Business is the engine of human progress, but throughout history it has struggled to build and maintain its relationship with society. From Shakespeare’s Merchant of Venice to trust-busting US presidents and the tax affairs of Starbucks and Amazon, society has taken issue with corporate misbehavior, leading to cycles of suspicion and mistrust over thousands of years.
Some business leaders might be content to let these cycles play out, believing that trust always comes back. But the evidence shows that the failure to change this pattern by engaging with society is hugely damaging for companies and wider society.
Research undertaken by McKinsey, for my new book Connect, estimates the related value at stake to be approximately 30% of corporate earnings – amazingly, two weeks after the book was released, the Volkswagen diesel emissions scandal broke and its share price dropped about 30%.
The task of gaining society’s trust is also harder than ever before. Technology has raised society’s expectations of how business should behave and has given more people the tools to hold business to account. These new heightened levels of scrutiny mean companies can’t seek to ‘manage their reputation’. Gaining society’s trust must be an outcome of a company’s fundamental business activity otherwise it will be found out. Business leaders must therefore learn to integrate the concerns of society into everything they do.
CSR has been the primary way that business has sought to achieve this, but it has failed because it is almost always detached from a company’s core commercial activity. As RBS Chairman Sir Howard Davies said when I interviewed him for Connect, CSR is something companies look at for ‘half an hour on a Friday afternoon’.
Even at its best, CSR fails to prevent corporate misbehaviour or insulate a company from serious reputational challenges. It failed to help Volkswagen and Lehman Brothers who both had excellent CSR records before crisis struck. And occasionally, at its worst, CSR is abused by those seeking to cover up their wrongdoing elsewhere. Enron for example, was lauded as a champion of CSR while it simultaneously defrauded society.
Ultimately, CSR’s greatest problem is that it fails to solve the problem of how companies gain society’s trust. I was an early proponent of CSR, so today I think I am well placed to say that it is dead. We need a new model of engagement. That must be to take a fresh stance on openness and transparency.
Companies need to engage radically, avoiding the sort of corporate spin that encourages suspicion. This will look different for each company, but the underlying principle must be to engage in authentic and frequent conversations with those outside the company on their terms rather than your own.
One example of this came during my time as CEO of BP when we were seeking to develop a site for a gas liquefaction plant in West Papua, Indonesia. It was a region riddled with human rights abuses, inter-tribal warfare and environmental damage. The proposed site, Bintuni Bay, was a beautiful and remote part of Papua, home to a tiny population which had very little contact with the outside world.
I decided the only way forward was to set up a completely independent commission which would review our activity and the needs of the community, BP would see the report and its recommendations only when the rest of society did. It was a radical approach and it built trust between the company and residents of Bintuni Bay. The community became committed to supporting BP’s presence and benefitted from new jobs, better facilities, and dramatically lower rates of malaria and diarrhoea. This was not the result of CSR, but rather the considered price negotiated with parties who were treated by BP as equal partners.
We have described this new model of engagement as Connected Leadership and fundamentally it is about companies being uncompromising in their efforts to be inclusive. The evidence suggests that real inclusion, which engages people in what they are doing, can help a company generate returns which are 20% higher than its competitors over the course of a decade. From staff to customers, and from governments to campaigners, business leaders should include every relevant part of society in their commercial decision-making.
Companies that get inclusion right show that they understand business exists to serve society, not the other way round. The actions of these companies will ensure that business continues to be an enormous force for good in the future.
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