Events & presentations

21/05/2002

CRG Annual Consultation

Social Investment in a market economy: partnership or shifting sands?

Thank you and good morning. It's a pleasure to be here. The members of the Corporate Group Responsibility Group have a long history of social responsibility and are among the most committed and innovative leaders of best practice around the world.

I've been particularly active in this area since my tenure as Chief Executive at BG (formerly British Gas), when I was taken on a Seeing is Believing tour of some local estates in Cheltenham by Business in the Community, and I became a convert to the need to raise our performance in this area.

I'm now privileged to serve as chairman of Business in the Community, which has been a powerful force for promoting CSR in the private sector in Britain for two decades. I accepted the position because I passionately believe corporations have an essential role to play in social change, and that business performance in this area is a key to lasting success on the bottom line.

Two decades after Business in the Community emerged from the devastation of the Liverpool riots, active engagement between business, government and the community is on the rise. Throughout the corporate sector, there is now a widespread recognition that business has a vital part to play in building healthy communities and a sustainable environment.

Indeed, the CSR trend is sweeping the corporate boardrooms of multinational firms. According to CorporateRegister.com, 487 "sustainability reports" were published last year, up from 194 in 1995, and only seven in 1990.

"Corporate ethics" is no longer cynically regarded as an oxymoron. CSR is no longer the rarefied talk of a handful of do-gooder companies. As Richard Lambert, the former editor of the Financial Times, put it in a commentary he wrote for BiTC, "Everybody's doing it".

I was very interested to see that earlier this month, the British mining industry announced that it has committed itself to social, ethical and environmental standards and intends to tackle past pollution problems.

Even Macdonald's, that international symbol of globalisation that has incurred the wrath of anti-capitalist campaigners, has published its first world-wide social responsibility report, 46 pages long. Macdonald's is now committed to addressing, among other things, the issue of nutrition.

Change at the Local Level

I want to spend a few minutes today talking about a topic that has fascinated me for a long time. If I describe it as "the nature of organisational change," then you'll start to yawn, but what I want to know is - where does creativity come from? How do new ideas emerge and take root in large complex organisations? More importantly, how you can use the power of private enterprise to innovate?

These questions are vital to our discussions about CSR. All of us here today are dedicated to ameliorating social problems at the community level. We know there's a desperate need for fresh ideas that challenge the old orthodoxies. But how can we encourage private enterprise to generate creative solutions to social problems?

During the mid-1990s, in my work with the BG Foundation, we encountered some social entrepreneurs who had highly original and effective approaches to some very tough community problems. In particular, we worked with the CAN project in Bromley by Bow, and we saw the impact that a single highly motivated social entrepreneur can make.

We took a hard look at that success, and we wondered, how could we build upon it? Is there a way to franchise social entrepreneurism? Is there a course we can send people on, is there a book, is there something we can put in a spray bottle that will transform people into fantastic social entrepreneurs?

The answer, unfortunately, is no. It doesn't work that way.

Here's why. Entrepreneurs emerge from a particular social context. They know their communities. They walk the streets, and they confront the reality every day. That knowledge turns out to be a decisive factor in generating creative, practical, and viable solutions.

In his best-selling book "The Tipping Point," Malcolm Gladwell explores the social dynamics of change. He looks at enormously popular social movements such as fashion trends and fads and wonders how they got started. Why do things catch on? He says if you trace them back to their origins, the decisive "tipping points" were seemingly minor factors - the little things that can actually make a big difference. For example, things that exist all around us that we may not pay much attention to, such as our physical environment - in particular, he looks at graffiti - or rumours, or the influence of our colleagues.

In other words, we are all products of our immediate environments, and we respond far more sensitively to them than we might have imagined. This is the Power of Context, and it is a hugely important factor in understanding why businesses are better suited to innovate at the local level than government - because they understand their communities.

Business solutions to social problems have a better chance of succeeding because business has a direct stake in the outcome. When businesses help their own local communities, they are actually helping themselves.

Corporate Social Innovation

The think tank Demos, where I serve on the advisory council, has produced an insightful report on this topic. It will be published next month. The author, Rachel Jupp (pronounced like cup), argues that the private sector can provide solutions to critical social problems in ways that are virtually impossible for the public sector.

Businesses can draw upon assets that are unavailable to the public sector, such as:

• organisational and analytic expertise
• a culture of innovation and risk-taking
• the power of their corporate identities and brands
• expertise at evaluating results
• and importantly, knowledge of their own communities

Jupp has invented a new term to describe this - Corporate Social Innovation. For short, she calls it CSI. As much as I dislike speaking in initials, I think it's a useful term. (Let me try to get this straight - CSI is a vital component of CSR. And this is a meeting of the CRG.)

