How companies succeed through radical engagement
The authors of Connect: How
Companies Succeed by Engaging Radically with Society explain why
organizations must look beyond corporate-social-responsibility initiatives to
truly engage with consumers and communities.
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.
About the Authors
John Browne is the chairman of L1
Energy and a former CEO of BP. Robin Nuttall is a principal in
McKinsey’s London office. Tommy Stadlen is an entrepreneur and
an alumnus of McKinsey’s London office.
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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