Hugging The Tree-Huggers

Why so many companies are suddenly linking up with eco groups. Hint: Smart business

When William K. Reilly was plotting the private equity takeover of Texas utility TXU Corp. (TXU ), he foresaw one potential dealbreaker. It wasn't the money. The two main investors--Texas Pacific Group, where Reilly is senior adviser, and Kohlberg Kravis Roberts & Co.--wouldn't have any trouble financing the $45 billion deal. Nor was it about getting regulatory approval. Instead, says Reilly, "we decided the walk-away issue for us was not getting environmentalists' support."

So Reilly called Fred Krupp, president of Environmental Defense, whose Texas attorney, James D. Marston, had been waging an all-out war on TXU's plans to build 11 coal-fired power plants. Krupp told Marston to hop on a plane to San Francisco for a top-secret meeting with Reilly's team. "I ran home, got a suit, took the dog to a kennel, and told my wife I loved her but couldn't tell her what it was about," says Marston.

The ensuing negotiations were often tense. Enviros referred to TXU's expansion plans as the "Mein Kampf of the global warming wars." When Reilly heard that, he recalls telling his colleagues: "'This will be harder than I thought." After a marathon 17 hours, Reilly ended up giving Marston a big chunk of what he wanted: commitments by the new TXU owners to ax 8 of the 11 proposed plants and to join the call for mandatory national carbon emissions curbs. Meanwhile, the corporate raiders got exactly what they craved: public praise from Environmental Defense and the Natural Resources Defense Council (NRDC) for the deal.

Why was that so important? "We all swim in the same culture--and the culture is going green," explains Reilly. Indeed, Americans find nongovernmental organizations, like green groups, more credible than business, according to the Edelman Trust Barometer, an annual survey. That's a switch from five years ago, and it gives activists additional clout. "Companies have to be seen as responsible," says Karen Van Bergen, vice-president of McDonald's Europe.

The TXU takeover is a sign of a remarkable evolution in the dynamic between corporate executives and activists. Once fractious and antagonistic, it has moved toward accommodation and even mutual dependence. Companies increasingly seek a "green" imprimatur, while enviros view changes in how business operates as key to protecting the planet.

Examples of this new relationship are as ubiquitous as Al Gore at the Academy Awards. Wal-Mart Stores Inc. (WMT ) turned to Conservation International to help shape ambitious goals to cut energy use, switch to renewable power, and sell millions of efficient fluorescent bulbs. When the CEOs of 10 major U.S. corporations converged on Washington on Jan. 22 and issued a call for mandatory carbon emissions limits, sitting with them at the table were Fred Krupp and the president of the NRDC. And after Silicon Valley Toxics Coalition activists got Dell Inc.'s (DELL ) attention by chaining themselves to computer monitors, they worked with the computer maker on a groundbreaking recycling plan. "Companies have decided it is better to invite us into the tent than have us outside picketing their keynote speeches," says Silicon Valley Toxics Coalition founder Ted Smith. "It's a long way from where we started."

Twenty years ago, for instance, current Greenpeace International chief Gerd Leipold was cruising the Rhine, taking action against corporate polluters. He and his comrades would block pipes spewing effluents into the river and sometimes pump the waste back. Now he can be found wearing a pinstripe suit, standing with CEOs, and heaping praise on companies he sees as doing the right thing. "We've shifted from just pointing out the problems to pushing for real solutions," says Leipold. "When congratulations are deserved, we offer them."

For companies, alliances with environmentalists can help both the bottom line and the public image. "We used to see Greenpeace as the enemy," says DuPont CEO Charles O. Holliday Jr. Now DuPont employs Paul Gilding, former head of Greenpeace International, as a paid consultant, and the company ranks high on lists of green leaders. "We work with our enemies," says Holliday.


