How companies can build trust in business
Lord Browne, Executive Chairman of L1 Energy, addressed the Rotman School of Management in May 2015. His speech outlines how companies can better connect with society in order to build trust in business. The full text of the speech is below.
Ladies and Gentlemen, good afternoon.
It is a great pleasure to be here.
It is now almost 35 years since I received my own business degree from one of your rival institutions, Stanford.
It marked the beginning of a new chapter in my personal and professional life.
My time at business school showed me that business – and life – were far richer and more complex than I had previously imagined. It taught me the importance of having a deep understanding of the wider context in which you operate.
That it is the focus of my remarks this afternoon.
Throughout history, business has played a central role in advancing human progress. Companies have brought heat, light, health, wealth and happiness to billions of people around the world.
Yet business has almost always struggled to maintain a harmonious relationship with society. This is the starting point for a book I have just finished writing, called Connect. It shows that for more than two thousand years, business and society have been deeply suspicious of each other. Rather than trying to fix things, companies keep adding more fuel to the fire by showing continued disregard for the societies they serve.
The book explores how corporate behemoths crumbled because they failed to connect, and it shows how successful leaders can forge 100-year dynasties through a more enlightened approach that goes way beyond philanthropy or corporate social responsibility.
The evidence suggests that very few companies manage to do this. They struggle to engage effectively and productively with the outside world, which is damaging for both business and society.
At BP I learned this lesson the hard way, in Colombia.
BP entered the country in the early 1990s against the backdrop of a polarised society and political insurrection.
The company knew that security would be an issue, but we assumed that we had the answer – a thick barbed wire fence with security personnel and, if necessary, the help of the Colombian Army.
The fence kept people out, but it also stopped BP from connecting with the society around it. It meant that staff on the ground often did not understand the way in which local people really resented BP’s presence.
The European press accused us of being complicit in human rights abuses by the Colombian military, and NGOs believed the stories. BP refuted the allegations and was cleared of any wrong doing, but the whole situation badly damaged BP’s brand, its reputation and ultimately its value.
Our failure to engage successfully with the society around us cost us in the short term. We managed to turn the situation around by supporting the creation of an international standard on human rights for the industry, and by enlisting the help of NGOs. But failure to do this might have cost us our long-term position in the country.
Connecting with society is a challenge that all businesses face. Perpetual mistrust always damages companies’ ability to create value. But when a company is disengaged on issues that society is deeply concerned about, over long periods of time, it can face a much greater, existential threat.
When I became CEO of BP in the mid-1990s, I was concerned that climate change posed exactly this kind of threat to the energy industry. Public concern about the impact of climate change growing, but my industry continued to ignore the problem.
I knew that this could threaten our long-term survival. The best and brightest talent would not want to work for us, and if a consensus formed around limiting carbon emissions, BP would be forced to make changes whether we liked it or not.
In 1997, at Stanford, I made a speech acknowledging the risk that climate change posed to our way of life. I committed BP to taking specific actions not only to mitigate the risks posed by climate change to our business, but also to make a positive contribution to the public search for global solutions.
Following the speech, some in the industry said that we had ‘left the church’. Environmentalists who wanted to see more radical change also accused us of ‘greenwash’.
But most people gave us a fair hearing. They wanted to see us turn words into action and that is exactly what we did. We helped to develop cap and trade policies in the UK, and I worked with Arnold Schwarzenegger on a landmark bill to reduce greenhouse gas emissions in California.
It was a bold step for an oil and gas company to take, but it was essential. If we had not matched out commitments with actions, then public trust in us and in the wider industry would have been badly damaged.
Today, technology has made business activity even more transparent. It enables greater public scrutiny of the way in which companies operate, and forces them to be more authentic in what they say and do. In this new environment, public expectations of what the private sector should deliver and the costs of getting something wrong are higher than ever before.
And yet deep mistrust in business persists. Surveys suggest that people around the world believe that companies are motivated by growth targets, greed and personal ambition.
They do not think that the desire to ‘improve people’s lives’ or ‘make the world a better place’ has anything to do with business.
In the oil and gas industry, this is particularly problematic.
