By Richard Pitts, Principal
It is an uncertain time in energy, and we are seeing increased change across the sector. JB Renard is an industry veteran with some 35 years’ experience in the industry spanning exploration, refining, trading and chemicals. Renard sits on the board of a number of companies including Neste and Exolum, as well acting as an advisor to investment funds and is a frequent lecturer and keynote speaker. He explains what the energy transition actually is “The energy transition isn’t a requirement for the planet, it is a requirement for humanity. Energy affects all companies in all industries: as users, as providers, or as potential disrupters given the ruptures created by the energy transition as well as new technologies. From a commercial perspective, the energy transition is an opportunity for companies to deliver different forms of energy in different manners to address climate change.”
For energy companies to deliver on the required change, it seems essential for the role of the board to develop and mature to support a new approach. “With hindsight,” says Renard, “the 1970’s through to the early 2010’s were stable, despite its ups and downs. We are seeing the acceleration of change and strategy becomes critical as a result. Boards until 2000/2010 were working to ensure the operations were well run and supporting an efficient participation strategy.” Companies are having to work harder than ever to redefine themselves and make plans for the future in a very uncertain energy landscape. “I see the main two roles of the board as appointing a CEO, which you hope is a rare task, and delivering support on strategy” Renard comments “While things have not fundamentally changed for the former, it is quite a different ball game altogether for the latter. We are now in a more uncertain world and strategy is more complex, and in a way existential. If you are an energy company today, it is all about strategy”.
The boards also supports decisions on how to manage appetite to risk. “You have to make decisions and up until recently not changing the shape of the company could be a legitimate choice.” says Renard. “You could stick to your strategy and still be better than your competitors. It is not acceptable to do that now as you know that your current strategy, particularly your participation strategy, is effectively doomed even if the jury is out on when. If you are an energy provider you need to rethink the shape of your entire company, and your risk appetite is dependent on two things: how much you think you need to change and also your financial resources. If you are highly indebted your choices are less than a competitor with a robust balance sheet. A strong balance sheet gives you the competitive edge today as you have more options to play with in your decision making.”
Alongside redefining risk, strategy and performance, there is the additional focus on diversity and culture in every corporate boardroom. Renard says it is not a matter of gender or nationality representation but one of diverse views to and from the world. “Diversity of view is how a board delivers ideas to a management team. A board should be made up of individuals with different perspectives on what is happening in the world and who look at the evolution of the industry through different lenses, which when brought together can challenge and complement management in a useful way. In this view, diversity is essential.”
We are living during an evolution of the energy market and as the industry evolves, so does the role of the board and management. Back to Renard “In the past, the board and management were seeing the world in a consistent way. But we are in a period of inconsistency and change. Our new uncertainty requires everyone to be humble and work together. This is how to find the right answers and make the right decisions for the company. The hierarchy of the board knowing better and dictating a course of action to the board has gone out the window. Before, everyone was coming to the board, management and directors, with plenty of certainties and fighting to impose their certainties. Now everyone is coming to the board with a lot of uncertainty. You can imagine it is a very different conversation, with management focussing clearly on how to operate a company and understanding the industry in depth while the board brings the broader perspective of what is happening in the world. These two different approaches allow the company to define how it can best operate in the future. I see this as the new kind of partnership for companies.”