Tomorrow`s Global Company

Transcription

Tomorrow’s Global Company
the challenges and choices
Report of the conference held at Wilton Park, UK
September 2005
Tomorrow’s Global Company
the challenges and choices
Report of the conference held at Wilton Park, UK
September 2005
Tomorrow’s Company
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4 Victoria Street
London SW1H 0NE
t +44 (0)20 7222 7443
e [email protected]
www.tomorrowscompany.com
Charity registration no. 1055908. Registered office: 19 Buckingham Street, WC2N 6EF. ISBN: 0-9532874-9-1
Contents
Page
Preface
4
Overview of the Report
5
Conference Report
6
Introduction
6
Speakers
6
Opening Address
7
Mark Goyder, Director, Tomorrow's Company
7
The Key Challenges
8
Background Briefing on Global Trends
8
Will Day, Special Advisor, UN Development Programme
9
John Manzoni, Chief Executive, Refining & Marketing, BP
10
The Key Challenges - Conclusions from Discussion Groups
12
Leadership and Stakeholder Relations
14
Tim O'Brien, Vice President Corporate Relations, Ford
14
Leadership and Stakeholder Relations - Conclusions from Discussion Groups
16
Governance
18
Mervyn King, Chairman, Brait South Africa Ltd.
18
Governance - Conclusions from Discussion Groups
19
Reflections
20
Introduction
20
Contributions
20
David Vigar
20
Will Day
23
Philip Sadler
26
Jean-François Rischard
28
Peter Desmond
32
Mervyn King
35
Rebekah Young
38
Concluding Remarks
41
Tomorrow’s Global Company - the challenges and choices |
3
Preface
This report is the first fruit of a successful collaboration between
Tomorrow's Company and Wilton Park.
Tomorrow's Company engages leaders from business in addressing
those difficult questions that we all know to be important, but
somehow can never find enough time to address.
Wilton Park has a unique ability to provide a setting in which
busy people can find time to probe strategic questions about
business in an international context.
Both organisations are concerned with the future, and with
helping people think about that future. At the moment both are
thinking about the changing balance of economic power in the
world, about globalisation and about its impact on business, on
society and on the planet.
In September 2005, we brought together a wide group of people.
Some came from the business and investment community,
including a number of corporate members of Tomorrow's
Company. Some came from the Foreign Office, other parts of
government and from Wilton Park's wide network of diplomatic
and parliamentary contacts. Others came from the churches,
trade unions, and international and local organisations
representing civil society.
We asked some profound questions:
What are the main challenges facing the global company of
the future?
How will the global company be led?
How will the global company be governed?
The discussion that followed proved powerful in shaping the
design of the inquiry that Tomorrow's Company is now
developing, and in helping Wilton Park as it develops its own
future programme. We hope that this will be the first of a series
of joint conferences. Our thanks to speakers, participants and all
those who helped to make the event such a success.
Adela Gooch OBE
Associate Director
Wilton Park
4
| Tomorrow’s Global Company - the challenges and choices
Mark Goyder
Director
Tomorrow's Company
Overview of the Report
The conference was held in September 2005 and was designed
as a two-day consultation for leading thinkers and practitioners
to share experiences on the nature of the global company of
the future.
The following report is not a comprehensive report of all the
proceedings. It captures the main points made by selected
speakers, the key conclusions that emerged from the discussions
and some reflections on the key conference themes.
The points recorded from the discussions are those which
commanded a broad consensus in the groups. However, it should
not be assumed that every attendee agreed with each of the
points made.
5
Conference Report
Introduction
This section begins with a list of the speakers and a summary of
the opening address.
The remaining content in this section covers the main speeches
and outputs of the discussion groups and is divided according to
the three core themes of: Key Challenges, Leadership and
Stakeholder Relations, and Governance.
These three core themes correspond directly to each of the
three central conference questions outlined in the Preface.
Speakers
Bishop Michael Nazir Ali, Bishop of Rochester
Dr Paul Brown, Organisational Psychologist
Will Day, Special Adviser, UN Development Programme
General Sir John Deverell, former Commander in Chief,
NATO Allied Forces Northern Region
John Evans, General Secretary, Trade Union Advisory
Committee to the OECD
Mark Goyder, Director, Tomorrow's Company
Peter Hill, Head of Policy, Directorate of Strategy and
Information, Foreign and Commonwealth Office
Mervyn King, Chairman, Brait Société Anonyme and Senior
Counsel, Supreme Court of South Africa
John Manzoni, Chief Executive, Refining & Marketing, BP
Tim O'Brien, Vice President Corporate Relations,
Ford Motor Company
Jean-François Rischard, Consultant, Author and former
Vice President, World Bank
6
Opening Address
Mark Goyder, Director,
Tomorrow’s Company
Mark Goyder opened proceedings by surveying the future
environment for business, noting the rapid growth of the
trans-national business entity as a powerful force in world
affairs. He pointed out that whereas in 1990, there were 3000
trans-national companies, today there are over 40,000.
...in 1990, there were
3000 trans-national
companies, today there
are over 40,000...
For some of these, globalisation has come to mean much more
than operating across national boundaries. While they still
have home bases and are quoted on one or other of the world's
leading exchanges, the removal of barriers to the free flow of
capital, labour and services means they are emerging as truly
global companies, characterised for example, by an
international management cadre and a distinctive company
culture which draws on the mix of backgrounds represented by
staff and stakeholders.
These global companies operate in countries with varying levels
of wealth, infrastructure and government experience and their
actions can have a dramatic effect on their hosts' fortunes.
The pace of development, the emergence of new markets and
their own growing power provide them with unprecedented
opportunities as well as new burdens of expectation about their
potential to influence issues such as human rights, poverty,
health and climate change.
The growing power of
companies provides them
with unprecedented
opportunities as well
as new burdens of
expectation...
In this situation, a global company needs a clear vision of its
purpose as well as clarity in the messages it communicates about
the approach it takes in addressing major issues at national and
global levels. At the same time it is important for the global
company to see itself as others see it - and to understand the
criticisms that are made of the unfairness of the global trading
environment, and the growing inequalities and other negative
impacts that are felt to accompany globalisation.
7
The Key Challenges
Background Briefing on Global Trends
In an initial session on major global trends and the links between
them, the main areas covered are Asia, climate change, poverty,
governance, terrorism and the challenges faced by nation states.
In terms of Asia, China
is seen as being in a
league of its own in
growth and scale...
In terms of Asia, China is seen as being in a league of its own in
growth and scale. India, whose population is forecast to overtake
China's within 20-30 years, is also very significant as a future
economic power and other Asian countries such as Vietnam are
developing fast. Asian development is generally seen as positive,
with millions being lifted out of poverty and foreign investment
growing. The problems being faced are the unevenness of
growth, increasing inequality, rising expectations and the
environmental impact.
The impact of increasing energy consumption in fast-growing
economies is a major factor in climate change, evidence of
which is becoming firmer every time it is examined. The
projected impacts of climate change will fall on those least able
to cope. Intolerable temperatures, crop failures, water shortages
and coastal erosion are likely to hit equatorial and other
developing populations hardest, for example the 25 million
people in coastal areas of Bangladesh. Technologies exist to
combat climate change but there is a need for government to
give business the necessary impetus to transform the potential
into reality.
Supporting development
is not only a moral
imperative. Poor
governance and poverty
are drivers of instability,
conflict, migration and
crime...
