Oil execs on Capitol Hill

Posted Apr 2nd 2008 6:00PM by Peter Cohan
Filed under: Politics, Oil

Yesterday, the Washington Post reports that oil executives were marched up to Capitol Hill for their ritual slaughter before elections in November. But nothing will come out of it. Is this merely political posturing? Will the politicians actually do anything to force companies to ease consumers' pain at the pump? Should they? Yes, No, and No.

It is merely political posturing. Politicians can't afford to cut into the profits from the oil companies because the oil companies are partially responsible for financing their re-election campaigns. Politicians will not actually force the companies to do anything to ease consumers' pain. Some – such as Massachusetts legislators – are talking about ways to increase consumer's pain by raising gasoline taxes.

One oil executive said: "Consumers have the choice to drive less." I think this is a ridiculous, insulting statement. It makes as much sense as saying to oil executives that they have the choice of giving their annual salaries and other compensation to charity. It is theoretically possible, but it is not in their self-interest. Therefore it won't happen.

Do consumers have any real options to fight back and force companies to do something? Not unless they can invent a new means of transporting themselves that does not involve gasoline. If a few people take a bus or ride a bike or walk it will not work unless there is a massive change in behavior. Riding a bike is not practical for most people.

How can companies raise the cost of gas, make record profits and then say they simply can't absorb the rising costs? Companies can say whatever they want. But management's responsibility is to maximize profits for shareholders. If they absorb the rising costs rather than passing them on to consumers, then shareholders will replace the management that absorbs rising costs with management that will pass on the rising costs to consumers.

What will it take for them to invest in alternative, renewable energy sources? Watching competitors take market share by offering consumers a better deal will motivate them to invest. This last point is really our best hope. That's because business executives understand the language of money -- if they see their wealth declining as alternative energy takes away their market share -- they will be forced to respond.

And that response could yield much cheaper and cleaner energy.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

Tags: capitol hill, CapitolHill, inthenews, oil

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Reader Comments (Page 2 of 2)

4-16-2008 @ 7:25AM

tommy said...

Then they need to help us the people and stop lining their pockets..If the Public would stick together (like that ever happen) boy cott the big oil companies and hurt their pockets a little they cut back on their wifes. We need to stop placing the blame but to find a a way to get prices lower.. and Tom don't know you but you do sound like a oil man..and reguardless of what we pay for coffee and ice cream we can do with out it.. We all use gas..