Lord Browne on the new frontier of competitive advantage
01 October 2015 -
In the wake of the VW emissions scandal that knocked 30% off the car maker’s share price, former BP CEO Lord Browne of Madingley urges businesses to forge a new, radical engagement with society
There will always be a proportion of society that dislikes business. This has been the case since the dawn of time. What society needs to watch is when that (hopefully) small percentage tips over into the majority. At that point, business and society move into treacherous waters.
The world teetered at that brink in 2007/08 when the banks, albeit initially driven by good intentions (to open up the housing market to the poorest in society), plunged the global economy into crisis.
The recent emissions scandal at the world’s second-biggest car maker, Volkswagen, in which the German company secretly fitted “cheat devices” into its diesel cars to outwit the testing regime, is not of the same scale as the banking crisis, but it has reopened the public’s scars and caused many to ask about business’s integrity. It’s also notable that, for the first time in 2014, public trust in the technology sector dipped.
Speaking at a CMI roundtable event, hosted by Prospect magazine and the Institute of Corporate Responsibility & Sustainability, former BP CEO Lord Browne of Madingley highlighted the cost and threat of disengagement between business and society, and made four recommendations for how business can bridge the gap with a distrustful public.
Browne, author of a new book Connect: How Companies Succeed by Engaging Radically with Society, has calculated (with the management consultancy McKinsey) that the value of risk tied up in an organisation’s relationship with society is approximately 30% of its total value. (He noted that the VW share price fell by almost exactly this amount when the emissions scandal broke.) Seen in this light, handing over the job of risk reduction to some semi-engaged CSR professional seems like a highly risky approach.
For Browne, CSR (corporate social responsibility) was a noble attempt to get business thinking about how it does business, but it’s become “a sticking plaster”, often detached from the mainstream of an organisation’s strategy. “The term CSR should be killed,” said Browne. “When you’re at the heart of a business, you can’t be marginalised.” Browne gleefully quoted Lord Howard Davies who has said: “we carry out our business and then on a Friday afternoon we think about CSR for half an hour.”
So how can business “radically engage” with society? Browne makes four recommendations:
1. Businesses do well when they have a realistic understanding of the world around them, their place in the world. It’s easy to think that business controls the world, but quite the opposite is true: business is controlled by the world. Society gives business permission to exist.
2. Business must learn to contribute its total contribution to society better. Leaders should not delegate the explanation of a company’s main activities, their purpose and their impacts. If the purpose wanders a bit, then you don’t need many degrees of separation to create problems.”
3. Get CSR embedded in the line, and that requires people to have time to embed it. Ask your managers how they allocate time. And if risk is 30% of your value, then you could argue that CSR-related activities should take up 30% of your time.
4. In an interconnected world, you must engage in a really radical way, not just when you feel you’ve got time to. He told the story of how BP established a liquefaction plant on the fragile, almost untouched environment in Bintuni Bay, Papua, Indonesia. The company set up a totally independent advisory panel, under the aegis of the legendary American diplomat George Mitchell.
“Looking back,” he writes in Connect, “success in Indonesia was only made possible by the radical engagement that the independent panel represented. They engaged in a multidimensional challenge that could have gone wrong in any number of directions, from environmental degradation and disputes over ancestral ownership, to human-rights abuses, excessive migration and cultural disrespect.”
The interactions with the communities in Papua were, says Browne, “not the results of CSR; they were the considered price negotiated with parties who were treated by BP as equal partners.”
Connect: How Companies Succeed by Engaging Radically with Society by John Browne, with the assistance of McKinsey consultants Robin Nuttall and Tommy Stadlen, is published by WH Allen, an imprint of Ebury, which is part of Penguin Random House
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