Globalisation is an opportunity for most countries but a
significant minority lack the basic means to attract investment
or profit from trade liberalisation. Supporting development is not
only a moral imperative. Poor governance and poverty are
drivers of instability, conflict, migration and crime and can
combine with other factors to create the conditions from which
global terrorist networks can profit whether through recruitment
or by finding sanctuary. These networks offer a new and
compelling narrative to potential adherents and take advantage
of globalisation, using the internet and banking systems to
organise and finance their activities.
The EU is facing challenges as an organisation, wrestling with
questions of identity and the balance between deepening and
widening the scope of a supra-national body. The nation state
too, is facing a range of challenges to the way it traditionally
works due to globalisation and changing public expectations.
8
Will Day, Special Advisor,
UN Development Programme
Will Day focused on some specific challenges and opportunities
that the next 50 years will create for global businesses. In terms
of population, the current world population of 6 billion is likely
to grow to about 9 billion (median estimates) in 2050, with all
the projected growth occurring in developing nations. And while
the numbers living in rural areas worldwide and in the towns and
cities of the developed world is reaching a plateau, the urban
population of the developing world is expanding fast. Indian
cities are expected to grow by 300 million in 20 years. 24,000
Chinese villages have been abandoned in the last decade.
The current population
of 6 billion is likely to
grow to about 9 billion
in 2050...
For primarily environmental reasons, development and the
arrival of jobs are critical but on their own do not necessarily
mean a route out of poverty. Inequality is also increasing both
between and within economies, with around half a billion people
working for under a dollar a day. Inequality is more than just
about money; women and girls represent 80% of refugees and
60% of unschooled children, but just 11% of Fortune 500 CEOs.
Environmental challenges include the depletion of natural
resources far faster than they can be sustained - from fish stocks
to oil - and climate change. The world is currently consuming
the resources needed to support 1.2 planets. By 2050,
consumption will be that needed for 2 planets if nothing is done.
By 2050 consumption
will be that needed for
2 planets if nothing is
done...
The overall picture is one of “human-caused un-sustainability”,
including altered biogeochemistry, threats to the biological base,
swelling population, persistent deprivation, social disintegration,
and declining renewable resources.
9
John Manzoni, Chief Executive,
Refining & Marketing, BP *
The social contract that
allows companies to be
as large as they are, is
that they become
engaged in the challenges
the world faces...
John Manzoni's key message was that for business to succeed, it
needed to be engaged with the society that surrounded it. “Part
of the bargain, the social contract which allows companies to be
as large as they are, is that they become engaged in the
challenges the world faces, rather than dismissing them as
someone else's problem.”
He said that the inquiry into 'Tomorrow's Global Company - the
challenges and choices', being developed by Tomorrow's
Company, was valuable to BP because although the company had
experience as a global operator and had taken many initiatives
in engaging with society, the company still had a lot to learn.
Twenty-five years ago,
only one barrel of oil
in every seven was
consumed in Asia.
Now the figure is one
in three...
...the approach of
'command and control'
will not work effectively
at the global scale...
10
Arguing that the most dramatic change of the last two decades
is globalisation, he noted that the market capitalisation of the
companies listed on the New York Stock Exchange rose five-fold
since 1980 as world trade tripled. However, Manzoni also
observed that many people - perhaps two billion - still live and
work outside the international economic structure. Asia is
accounting for a large share of growth. Twenty five years ago,
only one barrel of oil in every seven was consumed in Asia. Now
the figure is one in three.
Manzoni examined challenges raised for companies by these
trends. First among these is the absence of a framework of
global rules. There is no overall global legal or regulatory
framework to match the global nature of business. International
institutions are rudimentary, built for a different age. Trade
issues are partly subject to global agreement but environmental
issues, investment protection and questions of intellectual
property are not fully agreed. Companies therefore need the
capacity to deal with multiple systems of regulation. They also
need to adopt a new kind of organisational model because the
approach of 'command and control' will not work effectively at
the global scale with operations in hundreds of jurisdictions and
the need for local management to respond to unexpected
events. This requires a “new combination of corporate culture,
values, and standards - all of which establish an aligned intent
within which people can make the day to day decisions and
judgements which are required.”
While alignment of values is needed, a 'mono-cultural'
management is an anachronism.“The colonial approach to
business is now a relic of history. It is impossible to do business
in China, or India, or Russia, or indeed anywhere without
employing local staff in senior roles.” Manzoni argued that
businesses need to be meritocracies in which good people can
progress without needing to conform to a western, Anglo-Saxon
set of values. They need people from all backgrounds who can
work across cultures and bridge the divides - a “skill which
doesn't appear on the curriculum of many business schools”.
Global companies also need to form a view on their
responsibility for “externalities associated with business
activity”, for example the impact of energy companies on the
environment or on local economies. Businesses need to have a
view on the limits of their legitimacy and make clear when they
are approaching the boundary line. But in defining the limits of
their role they have to recognise the reality of their impact and
apply skills and technology to make the impact a positive one.
The definition of business legitimacy also needs to recognise the
long term interest of business in the development of the places
where they work, so for example, investing in education in
Africa or Asia might help enhance a company's long-term
position. Countries have differing approaches to relations
between private and public sectors and companies need to be
willing to work in partnerships with states or state companies to
achieve progress.
Manzoni concluded by rejecting the attitude that businesses
working in poor countries can address poverty by dealing only
with the rich minority in the hope that wealth would 'trickle
down' to the rest. He did not think companies would be
comfortable operating in the midst of deep poverty and doing
nothing about it. They need to find business models that work at
the bottom of the economic pyramid. He gave the example of BP
providing solar energy in India and Africa and looking to improve
retail distribution of energy in developing countries. He
concluded by saying that the global challenges are matched by
opportunities, with business experiencing “the largest ever shift
in scope and scale for a huge number of business enterprises.”
Businesses need to have
a view on the limits of
their legitimacy...
Companies need to find
business models that
work at the bottom of
the economic pyramid...
* A complete version of John Manzoni’s speech is available to download
from www.bp.com
11
The Key Challenges - Conclusions from
Discussion Groups
Moving the debate on: Trends such as conflict; technology;
poverty; the environment; and population growth are identified
as a 'first tier' of challenges. However, while these still need to
be monitored and understood, the debate should be moving on
from analysis of now-familiar trends to focus more on how
companies can respond to them.
The complex energy challenge: The challenge of energy and
the environment is multi-faceted. The long-term environmental
imperative is to reduce fossil fuel consumption while the short
term imperative is to increase energy consumption to meet basic
needs, increase life expectancy and lift people out poverty.
Technology has huge potential to help square the circle.
Changing patterns of shareholding: In some cases the ownership
of business is becoming more opaque, for example through
increasing hedge fund involvement. This makes the shareholders'
interests harder to define. In other cases shareholder activism is
growing, focusing attention on specific issues. Institutional
shareholders are becoming more active and vocal. Equity holders
such as pensions funds are conduits for the public's money and
this link should be more explicit.
Poor framework conditions: Many countries have poor
frameworks of law, regulation, intellectual property rights and
infrastructure. This can make it hard to operate or allow lack of
principle to become competitive edge. These occur when policy
frameworks are undeveloped or after regime changes such as in
the aftermath of the fall of the Iron Curtain.
Global policy vacuums: The groups echoed John Manzoni's
observations on the problems caused by the lack of global policy
frameworks in areas ranging from the environment to
intellectual property rights.
Short-termism: Companies face pressure from shareholders,
customers and others to deliver high value, new products and
competitive prices in the short-term which may impair chances
of investments that address social and environmental issues for
the long-term.
