Traditionally, companies have relied on Corporate Social Responsibility (CSR) as a primary means of governing their relationships with society, yet CSR departments have become increasingly detached from core commercial activity. As Enron’s excellent CSR record showed, a great CSR program is no guarantee that a company’s business operates in the interest of society. During my tenure as CEO of BP, I was an early proponent of CSR, but I think that the idea of connecting with society in this way is now dead.
1 GET RADICAL ABOUT ENGAGEMENT
In its place, CEOs need to find ways to integrate societal and environmental issues deeply into their companies’ strategy and operations. Business needs to become more inclusive of all relevant internal and external stakeholders, engaging radically with people outside the company, on their agenda, not its own.
To embed this new approach within the company, business leaders will need to drag the management of environmental and social issues into the professional era. Bloomberg Chairman Peter Grauer, shares this view. In one of the 80 CEO interviews that my collaborators and I recently conducted, he told us that the “traditional approach to managing this part of enterprise needs a dramatic overhaul. This is likely to become a key differentiator as the pressures on business increase.”
In my view, capturing the 30% value at stake must begin with a fundamental re-appraisal of the role of the CEO. The requirements for the top job have changed. Sam Palmisano, who led IBM from 2002 to 2012, believes his time at the helm coincided with a palpable shift in the criteria used to evaluate CEOs. “It was shareholder value creation, pure and simple,” says Palmisano. He reflects on the “very straightforward measure” of performance by which some of the great CEOs who came before him—IBM’s Lou Gerstner at IBM, GE’s Jack Welch, Emerson’s Chuck Knight—were measured. “People looked past how they got there.”
Lee Scott, Walmart’s CEO during the same era, agrees. “Someone like Jack Welch was able just to get up in the morning and drive through the things he felt were best for GE,” he says. “In those days you acted in the best interests of your investors and your customers and you really did not need to worry too much about the outside world looking in.”
Today, however, most CEOs agree that the job is harder than it has ever been. As Scott points out, the CEO’s audience “is not just your customers and your employees, it’s the entire world.” Even in the narrow sphere of financial performance, the judgements are harsher. “Look at Tim Cook of Apple,” says Scott. “Here is a guy who is increasing revenues, increasing profits, creating new products and maintaining a brand that is universally adored. Yet he faces the most intense criticism on an almost daily basis.”
2 IDENTIFY WHAT’S IMPORTANT
People now demand that companies deliver across a much wider range of societal issues. What’s more, after understanding these new expectations, the second thing CEOs must do is think about whether their company is addressing the issues that will allow it to continue to grow in the long run.
The goalposts were already shifting when I was CEO of BP. Financial performance was no longer enough; companies increasingly needed to demonstrate their positive impact on society. It led me to make a landmark speech on climate change at Stanford in 1997, arguing that the link between climate change and fossil fuel emissions could no longer be ignored.
I could see that addressing these environmental issues head on was the only way to secure BP’s future. It was the only way for the company to gain a seat at the negotiating table when the future of the industry was being discussed, to show customers that we were planning for change and to convince talented young people with a vision for the future that they should work for us. It challenged BP and the wider oil and gas industry to think about how to take our business “Beyond Petroleum.”
Palmisano notes that in the current business environment, hitting financial targets is “not going to get you more than a B minus when people grade you as a CEO.” Instead, “you have to define your mission as a CEO and as a company in much broader terms. That’s what drove me, and it will only become more important for the next generation.”
Research by Edelman further supports this case: in recent years, society has reduced the emphasis it places on financial performance as an indicator of good business. In 2008, operational excellence (including investor returns) remained the primary driver of corporate reputation among the general public. Six years later, it was the least important of the five ‘trust performance clusters’ that Edelman cites (the others being engagement, purpose, integrity and products and services).
3 CORPORATE CITIZENSHIP CLARITY
If the success of business leaders is increasingly tied to the way their companies engage on social and environmental issues, what should CEOs do about it? The answer depends on the company and on the industry, but my third point is that CEOs need to offer clarity of tone from the top. This means showing staff that you care deeply about the topic in question, dedicating time to speak to people about it and offering role models who serve as champions.
In 2000, a media storm blew up about the denial of healthcare benefits to same-sex couples in the oil industry, and the episode served as a trigger for BP to cut a distinct path as a leader on diversity. My deputy, Rodney Chase, encouraged me to appoint a well-respected outsider who could drive the initiative forward. We brought in Patti Bellinger as president of global diversity and inclusion.
“As an African-American woman, with a title like that, I stood out like a sore thumb,” recalls Bellinger. “The suits in BP’s St James’s Square offices could not believe what they were seeing. They thought it was some sort of nonsensical PR exercise dreamt up in America.”
Meanwhile, I had to work hard to ensure that the message went out loud and clear to senior management that she had the boss’s ear. Rodney Chase met with Bellinger for four straight hours on Day One and he did the same on Day Two and Day Three. Senior decision-makers were asked to make the diversity agenda a priority. The results were significant. Over the next few years, BP more than doubled the number of women in leadership and became a leader on LGBT inclusion.
4 PRIORITIZE AROUND A PURPOSE
Inclusion is just one example. When the list of possible tasks is endless, how does a CEO know which issues to focus on? My fourth point is that CEOs should concentrate only on the issues that help define and enact their company’s core purpose.
In particular, that means avoiding issues that are about an ill-defined sense of doing good. Building a more inclusive work environment at BP for example, would not have worked if it were simply a “nice to have.” I had to make it clear that inclusion was central to our ability to engage employees and that more engaged teams would help us deliver better results for customers and shareholders. As the evidence now shows, engaged employees are more productive: the shares of companies with the most engaged teams outperform average competitors by more than 20 percent over the course of a decade.
The unremitting energy it requires to define and enact the company’s purpose has been a common theme in my interviews with CEOs. During Paul Otellini’s tenure at Intel, the chipmaker started to attract anti-trust questions from regulators and politicians due to its market dominance. “I ended up going to Washington 12 times a year,” he remembers. “I didn’t go anywhere 12 times a year, let alone somewhere where there wasn’t a customer. But I had to get used to it because this went to the core of our ability to grow.”
Meanwhile, Unilever’s Sustainable Living Plan aims to double the size of the business while lowering its environmental impact—a plan that includes a 50 percent reduction in its ecological footprint by 2020. CEO Paul Polman says he views it as his role “to give people outside and inside the company the confidence that the Unilever Sustainable Living Plan is a winning strategy.”
In today’s business environment, successful companies need to incorporate societal connection formally into their business, from the boardroom to the shop floor. Achieving this will require world-class management at every level of the company, applying process and operational excellence to the way that companies think about societal and environmental issues. As examples of companies ranging from Walmart to IBM show, it also requires the very best leadership at the top. The combination of technical management and emotional leadership—persuading, motivating and offering direction—brings out the best in business. Both will be required if business is to transform the way it engages with society.