More than most, the industry is reliant on the public’s trust for its license to operate. So when people believe that an energy company exists only to make itself rich, the company’s actions are viewed as a zero-sum game where a win for the company means a loss for society.
We need a radical new approach to the way that business interacts with society. Business leaders have a responsibility to make sure that business continues to be the engine of human progress.
To achieve this, I think companies and their leaders need to do four things.
First, they need a clear understanding of the world in which they operate.
This means carefully analysing the macro-economic environment, public attitudes, and the company’s own behaviour in order to identify early on where the company will face challenges and how these will affect its profitability.
This may sound obvious, and it seems like something that the best CEOs should already be doing. But so often, companies display excessive optimism about how changes in society could affect them.
For example, more than three-quarters of executives believe their companies have positive reputations in the eyes of regulators, but less than a quarter report successful engagement in the regulatory process.
Their optimism does not match the reality.
These internal biases breed complacency, and this must be challenged if a company is to remain alert to the changing context in which it operates.
If companies can do this successfully, it will help them to define their contribution to society, which is my second point.
Purpose is the litmus test of sustainability in business. The strength of a company’s contribution to society determines its survival and success in the long term.
So companies that want to be around for decades to come must make sure that society is at the heart of everything they do.
Companies will be despised if they devote too much of their time to reducing regulation, getting cheaper inputs, and pushing for higher prices, while ignoring the quality and utility of the product or service they offer.
The best companies are those which understand their place in the world, clearly determine and communicate what they have to offer, and put this to use in advancing human progress.
That requires companies to put in place world-class managers with an exceptional understanding of society. This is the third thing that companies must do.
Putting societal and environmental issues at the heart of what a company does means embedding them in its commercial functions.
These issues cannot simply be assigned to a CSR department. From Enron to Lehman Brothers, the evidence shows that a great record on CSR does not stop a company from doing great damage to society.
The CSR department in its original form should be abolished altogether.
In its place, companies need professional managers who look beyond the company, and who are ready to make societal concerns a priority, from the boardroom to the shop floor.
They should identify role models to champion these values.
They should be prepared to get input from experts and provide employees with high quality training to help them understand the society in which the company operates.
And they should find ways to measure the success of their contribution in the long-term.
Putting the right people in the right place is a critical step towards breaking the cycle of anti-business sentiment.
Which brings me to my fourth point.
Companies need a new approach to the outside world.
This new approach must be to engage radically.
At its heart this means taking a fresh stance on openness. In my experience, being open and transparent is the most effective way to build trust.
I started my career at a time when corporate misbehaviour might take years or decades to be uncovered.
But today, transparency is no longer optional.
Companies must be willing to have frequent and honest conversations with stakeholders. They cannot simple wait to engage when disaster is imminent.
Conversations need to be authentic, avoiding the sort of corporate spin that encourages suspicion.
I am here today with my business partner Michael Fridman, who once gave me some very wise advice in this area. I was about to deliver a speech to the employees of our joint venture in Russia, TNK-BP. Michael pulled me aside before I was due to speak, and said to me: “I suggest you remember that after 70 years of Soviet rule, these people can smell propaganda a mile off. Talk only about human failures, not glorious successes.”
It was very good advice for TNK-BP, and it is universally applicable.
Engaging radically is not about improving corporate spin. It is about being authentic and inclusive when handling relationships with the rest of society.
Ladies and gentlemen, I am optimistic that companies will continue to be an enormous force for good in the future.
But the most successful companies will be those who understand their place in the world, define the contribution they want to make, employ managers who make this contribution a reality, and engage radically with people in the world around them.
That brings me to why I am here today, with Michael. Great partnerships are often built in the flames of disagreement.
More than a decade ago, when I was CEO of BP, I refused to speak to Michael for almost a year. It took two rabbis and my mother to convince us to talk, but the result was probably the most successful joint venture which BP had ever undertaken.
So when Michael asked me to lead his new venture called L1 Energy, I was reminded of the power of partnership, particularly in the oil and gas business.
Our hope is to create a responsible company which succeeds by connecting with the rest of society, and which makes Canada part of that connection.
We want to learn from the past, as we look to the future.
And we want to leave no stone unturned in our quest to contribute to human progress.
Ladies and gentlemen, thank you very much.