12
Relationships: Roles of governments, private sector companies
and civil society organisations are changing. Businesses need to
increase consensus on issues such as the extent to which they
are prepared to share roles with governments. Countries vary in
the sharpness of the distinction between private and public
sector roles. The combination of private sector efficiency and
drive with public sector capacity and focus can be powerful.
Global companies can be small or medium sized niche players
which have specialised expertise and these may have a role to
play in helping the 'giants' deal with specific issues.
Culture clashes: Working in unfamiliar cultures can cause a
number of business-threatening problems including excessive
caution, misunderstanding of motives and failure to discern
the priorities of customers or partners. An example given is
of a European and a US company who both wish to operate in
China at a time when there are impending changes in regulation.
The US Company starts operating immediately, while the
European Company cautiously waits to see what the outcome
of the regulatory change will be. The US Company is the more
successful.
13
Leadership and Stakeholder
Relations
Tim O'Brien, Vice President Corporate
Relations, Ford
Institutional shareholders
are also relinquishing
their traditional
passivity and expressing
views on a variety
of issues...
Tim O'Brien reviewed the relationships of his company with its
various stakeholder groups, observing that they are all in a
dynamic state. Shareholders are becoming more active. Despite
Ford's traditionally stable shareholder structure, with 40% of the
voting shares in the hands of the Ford family and a high
proportion of long-term shareowners, there is growing pressure
from particular shareholder groups on major issues such as
climate change and fuel prices. However, these are issues that
have high priority in the company not just because of this
external pressure but because they are important business issues
that need to be addressed. Institutional shareholders are also
relinquishing their traditional passivity and expressing views on
a variety of issues.
Among staff, there is less expectation of a job for life and a
relationship of mutual dependency with the company. While
it has been common for multiple generations of a family to
work for Ford, it is becoming recognised that levels of health
benefits and pensions are under pressure from the ageing
population and many employees now seek the chance to acquire
skills and experience rather than a job for life. Social and
environmental challenges are becoming more of a motivating
factor for employees.
NGO strategies vary between the confrontational and
collaborative. The two keys to managing relationships are being
transparent and asking that people deal with each other in a
respectful manner.
Relations with customers are changing in two ways. First, the
traditionally loyal “Ford family” is disappearing. With many
excellent products available, competition on price is fierce.
Second, on social issues, companies are increasingly being
expected to take on the leadership role traditionally occupied by
governments. Historically, companies' involvement in this area
has taken the form of philanthropy but they are now being
expected to take the initiative.
14
O'Brien concluded by saying that 'society' is not a monolith.
It contains a rich diversity of views and therefore dealing with
society is not like a technical problem that can be 'solved'.
Changing relationships are being reflected in changes in how
companies seek to distinguish themselves from one another.
Price, quality and service are no longer sufficient differentiators.
Distinctiveness is now much more relationship-oriented, with
features such as family values, sustainability, innovation and
involvement in policy being valued. Engagement is the key. It
always improves relationships and never diminishes them.
Distinctiveness is now
much more relationship
oriented with features
such as family values,
sustainability, innovation
and involvement in policy
being valued...
15
Leadership and Stakeholder Relations Conclusions from Discussion Groups
Delegation: 'Command and control' is obsolete. Leadership must
be distributed geographically and hierarchically. This involves
clear delegation to establish responsibilities. Strong values
provide the compass in situations where there is no chance to
'refer up' or when there are no external constraints because of
poor framework conditions or policy vacuums.
Purpose and values: The leader's role is to set direction and
articulate purpose and values. This does not simply mean
'mission statements' but a clearly communicated sense of what
the company stands for that can be applied to specific situations
and guide decision-making.
'Beyond shareholder value': Purpose goes beyond shareholder
value. It includes moral leadership as seen in 'The HP Way' or
Johnson & Johnson's 'Credo'. Such classic definitions of purpose
often focus on creating products or services that improve
customers' quality of life and contribute to human progress.
Global business models: Companies can choose between various
business models to manage increasingly far-flung global
operations. The 'exporter' model where a company uses
expatriate managers to replicate the approach taken at 'home' is
increasingly out-dated. Other options are the 'multi-local' model
in which companies tailor their operations to local markets and
accept wide diversity of culture and process; and the integrated
global approach in which authority is decentralised but there are
obligations to observe common values, processes and codes. It is
doubtful whether there are any companies which do not still
retain some preferences towards their original home country - in
locations, choice of management and directors, and culture.
Diversity and inclusion: The ability to operate successfully
across cultures and to attract and advance a range of talented
people from different backgrounds is seen as a strong factor in
competitiveness. Leaders should ideally be 'citizens of the
world', with experience in different cultural contexts and the
ability to see issues from different perspectives. Whatever they
might lack in this respect can be offset by promoting diversity at
local level, and delegating decisions to local leaders.
16
Identifying interest groups: 'Society' can be a confusing term.
Often, it is more productive to think in terms of the specific
interests of particular groups. Key stakeholders are usually
shareholders, customers, suppliers, local communities and
employees. Countries can be stakeholders when the company's
operations are a major factor in the economy. Future
generations can also be seen as stakeholders.
Adaptation: Companies have to be sensitive to changing
expectations, being prepared to revisit their purpose and values
and modify their priorities. However it is better to anticipate
change than react to it.
Enlightened self-interest: It is important for companies to
understand and articulate their own interests in promoting
progress. Treating staff badly or acting irresponsibly creates a
financial cost. Therefore, treating staff well and acting
responsibly is a form of cost avoidance as well as being positive
for business and society. Global companies can often take a
longer-term view than governments and therefore devise
responses to long-term challenges without the distraction of a
political agenda. An example was the research supported by
private sector companies into solutions to climate change.
17
Governance
Mervyn King, Chairman,
Brait South Africa Ltd.
Mervyn King spoke from the experience of chairing a major
investment group, serving as director of several companies,
sitting as a judge and chairing the committee that produced the
influential King Report on corporate governance.
Good governance springs
from integrity and
intellectual honesty
rather than from
compliance with external
standards...
The company itself is like
an 'incapacitated friend'
without the ability to
express its own views or
values...
18
King argued that a director's duty is to act in the interests of the
company but also as a decent citizen, mindful of the public
interest. The public has greater stakes in governance than many
of them realise, as their pension and medical funds are used to
finance companies and the institutional holders of equity are
conduits for money belonging to the person in the street.
Good governance springs from integrity and intellectual honesty
rather than from compliance with external standards. Legislation
tends to focus on quantitative factors - how many non-executive
directors a company has, how many board meetings they attend,
the existence of audit and remuneration committees.
Good governance consists of more than 'mindless compliance'
with such criteria - Enron had scored highly on such factors.
The Sarbanes-Oxley legislation focuses on the minutiae of
governance in an effort to root out corruption, but King argued
that it is in fact impossible to legislate against dishonesty. Good
governance is founded on intellectual honesty and developing
the right culture in a company - 'how we behave when no-one
is watching'.
He said that directors should focus on fundamentals rather than
details, for example having a clear view of the purpose of their
business - and understanding that the purpose should not be
making money, as this is an outcome rather than a purpose. They
need to understand that they are the decision-makers and source
of company values. The company itself is like an 'incapacitated
friend' without the ability to express its own views or values.
The directors are the heart, mind and soul of this incapacitated
company. Boards need to ensure companies have a balance
between conformance and performance, while remembering that
performance is the ultimate responsibility. Directors need to
ensure they devote sufficient time to their roles and fully
understand the issues at stake. Rather than keeping quiet on
difficult technical or financial topics they need to ask the 'dumb
questions' that give them insight and which challenge executives
and colleagues.
