How companies succeed through radical engagement
Antibusiness sentiment is nothing new. Yet mending the rift between big
business and society isn’t merely a worthy goal—it may represent a new frontier
of competitive advantage, profitability, and longevity for today’s
organizations. In Connect: How companies succeed by engaging radically
with society(PublicAffairs, March 2016), L1 Energy chairman and former BP
chief executive officer John Browne, McKinsey’s Robin Nuttall, and entrepreneur
Tommy Stadlen offer a practical blueprint for reconciling companies and
communities. Doing so, they argue, requires adopting a new way of thinking
about commerce. In these interviews, the authors explain the value that is at
stake for companies able to move beyond corporate social responsibility and
radically engage with society. Edited transcripts of their remarks follow.
The new
frontier of competitive advantage
Robin Nuttall, principal, McKinsey &
Company: The research shows that superior
performance, in the matter of engaging with your stakeholders, is worth about 2
percent per year of superior stock-market performance. That amounts to more
than 20 percent over ten years. So this is now a massive new factor in driving
corporate performance and corporate sustainability. In fact, we would say that
this is the new frontier of competitive advantage.
John Browne, chairman of L1 Energy and
former chief executive officer, BP: Value
is a function of today’s returns and how long can you keep them going. The more
you eat into the goodwill that you have—by not refreshing it, by not topping it
up—the more at risk you are, longer term, of being able to do what you set out
to do. If everyone’s against you, you cannot do something: governments against
you, they’ll stop you, they will eat into your market. If society’s against
you, it will affect government, it will eat into your market. Our analysis
shows that there’s probably about 30 percent of the value in any company at
risk through these sorts of effects. That is an extraordinary amount of value.
It needs to be protected.
Robin Nuttall: Let’s think of a few industries. Utilities and
infrastructure businesses, they’re subject to regulatory and government
intervention. The stroke of a pen can either wipe off or add on billions of
dollars of profitability in one short moment. Financial services, talking about
banking or insurance, there’s a whole regulatory framework of financial
sustainability, of competition in the retail area. But then it’s also
industries that we previously thought were not regulated and now are coming
under the scrutiny of governments. Let’s take high tech. Big data is driving
massive concerns about privacy. Governments worldwide want to know how they can
protect their consumers from privacy risks.
Tommy Stadlen, entrepreneur: Uber’s $60 billion valuation is predicated on its
ability to win highly localized political arguments all over the world, city by
city. Airbnb is another great example. They have to navigate very complex rules
and regulations, which were simply not designed to deal with their business
model. These companies have to completely redefine the way cities and platforms
coexist. Their valuations depend on it, but so does the viability of the
sharing economy as a whole.
When you speak to tech founders, there is an
overwhelming sense of purpose and a real desire to change the world.
Technologies like driverless cars or robotic surgery are going to save millions
of lives, and they’re going to solve some of society’s most pressing problems.
But tech leaders need to think about how they communicate their contribution.
They need to acknowledge and deal with the very real fears that people have
about new technologies.
Moving
beyond corporate social responsibility
John Browne: Corporate social responsibility was a valid
attempt at saying, “There is something missing here.” It’s called engaging with
all the affected parties, which are the stakeholders in your business. Over
time, I think this valiant attempt became a little corrupted. It became
isolated, separated from the business as a whole, and became a little bit less
interesting to boards of directors, who really wanted to know where the money
was being made. And, it was not coupled to the real value generation that was
being created in the company.
Tommy Stadlen: There’s the notion of win the game, and play the
game. Companies can play the game on any number of issues. So, they should just
be responsible and meet the basic standards that we expect of business, in
areas that don’t affect what they do as a company. But they can select a number
of issues, one or two issues, where they can win the game, where they can adapt
and lead the entire industry on a subject that is core to the company’s
operations. When companies define their contribution, it’s very important to
pick something that is right at the heart of what they do as a business.
Robin Nuttall: Unilever’s sustainable-living plan, which we talk
about in the book, based on interviews—that’s a living plan which is aimed to
double the size of the business but is equally aimed to improve the health and
well-being of more than a billion people worldwide. That’s an example of
mapping your contribution in a tangible way.
John Browne: It’s about strategy, value at stake, and making
sure these things become aligned. You understand what’s going on, and you get
it integrated in the business as a whole. Corporate social responsibility
doesn’t do that in most cases.
Robin Nuttall: As we all know, from work and organization, what
this is essentially about is getting the skills, processes, and metrics in
place. It means applying them to an external environment. We found, for
example, that only 21 percent of CEOs feel that they have the skills in their
organization to manage externally. This is about upgrading that whole skill
set. We say, for example, that in your corporate and government affairs
department, at least 40 percent of that department should have direct line
experience. The other test is—am I cycling top 20 percent talent through my corporate-affairs
and regulatory- and government-affairs departments? It has to be a commitment
to excellence and to success in the organization.
Being
radically authentic
Tommy Stadlen: One of the big ideas in the book is that
reputation is an outcome of who you are, who a company is. Reputation is not a
construct to be managed. We interviewed Alastair Campbell, Tony Blair’s former
director of communications. His view was that some of the spin, some of the
tactics that worked in that era, would not have served his boss as well today.
This is the era of transparency, and you have to be radically authentic to
connect with society.
Robin Nuttall: This is about cutting through and reaching those
audiences using direct means, and being extremely transparent in your purpose.
One pharmaceutical company that we spoke to had a regulator who was concerned
with a specific drug. Rather than simply battling it out through the courts
with the regulator, it took all of the private information in the company, all
of the research, and made it public on the web. That reestablished credibility
and trust with the regulator and with the consumers.
John Browne: We learned a lot of lessons during my time with
BP. I think industry is still learning these lessons about how to engage, how
to really engage, with society and populations—now do it radically.
My first experience with how not to engage was in a very
tough situation in Colombia. At the time, it was heavily controlled, the area
that we were in, by the guerrilla groups working for the narcotics gangs. They
were a parastate: they were not under the control of the government. We made a
lot of errors from the very beginning. The first was—because it was out of
control, there were no laws—and so we didn’t have to take very seriously all
the environmental regulations. How wrong we were. That was the first problem.
The second problem was that, because it was unsafe, why
didn’t we just, when we developed, build everything we needed and put it behind
rows and rows and rows of barbed wire and high fences. Now the problem with
that is we locked ourselves in, and we couldn’t actually speak to the people
outside. So we immediately created an “us and them” situation.
The difference is our experience in West Papua, again, a
very difficult place to work. We were not trusted because foreigners always
cause trouble. So we struck upon a simple idea, which was to have an
independent commission representing the affected parties, with distinguished
and trusted people. We set about doing the following: asking them to appraise
what the company was doing and to report their results out without showing them
to the company first. In other words, to be independent.
Over time, they became trusted. By their examination of
what was going on, they made both sides understand what both sides needed. That
was an important step. It’s about radical engagement. I’d go so far as to say
that if you feel comfortable in the engagement, it’s not radical enough. You
have to get to the point where you are pushing the envelope.
http://www.mckinsey.com/Business-Functions/Strategy-and-Corporate-Finance/Our-Insights/How-companies-succeed-through-radical-engagement?cid=other-eml-alt-mip-mck-oth-1602
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