Please bear with me. I want to discuss ESG (environmental, social and governance) investments. Before starting, however, I need to share some personal history.
More than four decades ago, I graduated from university with an engineering degree. I was hired by the Eastman Kodak Company, and I was excited. At that time, Kodak was a Fortune 500 Company, and it was one of the most profitable enterprises in the world. It had an excellent reputation; it treated employees well; and it was a responsible community partner. Family and friends said, “You just hit the jackpot. You won a job for life.”
My first 10 years at Kodak lived up to expectations. I performed work that was fun, challenging and rewarding; I earned a good salary. I worked in countries around the world. I went to graduate school on the company dime.
Behind that facade, however, dark clouds were forming. Electronic technology was rapidly advancing, and rumors of digital photography abounded. Management at Kodak naively attempted to derail and delay the advancement of this technology. They introduced new film formats (disc and APS). They made cameras smaller and more capable. They introduced one-hour photo kiosks. They reduced costs in an effort to make photographic films and papers more attractive.
But digital photography continued its assault. Kodak countered with deep cost cuts. That meant the salaries and benefits employees previously enjoyed were greatly diminished.
These actions failed to deter the growth of digital. So, Kodak further reduced costs by downsizing its workforce. That demoralized employees but failed to slow the advance. In January of 2012, the company ran out of options and declared bankruptcy.
The irony of this tale is that KRL (Kodak Research Labs) invented the CCD array (i.e. a sensor used to capture digital images). Kodak sold its patent to Sony in the 1980s.
Why did Kodak sell this great invention? The answer is simple. Kodak executives recognized that the world would change. But they did not believe it could change rapidly. Digital photography needs large computer memories and high-resolution sensors. Never, in their wildest dreams, did Kodak management foresee a day when the costs of these components would drop through the floor while their capabilities flew through the roof. Kodak wrongfully assumed that they could milk their cash cow for decades.
So, what does the Kodak story have to do with ESG? Again, the answer is simple. I am troubled by the large number of Utah politicians who wrongly identify ESG as a “deliberate politicization of financial systems” and “Satan’s plan”.
As the Kodak story demonstrates, business systems change quickly once a tipping point is crossed. If organizations fail to plan for the “tip”, they will fall. In the span of a decade, Kodak went from being one of the most profitable companies in the world to going bankrupt. It had been in business for more than a century. It made high-quality products and it was an excellent community partner. But that made no difference. The world changed. Kodak was not prepared. End of story. (At least, end of story for Kodak.)
Recently, The Salt Lake Tribune has covered the changing dynamics of energy generation. The price of solar panels and wind turbines have dropped while efficiencies have improved. It is cheaper to generate electricity using renewable resources than to burn coal.
In its reporting, The Tribune has identified the same “cast of characters” (reduced costs, increased efficiencies, improved economics, etc.) that the managers at Kodak failed to recognize. This “cast of characters” ultimately led to the demise of a once great company. If current government leaders fail to recognize these characters and their abilities to disrupt, I fear history will repeat.
ESG works hard to ensure economic “wins” in the short term do not hinder long-term prosperity. It is a way to encourage investment agencies to consider current environmental, social and governance issues while making financial decisions. Trust me, I wish there had been some sort of ESG providing guidance when I worked at Kodak. When the corporation collapsed, so did my retirement portfolio which was burdened with Kodak stocks.
Aaron Breen, Riverton, is a retired electrical engineer who dabbles as a business improvement consultant.