Governance - Conclusions from
Discussion Groups
Unchanging principles: Principles of good governance are
timeless - defining purpose and values; developing the culture
to deliver them; identifying those who should benefit
from company activity; developing business plans; monitoring
and reporting.
Accountability: The directors' responsibility is to the company.
Board members should not represent any particular stakeholder
group, as such a representational mandate conflicts with
responsibility to the company itself. Interests of stakeholders
should be addressed through applying values rather than formal
board representation.
'Capital providers': A company is a sovereign entity.
Shareholders can only be seen as 'capital providers' rather
than 'owners'.
Measuring success: The ultimate 'social responsibility' is the
company's performance in fulfilling its purpose, rather than
returns to shareholders. Returns are an outcome, not a purpose.
Competing principles between EU, US and others: It is noted
that the US is a rule-bound environment with many constraints
on business, whereas the EU is more based on principles with a
number of different systems competing within the region.
19
Reflections
Introduction
The following section contains a collection of articles that were
submitted by a select group of attendees from the conference. It
was designed to give this group the opportunity to contribute
further to the debate around the conference themes by offering
some more in-depth opinion.
Contributions
David Vigar
True or false? “There is an intense debate in progress about the
role of business in society.” This is a statement that I hear, read
and indeed write on a regular basis. But I'm becoming a little
uneasy about it. There is certainly some kind of debate going on.
This publication is proof of that. But exactly how widespread is it?
My sense is that the
'debate' about the role
of business in society is
happening within a
relatively small circle...
This week I read several daily broadsheet newspapers. I read
articles about major global issues that relate to business climate change, poverty and trade talks. I read stories about the
business world itself - takeovers, flotations and so on. But I
didn't read anything about the wider role of business in society.
Neither did I see it on TV or hear it on the radio. It didn't come
up at the dinner party I went to and it certainly wasn't a talking
point in the pub. My sense is that the 'debate', such as it is, is
happening within a relatively small circle - populated by
enlightened business people and a cluster of consultancies,
think-tanks and NGOs. It occasionally surfaces in the media, but
it's not a running story.
On one level this doesn't matter much. In fact it makes sense for
businesses to hammer out some common ideas in relative
seclusion. But what we cannot do is pretend that the current
debate is going to deal with the issue on which it is frequently
predicted, namely mistrust of business among the general
public, as evidenced in opinion polls.
20
Meanwhile the debate in the business community forges ahead,
and the most progressive leaders are now far ahead of their
peers, let alone the public, in defining a positive vision for
business. While there are still companies out there talking about
'giving something back' to society - as if they spent most of their
time taking something away - others have moved to a place
where they see the whole purpose of their organisations in terms
of the benefits they deliver for society - seeing profit not as a
purpose but as the measure of success. In this they are reviving
the vision of great entrepreneurs - Henry Ford, Masaru Ibuka of
Sony or even Bill Gates - the thrill of creating something that
drives society forward and having customers flock to buy it. The
theme isn't new, but it went missing for a while.
The problem is that this brave thinking isn't reaching the public.
And if business leaders want to turn around public opinion, they
need equal bravery - and professionalism - in the way they
communicate. First, that involves market research, qualitative
as well as quantitative, to uncover why people distrust business
and work out how to respond. My hunch is that people's exposure
to 'big business', via the media, is in frequent exposure to
executive pay, corporate scandals and allegations of
exploitation.
...if business leaders
want to turn around
public opinion, they need
equal bravery - and
professionalism - in the
way they communicate...
They don't connect these to their frequent and positive
experiences of the same businesses in the shopping mall, the
service station or the pension fund. The way to counteract such
impressions is to show people a bigger picture, with all the
positives about jobs, innovation and progress that act to
outweigh or rebut the negative issues.
Having honed the message, there are two specific actions that
business could take to reach a wider audience. First, they could
exploit their customer interfaces as channels for communication,
using cause-related marketing, fair trade, literature, ads on
carrier bags - whatever it takes to get the message across.
Second, businesses could create more of a debate in the media.
Generally, asking a senior executive to do an interview on an
issue beyond their own business is a little like tapping a general
on the shoulder mid-battle to ask if they fancy a game of
snooker. However, if business people want to have an impact on
public opinion, they can't ignore the obvious communication
channels. Why is Richard Branson one of Britain's best-known
business people?
...if business people
want to have an impact
on public opinion, they
can't ignore the obvious
communication
channels...
21
...the survivors will be
those who have invested
some reputational
capital, who have built
trust, who have not only
done the right thing but
explained what it is...
Ultimately it's a question of how much it matters. If you are a
business leader who feels your business is doing the right thing,
do you really need to start engaging customers and going on TV?
I think two factors are critical here. First, we live in an age
when politicians increasingly take their cues from the public and
where gaining public support may be a better lobbying lever
than a 'quiet word'. Second, mistrust of business may currently
be subdued, rather than flaring up in boycotts and protests. But
things could change. A new rash of scandals, a tipping point in
concern over the climate, a mutation of the anti-poverty
campaign into an anti-business campaign, and mistrust might
quickly turn into anger. At that point the survivors will be those
who have invested some reputational capital, who have built
trust, who have not only done the right thing but explained what
it is. In selling their products, businesses are good at being
proactive. Maybe they now need to be proactive in telling their
story as well.
David Vigar is a writer and communications consultant. He is a
former producer of the BBC Radio 4 Today Programme.
22
Will Day
Companies operating globally in the next twenty or thirty years
will exist in what will almost certainly be the most rapidly
changing and dynamic business environment ever. To survive and
prosper, they will need to have confidence in their understanding
of emerging risks and opportunities, and be prepared to redefine
their approach to, and their treatment of, risk. It is worth
remembering that Nokia started its life as a timber company,
and that level of flexibility, and preparedness to move with the
times and to evolve with emerging opportunities on the basis of
robust understanding and analysis are likely to be the hallmarks
of the survivors.
Companies operating
globally in the next
twenty or thirty years
will exist in what will
almost certainly be the
most rapidly changing
and dynamic business
environment ever...
At the most practical level, the process of moving the global
economy away from carbon, and at the same time the
movement towards greater global equity in the use of energy,
will bring about dramatic changes in production methods and in
the way that companies work, transport goods and travel. There
will clearly be winners and losers in this shift and organisations
that are light on their feet, open to change and prepared to
adapt to the new reality are likely to succeed.
As a planet we are already extremely late to make the necessary
change away from carbon. The direct impact of climate change
will also therefore need to be factored into the analysis, with
significant increases in natural disasters, potential large scale
migration, changes in sea level, fresh water availability and
shifting food production.
Without question, India and China represent the two great
economic, social and political unknowns. Their current and
inevitable growth and their potential economic dominance
are often identified as a threat (after all they both represent
low wage economies sophisticated enough to put a man into
space) and companies trying to compete on labour costs are
certainly going to need to get smart or suffer. However, the
scale of the two domestic economies also offers enormous
opportunities to any company prepared to better understand
them as potential markets.
23
...any company viewing
the world as its market is
likely to require new
business models that
better meet the needs of
the emerging economies
and their consumers...
India and China notwithstanding, the dramatic demographic
imbalance between the currently 'developed' and 'developing'
economies means that any company viewing the world as its
market is likely to require new business models that better meet
the needs of the emerging economies and their consumers.