Of course, there are limits to this cooperation. Greenpeace is so anti-nuke that there is no room for discussion with utilities pushing nuclear power plants. And collaboration can be a tricky balancing act. Anthropologist and law professor John M. Conley at the University of North Carolina at Chapel Hill believes that environmentalists' shift from accuser to partner might co-opt and defang the activists. Even though the mainstream groups adamantly refuse corporate money, they could lose their edge. "Would Silent Spring have come out of a stakeholder dialogue?" Conley asks, referring to Rachel Carson's 1962 environmental opus.

Indeed, Greenpeace and others have been accused of selling out by some of their own members. Leipold admits that it's often hard to tell if companies are using activists' support as mere PR, or "greenwashing." But executives' original motives may not matter, he asserts. Once a company commits to phasing out toxic fire retardants, as Dell has, or to slashing energy use and greenhouse gas emissions, on the model of Dow Chemical Co. (DOW ), then activists can hold them to the promises. Plus, Leipold notes, companies have hired "sustainability" gurus to help them tackle social responsibility issues. "Even if the people who employed them are cynical, I think [the gurus] are turning out to be a subversive element in the companies," he says.

The green movement hasn't abandoned its swashbuckling tactics. Greenpeace's ship Esperanza has been cruising the Southern Ocean, ready to put itself between whales and the harpoons of Japanese whalers. But such tactics are often unnecessary. These days, the mere threat of bad publicity can force business to change. Executives remember how Nike Inc. (NKE ) took a beating over labor practices in the mid-1990s. "No one wants to be the next Nike," says Smith of the Silicon Valley Toxics Coalition.

That gives activists new power. On the eve of the 2000 Sydney Olympics, sponsored by Coca-Cola Co. (KO ), Greenpeace launched an e-mail campaign against the soft-drink giant. The charge: using a potent greenhouse gas in its 9 million to 10 million coolers and vending machines.

Coke responded quickly. "Our reputation is important to us. So rather than become defensive, we asked what we could do," says Jeff Seabright, Coca-Cola's vice-president for environment and water resources. Since then, Coke, PepsiCo (PEP ), Unilever, and McDonald's (MCD ) have spent $30 million developing a less damaging system, displayed at January's meeting of the World Economic Forum in Davos with a "technology approved by Greenpeace" banner. This image building has a bottom-line benefit. "Providing environmental value is becoming a competitive edge for business," explains Seabright.


Sometimes even the traditional tactics don't work. Greenpeace tried to save old-growth trees in Alaska with a classic logging-road blockage. "It flopped," says John Passacantando, director of Greenpeace USA. The local press was hostile; the national press was bored.

So the activists switched gears. They traced the path of downed trees and found that old-growth spruce ended up in musical instruments. A year ago, Greenpeace warned guitar makers that the wood they need could disappear. "It sent shock waves through the industry," says activist Scott Paul. Executives trekked to Alaska and are working on a plan to set aside land. "We are thankful they contacted us," says C.F. Martin & Co.'s Dick Boak: "It's great to have Greenpeace as a partner and ally."

There are some corporate holdouts. Apple Inc. (AAPL ) is resisting Greenpeace's "green my apple" campaign, which calls for more recycling and fewer toxic chemicals. "We disagree on their criteria," says Apple's Steve Dowling. When the group targeted McDonald's Corp. and KFC Corp. (YUM ) for using chickens fed with soybeans grown on deforested land in the Amazon, McDonald's agreed to stop. But KFC (YUM ) refused to talk, denying that any of their chickens ate Amazon soy.

Meanwhile, chemicalcompanies such as Dow know that the tree-huggers won't stop criticizing them, no matter how much energy or how many greenhouse gas emissions they reduce. "Our job is not to please or convince the activists," says Scott Noesen, Dow's director of sustainable development. "The best we can do is set meaningful targets and report on our successes and failures and dilemmas."

Still, Dow has given activists a seat at the table. In the old days, recalls Texas Pacific Group's Reilly, former head of the Environmental Protection Agency, green activists were "banging on the door trying to get into the room where decisions are made." Now, they're in the room and hard to miss.

By John Carey, with Michael Arndt in Chicago

    Before it's here, it's on the Bloomberg Terminal.