when coal reserves became depleted.
One needs only to travel the backroads of Boone County or McDowell County to witness the failure of political, civil, and business leaders to adequately plan for life after coal.
That brings us to the Statement recently issued by the Business Roundtable. Starting in 1978, the Business Roundtable began to periodically issue Principles of Corporate Governance that outline what its members view as standards of corporate responsibility.
For decades, those principles reflected the words of Milton Friedman, who famously wrote in the New York Times in 1970 that “the social responsibility of business is to increase its profits.” Put more extremely in the 1987 movie Wall Street, Gordon Gekko declared, “Greed is good.”
The principles from the Business Roundtable through the years reflected these values by emphasizing that the primary purpose of a corporation was to maximize the value to shareholders — the so-called “shareholder primacy” ideology of corporate governance. In 1997, the Business Roundtable announced that “the paramount duty of management and of boards of directors is to the corporation’s stockholders.”
Apparently, times have changed.
Whether driven by increasing criticism of income inequality and excessive executive pay, shaken by an uptick in social activism from institutional investors, or sensitive to popular demands that businesses do more to address climate change or public health, the Business Roundtable’s Statement no longer pays homage to shareholder primacy.
Instead, the Statement emphasizes that, “[w]hile each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders.” The Statement outlines exactly what those commitments are:
“Delivering value to our customers. We will further the tradition of American companies leading the way in meeting or exceeding customer expectations.
“Investing in our employees. This starts with compensating them fairly and providing important benefits. It also includes supporting them through training and education that help develop new skills for a rapidly changing world. We foster diversity and inclusion, dignity and respect.
“Dealing fairly and ethically with our suppliers. We are dedicated to serving as good partners to the other companies, large and small, that help us meet our missions.
“Supporting the communities in which we work. We respect the people in our communities and protect the environment by embracing sustainable practices across our businesses.
“Generating long-term value for shareholders, who provide the capital that allows companies to invest, grow and innovate. We are committed to transparency and effective engagement with shareholders.”
While the Business Roundtable did not abandon its commitment to generating value for shareholders, the list of commitments in the Statement does not mention shareholders until the last bullet point — immediately after a commitment to support, respect, and protect communities, the people who live in those communities, and the environment in which those people live.
And it is here that the Statement should resonate for both businesses in the oil and natural gas industry and for those who live in West Virginia communities where such businesses operate.
Oil and natural gas producers should support and protect West Virginia communities by adopting best practices that limit impacts on roads, bridges, and the environment wherever drill pads, pipelines, compressor stations, and other such infrastructure are built.
They should respect the people who live in those communities by engaging in meaningful and constructive dialogue about their operations so that communities know and understand — as far in advance as possible — what is happening near their homes, near their businesses, and near their places of worship.
West Virginians, in turn, should appreciate those oil and natural gas businesses that seek to become better partners with their neighbors because the positive economic impact of this industry cannot be reasonably denied. And it’s not just about the money, as this partnership should be based upon respect and trust, not simply the payment of corporate largesse.
To be clear, the foundation for such a productive partnership can be seen in many parts of the state. Community groups benefit from the volunteer efforts of oil and natural gas workers.
Simply open a program for a local sports team, theatrical production, or other cultural event in the northern part of West Virginia to observe the monetary support of the industry for those local events. Municipal governments work closely with the industry on emergency response training for first responders and similar planning.
More, however, can be done, and more must be done before a true, mutually beneficial partnership can be established. The Business Roundtable has figured that out.
The oil and natural gas companies that do business in West Virginia, and the communities in which they operate, should figure this out, too.
Partnerships are built on trust, and everyone involved should consider tearing down walls and allow these partnerships to flourish.
Mychal Schulz is an attorney at Babst Calland in Charleston focusing on energy, employment and commercial litigation. He is a member of the West Virginia Business & Industry Council and sits on the Board of Directors of Leadership West Virginia and the West Virginia Defense Trial Counsel.
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