That is not just true of the hundreds of millions of people living
right at the 'bottom of the pyramid' but the billions who will be
entering the global market with modest but regular and reliable
incomes. Not to do so, will marginalise any company with truly
global ambitions.
Increasing global inequalities, and the social, economic and
political consequences of these, are likely to lead to continuing
(and possibly increasing) social instability. If healthy companies
need healthy and stable economies, then in order to survive and
prosper, successful companies will need sharp analysis and a
timely awareness of these emerging pressures.
Companies with
thoughtful and wellinformed shareholders
may well find themselves
better positioned to
make the necessary
changes...
Critically important, if they want to be able to make the
changes and decisions that their analysis suggests is necessary,
they are going to have to manage the tension that exists
between the relentless and short-term market pressure of
providing high level returns to shareholders, and the longer term
view, and possible risk taking that will accompany it. Companies
with thoughtful and well-informed shareholders may well find
themselves better positioned to make the necessary changes.
In recognition of this, corporate external relations and CSR are
already moving from a peripheral, philanthropic activity towards
the core of many companies, and some investors are starting to
recognise that it is possible to be a successful and socially aware
company at the same time. Shareholders (and fund managers in
particular) may well have to be helped to appreciate that there
is potential value in lower short-term gain underpinning longterm gain.
Colouring all of this is the changing nature of public opinion of
the appropriate role of companies and of their relationship with
government in the provision of public and other services.
This will clearly differ from country to country, but there is a
remorseless growth of expectation that the private sector and
private capital will play an enhanced role. Hand in glove with
that, will come a growing level of global, as well as national
regulation and legislation, both of which will increase the
requirement for improved transparency.
24
'The company as citizen' is already the basis of many companies'
external PR messages, and this will come under increased
scrutiny in the years ahead. It will be for companies to work out
how best to achieve the balance between being a global citizen
and a series of national ones at the same time.
Will Day is Special Adviser to the UN Development Programme
and the former Head of Care International.
'The company as citizen'
is already the basis of
many companies'
external PR messages,
and this will come under
increased scrutiny in the
years ahead...
25
Philip Sadler
The force of public
opinion is such that
companies are aware of
the need to win a 'licence
to operate'...
Over the years we have seen the more extreme forms of laissezfaire abandoned as legislation, regulation and the force of public
opinion have progressively limited freedom of action in the
interests of the more vulnerable members of society. Hence, we
now have laws to protect the rights of ethnic and religious
minorities, to ensure safe and healthy working conditions and to
protect consumers. The force of public opinion is such that
companies are aware of the need to win 'a licence to operate'.
Market forces today are certainly not 'unfettered'.
Nevertheless, there is and always will be a price to pay for
freedom. For example, the freedom to use our cars results in
thousands of deaths each year from road accidents. The political
spectrum is split between those who feel the price of freedom is
worth paying on the one hand, and those on the other hand who
would prefer much more control over the way we live, in the
interests of such goals as greater social justice or enabling
people to live healthier lives.
The issues here are greatly affected by the emergence of a
global economy which calls for interactions of various kinds
between cultures. Both those in which freedoms are not only
desired but are largely ensured and those in which, either by
tradition, religious belief or the imposition of totalitarian
governments, such freedoms are not widely enjoyed.
For those in Western countries who choose to spend their lives in
the economic sphere, as distinct say, from public service, the
church or the media, there are other important values besides
freedom. These include achievement, enterprise, initiative, selfreliance, and innovation as well as the attractions of material
reward. These values and their acting out in peoples' behaviour
have made and are making a vital contribution to the quality of
life in society as well as to its material prosperity.
The authors of 'When Good Companies do Bad Things' (Schwartz
and Gibb, 1999) point out that “Much of the work being done by
corporations in terms of social responsibility is not being driven
by codes, agreements or legislation. It is being driven by the
operational interests and needs of thoughtful, moral executives
themselves who are given encouragement to act responsibly
when faced with difficult decisions.”
26
The corporation is a creation of society whose purpose is the
production of needed goods and services, to the benefit of its
various stakeholders and to society at large. As an institution of
society, a corporation will reflect that society's shared values.
It must also adapt and change as society changes. However, as a
dynamic institution, it can also seek to influence the direction
and expression of those changes.
There are two major issues confronting tomorrow's global
company. One is how to develop a set of shared values when its
employees are drawn from widely differing cultures, with their
own different sets of societal values. The pattern historically has
been a form of economic imperialism in that companies have
been attempting to impose the values of Western societies, and
of the US in particular, on their employees in other parts of the
world - in much the same spirit of spreading enlightenment that
missionaries sought to convert pagans to Christianity.
The second issue involves adapting to changing values back
home. In the developed societies of the West and increasingly in
other highly developed nations such as Japan, the closing
decades of the 20th century witnessed massive shifts in human
values. Among the most obvious examples are those to do with
race, sexuality - particularly the decriminalisation of
homosexuality in a number of countries - considerable strides
towards the acceptance of female equality, and the institution
of marriage. The early advocates of such changes were not only
regarded as deviant; they were in many cases quite literally
treated as criminals. Today, radical protesters against the misuse
of the power of global corporations are in a similar position they are either branded as anarchists or dismissed as cranks and
idealists. Yet in many cases the values they espouse are ones
which will become mainstream in the future. The elimination of
gross differences in wealth and the quality of life, the
acceptance of obligations to future generations and the goal
of sustainable development will in the end become fully
accepted and embedded as parts of global values systems.
Far-sighted industrialists can see this and at the very least are
swimming with the tide. A very few visionary leaders are ahead
of the game.
As an institution of
society, a corporation
will reflect that society's
shared values. It must
also adapt and change as
society changes...
...how to develop a set
of shared values when its
employees are drawn
from widely differing
cultures, with their own
different sets of societal
values is an issue...
The elimination of gross
differences in wealth and
the quality of life, the
acceptance of obligations
to future generations and
the goal of sustainable
development will in the
end become fully
accepted and embedded
as parts of global values
systems...
Philip Sadler CBE is a patron and honorary Research Fellow of
Tomorrow's Company. He was formerly chief executive of
Ashridge Business School for twenty years.
27
Jean-François Rischard
There are two big forces
that will bring dramatic
change to every corner of
the globe in the next 20
years, the first is
demographics, the second
is an entirely new world
economy...
Forget globalisation. Instead of one mushy, ill-defined force,
there are two big forces that will bring dramatic change to every
corner of the globe over the next 20 years. The first is
demographics. As our numbers steadily rise a whole array of
environmental and social stresses will come into play.
The second force is an entirely new world economy, which is
itself driven by two revolutions - a barely begun technological
revolution centred on increasingly inexpensive
telecommunications and computer technologies, and an
economic revolution which comes from virtually all countries
adopting market-type economic models. This second force
produces both unprecedented opportunities and unprecedented
stresses.
The two forces are not linear in their progression, but
exponential. The demographic force produces scarcity - an
exponentially developing scarcity of arable land, water, soil,
space, living species and so on.
The new world economy force produces plenty, which also
develops exponentially - the power of computer chips is said to
double every couple of years, according to Moore's law.
The worst effect of the
governance gap is the
failure to focus on the
most urgent global
problems...
Because of their exponential shape and the "fast time" that
characterises them, the two forces tend to overwhelm our
human institutions, which are still evolving in a linear fashion.
The time frame of our institutions is more that of “bureaucratic
time”: governments, government departments, international
institutions - these are all large, hierarchical entities still
steeped in the industrial age.
The governance gap that results produces many negative effects.
