A human resources executive at a Fortune 500 natural gas company, acclaimed for world-class environmental and sustainable energy solutions, recently bemoaned his firm’s inability to interest talented students in employment opportunities with his firm – even during the softest recruiting year in memory. His explanation: students believe the oil and gas industry is broken.

And no wonder.

Words and actions of opinion leaders in media, government, academia, and even business make it appear that the industry is focused solely on money and profits for shareholders without regard for the environment or the communities in which it does business. For example, accounts of the 2010 Macondo oil spill in well-read business publications indicted the entire offshore drilling industry along with BP’s approach to managing safety and risk.

Similarly, journalists and politicians publicly question the effects of transforming densely settled urban and suburban areas into “heavy industrial sites” to produce natural gas, saying that contamination and pollution result in unacceptable health risks that demand restriction through taxation and regulation.

To counter these perceptions, industry spokespeople point out that technology has enabled the energy industry to meet the rising worldwide demand for fuel, power generation, and petrochemical feedstock with expanded supplies; more efficient extraction, production, and distribution methods; and lower emissions. They speak about research results that show that offshore industry professionals have extremely high job satisfaction scores. These rebuttals have not been effective in stemming the tide of negative perceptions about the industry, however.

The truth? It is a mixed bag. There are many strong, effective, and ethical leaders in the oil and gas industry who are highly motivated to bring discipline and purpose to the forefront in both practice and perception. However, there are other companies that are just coming around to this viewpoint, and yet others that are lagging.

The entire industry needs to more swiftly develop new paradigm leaders or risk that the laggards’ actions will continue to serve as a drag on the industry’s reputation.

A new leadership paradigm

So what does the industry need to do to change the perception that it is broken, establish trust with customers, and attract a new generation of employees? A very good start would be to embrace a new type of leadership that rewrites the broken script that has left certain companies unable to adapt to the leadership demands of the 21st century. This new leadership model provides a different framework for the industry to address its challenges, one founded on the pillars of purpose, ethics, and value for multiple stakeholders. The new paradigm demands an expanded set of leadership capabilities at all levels in oil and gas firms. Purpose. New paradigm leaders articulate the organization’s larger purpose and focus on organizational rather than individual success;

Ethics. New paradigm leaders communicate truthfully and with transparency, maintain relationships based on reliability and reciprocity – in a word, trust – and stand up for their beliefs while providing channels for others to constructively address conflicts between stated and enacted values in the organization; and

Multiple stakeholders. New paradigm leaders strive to align the organization’s multiple stakeholders’ interests and get them moving in the same direction. This new thinking is already under way. Rex Tillerson, ExxonMobil’s chairman and CEO, articulates key elements of the new paradigm in ExxonMobil’s 2010 Outlook for Energy. “Demand for energy is tied to the human desire for a better life,” Tillerson writes. “By enabling people to become more productive – and expanding their opportunities – access to reliable, affordable energy can transform people’s lives and the communities in which they live. Energy also plays a key role in advancing social progress.

“Expanding access to modern energy will be essential to meeting global targets for reducing poverty and hunger and improving health and education.”

It is this kind of purpose put into motion that must guide actions and yield results. Purpose serves as a motivator for employees and a compass for the long-term direction of the company.

Of necessity, energy firms have long been among the most engaged within communities and the political entities with whom they operate. As the complex global industry matured in the 1960s beyond the founding generations of explorers, successive industry challenges made it difficult to embrace leadership behaviors beyond those focused on production, efficiency, and profits.

New paradigm leadership is a way to regain behaviors needed to gain trust and respect from a wide range of stakeholders: communities; customers; prospective employees; and opinion leaders in politics, education, and journalism.

Big payoff

The payoff for the energy industry to develop new paradigm leaders is potentially huge. New paradigm leadership can attract the best investors. A 2007 University of Pennsylvania Wharton School of Business study found that 30 companies that managed to optimize stakeholder value rather than shareholder value outperformed the S&P 500 at three-, five-, and 10-year intervals up to 700%. In Built to Last, Jim Collins and Jerry Porras show that organizations driven by purpose outperformed the general market 15:1 and outperformed comparison companies 6:1.

New paradigm leadership also can attract the best customers. The Edelman Trust Barometer shows customers take positive action based on their trust in a company, including 84% recommending it to friends and colleagues and 77% paying more for its products and services.

Research also shows trust and leadership integrity are key factors that move employees to higher engagement, bringing about greater customer loyalty, employee retention, productivity, quality, and safety. 2010 data from the Ethics Resource Center show that employees respond to an ethical culture with improved loyalty and willingness to go the extra mile. Organizations with strong ethical values experience less misconduct, more frequent reporting of misbehavior, and less retaliation on the job.

The biggest payoff for a new leadership paradigm in the energy industry could be its effect on new talent. Meeting the global demand for reliable and affordable sources of energy produced responsibly requires new technologies and enormous investments. As a result, the industry’s workforce will become increasingly skilled and sophisticated. At the same time, the industry faces an exodus of experienced employees as the baby boom generation retires. Attracting and retaining new skilled talent therefore is mission-critical.

If the industry were better known for its new paradigm – its larger purposes, its ability to align the interests of multiple stakeholders, and its ethical climate – it would do better in attracting and retaining talented young people, especially those of the millennial generation who wish to do well by doing good.

Talent pool

Based on the behavior of students at the Cox School attending undergraduate, graduate, and executive development programs, energy holds a lot of appeal as an industry because of its potential purpose. Student interest in these programs is growing, and the school is adding programs to meet the demand. However, many energy companies have a way to go in terms of moving from an interesting opportunity to a preferred employer or even an esteemed employer, such as a Southwest Airlines, Apple Computer, or GE. An energy industry guided by new paradigm leadership can attract the best talent, best customers, and best investors and thus face a bright future.

New paradigm oil and gas leaders must be multidimensional and embody the industry’s commitments, externally and internally, including those that express larger purpose, social legitimacy, and ethical responsibility. (Image courtesy of SMU Cox School of Business)