These include - financial crises and declining public faith in
politicians to solve today's problems. But the worst effect is the
failure to focus on the most urgent global problems.
Time for action
On our increasingly small and interconnected planet, such global
problems call for collective and collaborative action between
nations - something that the nations of the world have never
been particularly effective at.
28
There are about 20 such global problems, and they fall into
three categories - how we share our living space, how we share
our rulebook and how we share our humanity.
They all require a global commitment and need solving in the
next 20 years - not the next 30, 40, or 50 years. These problems
are outlined as follows:
The 20 global problems
fall into three categories;
how we share our living
space, how we share our
rulebook and how we
share our humanity...
Sharing our Planet
*
*
*
*
*
*
Global Warming
Biodiversity and ecosystem losses
Depletion of fish stocks
Deforestation
Water deficits
Maritime safety and pollution
Sharing our Humanity
*
*
*
*
*
*
The fight against poverty
Peacekeeping, conflict prevention, combating terrorism
Education for all
War on global infectious diseases
Abolishing the digital divide
Natural disaster prevention and relief
Sharing our Rulebook
*
*
*
*
*
*
*
*
Taxation for the 21st century
Biotechnology rules
Global financial architecture
Illegal drugs
Trade, investment and competition rules
Intellectual property rights
E-commerce rules
International labour and migration rules
The current international system is simply neither effective nor
fast enough to solve these problems. Treaties are slow and often
not enforced; big UN conferences are good at raising awareness
but fail to produce detailed solutions; G8-type groupings achieve
a lot but are mostly reactive; and the world's 45-odd
international institutions, while they are capable of doing many
useful things, are not in a position to grab one or several of the
20 problems and solve them on their own.
The current international
system is simply neither
effective nor fast enough
to solve these
problems...
29
Yet we cannot just set up a new “world government” to focus on
this list of 20. Even if we could, it would take more than 20
years to do it. So the best alternative is to establish what I shall
call a Global Issues Network (GIN) for each problem.
These networks would be permanent and would each be kickstarted by one of the international institutions acting purely as a
facilitator, not as a problem-solver.
The GINs' membership would include representatives of
governments concerned by and experienced in the issue at hand,
as well as knowledgeable people from business (whether
business is part of the problem or part of the solutions) and
representatives of international non-governmental organisations
that also know the issue well.
Global Issues Networks
(GINs) creation would
mark the appearance of
trisector partnerships in
global problem solving...
The GINs, whose creation would mark the appearance of
trisector partnerships in global problem solving, would take the
problem apart and search for solutions. They would then draw
up detailed norms and standards that could be used to coax the
various players in the direction of solving the problem for the
world at large.
Naming and shaming
Indeed, having set out the standards decided upon, the GINs
would then act as rating agencies with the job of exposing
countries, businesses and other players that were not
conforming. For example, they would regularly “name and
shame” governments that had either not passed legislation
conforming to the standards or had not ratified or enforced a
perfectly useful treaty.
Such a “naming and shaming” can be quite persuasive. A group
called the Financial Action Task Force exposed 15 countries for
tolerating money laundering. Two years later, about half of these
countries had passed legislation so as to get off the list.
Even though the GINs would not legislate, their moral authority
and systematic use of the “naming and shaming” technique
could move nations directly or through their voters and public
opinion. They could also persuade companies and other players
to abide by global standards.
30
These new networks would not replace the existing international
system, let alone the existing nation-states, but rather would
put them under pressure to perform faster and more effectively
- that is, with a greater sense of global citizenship than is the
case today. This is better than trying to redesign the entire
international set-up, which would take something we do not
have - a lot of time.
If such a new global governance model were to emerge,
businesses would have an entirely new role to play - the role of
partner in global problem solving.
This kind of engagement by businesses and their executives
would be the last of four stages in the process of increasing
corporate engagement.
...businesses would have
an entirely new role to
play - the role of partner
in global problem
solving...
In the first stage, some firms had small charity departments.
Then, as some companies were attacked by NGOs for their
labour or environmental practices, they started larger corporate
responsibility departments. Originally defensive in the main,
these then gradually became more proactive.
Next, some firms started to engage in development tasks
directly. Networking specialist Cisco Systems is one example,
with its networking academies in about 130 countries. The
building materials firm Lafarge is another, contributing to the
fight against Aids in Africa. There are many other examples.
The forth stage in the process could involve business
participation in global problem solving through something like
the GINs. Get ready for it, as it is unlikely that governments
alone can deliver the solutions to tomorrow's pressing problems.
Jean-François Rischard is the former World Bank's Vice President
for Europe. He is also the author of 'High Noon: 20 Global
Problems, 20 Years to Solve Them'
(Basic Books, New York, 2002).
31
Peter Desmond
Tomorrow's global company is a very diverse animal - both in size
and the many elements of business and society that it has to
consider in its operations. It is not just a large multi-national
with billions of dollars of sales; it is also a medium-sized, ownermanaged company with customers, suppliers, employees,
investors, and communities in different countries. A small niche
furniture business in North London importing goods from China
has to consider how its consumers view its forestry sustainability
policy. In the same way, a large multi-national pharmaceutical
company needs to implement control to ensure its drugs are not
hijacked en route to Africa and sold on the black market in
Eastern Europe.
The world continues to change at an ever-increasing pace and
businesses need to find new ways to adapt to this shifting
marketplace in terms of consumer expectations and government
policies. In South Africa white-owned companies are being
required by government to sell their shares to black
empowerment groups to even out the playing field for groups
disadvantaged by the apartheid regime. Yet these transactions
have been publicly criticised for enriching a few influential
people.
Transparency in
operations is critical to
maintaining reputation
in a highly competitive
marketplace...
Governance is moving
away from conformance
to performance complying with the law
is now not enough consumers are putting
pressure on companies
to consider their
behaviour...
32
Expectations are also high for a company operating in more than
one country with extremely varied histories and cultures - it will
need to consider how its employees live out the corporate values
and how the drive for commercial return is experienced by
communities, customers and suppliers. With the advent of
information passing round the world at increasing speed and
businesses operating in a global fishbowl, there are very few
hiding places. Transparency in operations is critical to
maintaining reputation in a highly competitive marketplace.
The way that companies are governed is changing for the global
company. Consideration is being given to the plethora of
governance codes across the world and how successfully they
have been implemented in businesses. Requirements by law may
be needed to catch the persistent offenders, but the majority of
companies would welcome a 'light touch' and want to work as
the market dictates - those companies that consistently abuse
the law will find their reputations severely damaged and
consumers will go elsewhere. Governance is moving away from
conformance to performance - complying with the law is now
not enough - consumers are putting pressure on companies to
consider their behaviour.
Company law in the UK is requiring companies to be more open
in their reporting with a more forward-looking focus so that
investors and other interested parties can assess the future
prospects of the organisation based on an informed judgement.
We are now seeing a greater integration of corporate social
responsibility or CSR into the corporate governance agenda. CSR
activities that add value to society as well as providing
commercial possibilities for the companies involved through the
adaptation of the manufacturing and distribution processes. This
is now being called 'corporate social opportunity'. It is a trend
whereby multinational companies are looking at the bottom of
the economic pyramid where 71% of global consumers (or more
than 4 billion people) have not been reached by the products of
these economic 'giants'. Large consumer goods companies are
now realising that long-term growth can only come from creating
sustainable connections with customers in places such as China,
Brazil and Russia. Developing markets are expected to grow
twice as fast as developed markets over the next five years. One
product that is being sold on a vast scale to developing countries
is a water-purifying sachet to provide safe drinking water. If the
production capability and supply-chain can create sufficient
profit at the various levels, there are sound commercial
opportunities for global companies to help solve some of the
world's major problems.
If the production
capability and supply
chain can create
sufficient profit at the
various levels, there are
sound commercial
opportunities to help
solve some of the world's
major problems...
This trend has been seen in the IT sector. For example when the
refugee crisis emerged in Eastern Europe a small team of
programmers decided to offer their core skills to help a major
world problem - they developed a robust database that could
record the details of rapidly moving populations across the
continent. This could extend to the service sector where core
skills used in the development of innovative training programmes
for adults could be extended into schools in developing countries
where mobile phones and computers are becoming more
commonplace - interactive learning can enhance education on
life skills for HIV/AIDS prevention as well as improve computer
skills for the students.
In essence, this means that a global company has an extensive
reach into consumer groups around the world that could benefit
from its core products and services: they are provided to satisfy
consumer need as well as address key structural issues that
continue to result in poverty and disenfranchised communities.
33
The challenge for
business is to balance the
equation between
commerce and civil
society, between making
money and making the
world a better place...
The challenge for business is to balance the equation between
commerce and civil society, between making money and making
the world a better place. The impact of businesses operating on
a global scale can be done in ways which sustain both the
company and the societies in which it operates - it requires risk
and sacrifice - tomorrow's global CEO will need a new set of
scales to achieve the correct balance.
Peter Desmond is Managing Director of Growth
International Limited.
34
Mervyn King
We live in a changed corporate world.
Formerly, wealthy families were the great equity holders of
companies. In the latter half of the 20th Century it became the
financial institutions. The latter, of course, are nothing more
than conduits for the persons in the street who are the ultimate
beneficiaries of their investments. A consequence of this
shareowner revolution is that when there is a corporate failure
politicians see it as impacting adversely on their voters.
The reaction of politicians is to legislate. This is being fuelled by
the present general crisis of confidence in corporations. The
crisis stems from a series of corporate failures such as BCCI,
Enron and WorldCom. The intent of the politicians is to restore
public trust in securities markets and improve corporate
governance. They also argue that by legislating they will
enhance transparency, promote good business practices and
compel management to be accountable for their conduct.
The reaction of
politicians is to legislate.
This is being fuelled by
the present general crisis
of confidence in
corporations...
In short, legislators are endeavouring to achieve good
governance with a compulsory quantitative approach when it
should be apparent to all that one cannot legislate against
dishonesty, incompetence or neglect. The consequence is that
the numerous debates of the past about substance over form
have been replaced by an attempt to achieve substance by
practising form!
With this general crisis of confidence, the legitimacy of business
as conducted by companies has been questioned. The global
company of today has discovered that it cannot run its many
subsidiaries in different countries on a command and control
basis if for no other reason than the different laws and
regulations in different countries. The days when the “head
office” could make the rules and have the man from head office
check that there was compliance with these rules in different
countries is a thing of the past.
What the global company of today has to ensure is that its
associated or subsidiary companies in many different countries
operate on a foundation of quality governance. It must set
principles and guidelines which local boards can apply within the
constraints of local laws and regulations.
...the global company of
today has to ensure that
its associated or
subsidiary companies in
many different countries
operate on a foundation
of quality governance...
35
There must be a deep appreciation by all local boards that they
are representing an incapacitated company and consequently as
one would do with an incapacitated human being, you would act
in good faith in the interests of that person; exercise great care
as a good steward of that person's assets; apply your practiced
ability and skill in the interests of that person and do your
homework diligently to understand that person's circumstances.
...global companies are
endeavouring to find
social activities which
can dovetail with their
businesses in order to
promote legitimacy...
Whilst the very legitimacy of some businesses conducted by
global companies is being questioned, there is great confidence
in non-profit organisations and huge community support for
them. Consequently, global companies are endeavouring to find
social activities which can dovetail with their businesses in order
to promote legitimacy. By carrying out this kind of corporate
social investment, not only is legitimacy promoted but
sustainability is enhanced.
For example, a global construction company that might be doing
construction work in fifty different countries would add to its
legitimacy and support from the various local communities in
which it operates, by identifying brick making projects in poor
communities, buying their bricks and thereby improving the
quality of life in those communities.
The global company must also ensure that the decisions which it
and its subsidiaries make will result in the group as a whole
being a decent citizen and being seen as a decent citizen. Today,
global companies have to ensure that they and their subsidiaries
have - as it were - a human face.
The global company must also define its purpose not only in
economic terms and not only as an outcome. Thus, it is not
adequate to define its purpose as a certain return on capital
employed.
Stakeholders today are
looking for a purpose
that has sustainability
written into that
purpose...
36
Stakeholders today are looking for a purpose that has
sustainability written into that purpose. They want to see that
the board has applied its mind to triple bottom line issues.
Short-term needs of the present can no longer be carried out by
compromising the ability of future generations to meet their own
needs. If the purpose of the company is seen to do that, it will
slowly but surely be rejected by local, national and international
communities.
The key challenge facing the global company today is to ensure
that quality governance principles are applied by the local
boards of its many subsidiaries. These principles are those of
fairness, accountability, responsibility and transparency which
must be based on a foundation of intellectual honesty. Fairness
embraces decisions that will ensure that the company is seen as
a decent citizen. Accountability means being accountable to the
company. Responsibility connotes acting in a responsible manner
and being seen to be acting responsibly towards and responsively
to its various stakeholders. Transparency connotes substance
over form, coupled with the truthful and prompt communication
of important decisions. Intellectual honesty is using one's
practised capabilities and honestly applying one's mind in the
decision making process in the best interests of the
incapacitated company which one represents.
The global company in the twenty first century has to build a
culture with these principles deeply imbedded throughout the
group. If not, the debate will start as to whether a corporation
is the correct entity through which a business should be
conducted as the debate has now started as to whether the
nation state is the correct entity in which people should live.
The global company in
the twenty first century
has to build a culture
with the principles of
fairness, accountability,
responsibility and
transparency deeply
embedded...
Mervyn King is Chairman of Brait Société Anonyme and Senior
Counsel of the Supreme Court of South Africa.
37
Rebekah Young
Much of the conference debate focused around the challenges
stemming from a lack of global frameworks or principles to guide
organisations operating across international boundaries. There
was less focus on the business value that can be derived from
reporting and higher levels of accountability and transparency.
I would like to contribute to this discussion by offering the
content of a piece written by WBCSD Director, Margaret Flaherty,
which talks about WBCSD's new report entitled 'Beyond
Reporting: creating business value and accountability'.*
The report is spearheaded by Travis Engen, President & CEO
of Alcan, and Samuel Dipiazza, CEO of PwC.
How are companies moving “Beyond Reporting” and finding
business value from accountability and transparency?
The crisis in trust facing
global companies calls
for business to live
up to higher levels of
responsibility and
accountability...
The crisis in trust facing global companies calls for business
to live up to higher levels of responsibility and accountability.
These calls, in turn, have been met by a proliferation of
legislation and voluntary guidelines. The sheer volume of
requirements such as the US' Sarbanes-Oxley and the EU's
Transparency Directive, as well as voluntary guidelines such as
the GRI and even ISO can be daunting for companies. Yet, are
these tools, guidelines, or laws enough to inspire increased
confidence among stakeholders, including employees,
shareholders, customers, local communities and regulators?
If we accept that business today is falling further and further
behind in the trust stakes then surely the new raft of
accountability codes will fill the gap?
The problem is that to date many of these mechanisms have not
delivered the desired trust, so why would new ones deliver any
more - let alone enhanced business value?
For many companies, demonstrating commitment to
accountability and transparency by subscribing to voluntary
standards and guidelines has become a standard part of
doing business.
The way through the “forest” without getting lost in the “trees”
is to focus on the issue of trust:
-
38
Who is accountable?
For what?
To whom?
Though what mechanisms?
And with what result?
As companies tangle with these questions, there is increasing
evidence that successful companies are beginning to integrate
the mechanisms of accountability, sustainability and corporate
governance (such as voluntary codes and guidelines) into their
core business strategy and making the links to commercial value.
And the outcome and benefits? Companies included in the
WBCSD research project for “Beyond Reporting” believe such
linkages and benefits include better risk management, lower
cost of capital and improved staff retention; in other words,
accountability adds value to the enterprise.
The report suggests that to derive commercial value from a more
accountable way of doing business, companies should:
1. Understand what drives value in your business
Commercial performance is the responsibility of all functions. It
cannot be achieved without strategic connection between
functions. Accountability should be viewed in the same manner.
By bringing together sustainable development and other
functions, companies can generate better market information
and transform what would otherwise be seen as a back-office
compliance burden into a value-creating opportunity.
2. Recognise that different people are accountable for
different things
...companies can
generate better market
information and
transform what would
otherwise be seen as a
back-office compliance
burden into a value
creating opportunity...
Clearly the reality is far from linear - influences are exerted in
different ways on business functions, and even where
expectations are aligned, a function's ability to respond differs.
This also means that business functions can use the interactions
of each sphere of influence to build value in different ways.
3. Connect the functions that drive the value drivers
According to the responses of the 60 WBCSD member companies
involved with this project, the reality is that accountability has
conventionally been treated in piecemeal fashion and crossfunctional connections are relatively rare. The same can be said
of the way in which companies have addressed non-financial
issues and the demands of a broader set of stakeholders.
4. Build on the effort that is going into straightforward
compliance
Companies acknowledge that excessive focus on the legalistic
dimensions of accountability has potential to restrict rather than
promote creative thinking. It can detract from the aspects of
accountability that are delivered through strategy, corporate
culture and managerial behaviour.
39
...companies who
understand and act on
their responsibility to
society achieve better
returns...
Integrating principles of sustainable development into general
business accountability structures opens up new business
opportunities and helps companies create value, not just avoid
destroying it. And companies can help heal the trust wound by
speaking out on the social issues that matter most to their
business. Mounting evidence indicates the value of getting
accountability right. Analysis by research firms such as Innovest
shows that companies who understand and act on their
responsibility to society achieve better shareholder returns.
Unfortunately, many companies, though comfortable with some
level of accountability, focus on a narrow set of audiences, and
fail to translate their insights into opportunities. Worse, others
do not leverage the millions of dollars they spend to meet new
governance requirements like Sarbanes-Oxley to add value to
their businesses. Herein lies the real business opportunity.
Better accountability is
also about leadership...
Better accountability is also about leadership. In other
companies, the language of sustainability is well understood in
the corporate structure and awareness of sustainable
development issues is quite high.
Finding business value in accountability demands a shift in
thinking, to push an organisation past its metaphorical 'tipping
point' so that enough people understand its link to new business
opportunities. Companies that infuse accountability into their
business strategy find they are better able to connect their
people to value creation.
Rebekah Young is a Business Development Manager at the World
Business Council for Sustainable Development (WBCSD), Geneva.
* A full copy of 'Beyond Reporting: creating business value and accountability'
is available to download from www.wbcsd.org
40
Concluding Remarks
In the past, it has been customary to see the company as being
at the centre of everything, rather like the sun at the centre of
a planetary system, with concentric circles representing its
customers, its supply chain and its shareholders. Outside that,
there is society - and if we are very sophisticated, society is
broken down into the local community, nation state,
environment, and NGOs.
But, helpful as it may be for the mapping of immediate
relationships, that is an inadequate and even misleading picture.
What we are increasingly learning from the sort of dialogue
emerging from this conference is that this old model is being
superseded by a new one which places companies as small dots
inhabiting the circle that is society. There is a growing
recognition that companies have no future separate from that of
the earth, society or its stakeholders, including, as Tim O'Brien
points out, our future generations.
Key relationships with customers, employees and suppliers will,
over time, both reflect and possibly shape what is happening in
society. As Philip Sadler puts it: “As an institution of society, a
corporation will reflect that society's shared values. It must also
adapt and change as society changes. However, as a dynamic
institution, it can also seek to influence the direction and
expression of those changes”.
Another image often used in the past by Tomorrow's Company is
that of the company caught between conflicting pressures from
shareholders and society.
One set of pressures stem from such issues as poverty and
climate change, as described by Will Day. Other pressures relate
to issues of governance both at the global level and at the level
of the corporation.
First, John Manzoni defines a vacuum of power and rules at the
global level, talking about the difficulties of doing business in
parts of the world where the framework conditions are not
clearly established.
41
Second, and in parallel, there is an uncertainty about ownership:
Who owns companies? How transient and remote are the owners
becoming? And how achievable is the model of responsible
ownership and good governance which Mervyn King describes so
clearly? If the baton is passing from the long term institutional
shareholders to the financial engineers of the hedge funds,
private equity companies, and the emerging institutions in
countries like China where ownership and national interest
remain closely aligned, then surely this will have an impact on
the way companies are governed?
This does not diminish the growing necessity for leaders of major
companies to be both leaders and partners with government and
civil society in tackling the towering social and environmental
problems ahead. Jean-François Rischard sees this as urgent, and
offers the outline of how it might be done, not by setting up a
“world government” but by establishing what he calls ‘Global
Issues Networks.’
Tomorrow's Global Company - a business-led inquiry
All these ideas will be tested as we in Tomorrow's Company
begin an inquiry to tackle and generate responses to the
questions such as those which informed the Wilton Park
discussion.
Any inquiry begins with dialogue. The dialogue will take many
forms - not just for the Inquiry Team among themselves, but
with different partners in different parts of the world as we
understand the different cultural perspectives which inform the
answer to our key questions.
The dialogue needs to also reflect the reality that not every
global company is large or publicly owned. The Inquiry Team
will, in the main, be drawn from the leaders of larger
companies, but it will also reflect the voices of SMEs, NGOs and
civil society, and be organised to learn from the very different
patterns of ownership adopted by successful companies around
the world.
42
One of the continuing elements in the inquiry's programme of
dialogue will, I hope, be our partnership with Wilton Park which
has helped us greatly in framing the issues for our work over the
next few years.
Mark Goyder
43
Tomorrow's Company is a not for profit research and agenda-setting organisation
committed to creating a future for business which makes equal sense to staff,
shareholders and society. Its business-led programme of publications, events and
activities focuses on three issues fundamental to the future of business:
* An improved investment system
* An inclusive approach to leadership and governance
* Closing the gap between business and society.
Tomorrow's Global Company aims to bring together a group of leaders primarily
from business, but also from civil society and NGO backgrounds, to explore the
trends that will effect the future global business environment and to spell out
what these changes mean for their strategy, leadership and governance. As part
of the inquiry, Tomorrow's Company organised a conference in partnership with
Wilton Park which introduced some of the key inquiry themes to a diverse
audience. This publication captures the main points made by selected speakers,
the key conclusions that emerged from the discussions and some reflections on
the key conference themes.

Tomorrow`s Global Company

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