Why is Corporate Social Innovation so difficult? The answer is that when you're pushing at the boundaries, there's a natural tendency to be conservative. You're in uncharted territory, your reputation is at risk, and you don't want to fail. The stakes are too high. So you default to the easy path. True innovation is very hard indeed.

The Demos report identifies three criteria for innovation within an organisation:

• financial risk-taking
• working across cultures
• an acceptance of uncertainty

I find it interesting to know that not knowing is integral to the process. Experimentation, unclear outcomes, and sometimes, even failure, are part of the equation. Any time you move from a business-as-usual mode into creative territory, you're running the risk of failure. You have to prepare for it and accept it. It's part of any new human experience.

Business and Government - a Change Relationship

For better or worse, we know from experience that the civil service is notoriously bad about taking risks, breaking new ground, and admitting failure. This is why the Power of Context is so important. Because of its local presence and resources, the private sector is ideally positioned to take risks, venture into the unknown and prove the principle. Initially, business is in the dominant position.

Once a project succeeds, a critical shift takes place. The private sector turns to the government and says, "here is what worked". That's when the public sector takes over, absorbs the lessons, and applies them on a broader scale. The government becomes dominant.

What I am describing is a change relationship, in which power is transferred back and forth between two parties. It's something like a healthy marriage to which distinct individuals bring different strengths and weaknesses. Power shifts back and forth between them as they challenge one other, and grow together.

I believe this answers the question posed in our session today: is the private-public relationship a partnership or shifting sands? It's both. I see it as a partnership engaged in an ongoing dynamic, in which power continuously shifts back and forth.

Two examples: CRED and Reading Young Offenders

I want to share with you a couple of examples of how this dynamic can work. One tackles the problem of truancy, the other young criminals. I'm intimately familiar with both because we started them at BG Group, when I was chief executive.

BG CRED, now Lattice CRED, is a programme for young people who, for various reasons, don't flourish in traditional educational environments. CRED stands for Creative Education. That sums up the goal - to take a creative approach to helping young people get the skills and qualifications they need to advance in life.

Who are these students? They are the ones who don't fit in. Maybe they have some learning disabilities. Maybe they have problems at home. For whatever reason, they switch off from mainstream secondary education. They miss classes and fall behind. Each year in the UK, one million school-age children fall into this category.

For each of these young people, it's a potential tragedy. Statistics show that young people who drop out in their teenage years rarely catch up. A high proportion of young criminal offenders are persistent truants.

Through the BG Foundation, later the Lattice Foundation, we partnered with local businesses to provide an alternative educational curriculum. We set it up in September 1999 at our corporate headquarters in Reading.

The students spend three days a week at the Learning Centre, studying a practical, work-related curriculum. The remaining two days they spend on work placement in the community, in areas they choose themselves. They might study motor mechanics, the building trade, hairdressing, or photography.

The results are impressive. In the first year, attendance rose from 40 percent in their previous schools to 80 percent in our programme. Many of these students went on to jobs, traineeships, and further education. Lattice CRED helped them accomplish their goals.

It's critical to note that Lattice didn't do it alone. The company received financial help from the Department for Education and Employment, the Central Berkshire Education Business Partnership, the Reading Local Education, and of course, from all the local businesses who took on these students two days a week.

After the first two years, the Department for Education and Skills was so impressed with the results that they agreed in 2001 to fund a similar scheme in Peterborough. Transco CRED opened last September with 24 pupils and this year, attendance levels repeated the Reading experience - between 75 and 80%.

The second programme dates from 1997, when I took a tour of the prison in Reading. I was introduced to a number of inmates, ages 17 to 21, all of them healthy young men who seemed full of promise, yet they were stuck in prison. They were just starting out their adult lives in the worst possible circumstances, with bleak prospects. For young offenders in this country, the recidivism rate is 80 percent. I remember one young man who looked so demoralised he couldn't even make eye contact.

I asked the prison official, "What can we do for these young people?" and the answer was a shock. "We need £75 to buy some camping equipment". That's exactly what he said. I was managing a company with a £4 billion turnover and they needed £75. What a tragedy.

So we asked a practical, business-like question. How much money would each young man need to earn a year to make it worthwhile to learn a trade and stick with it, and not be drawn back to crime? We honestly didn't know. I wonder if anyone here could guess the amount?

The answer was about £18,000 a year. That gave us a starting point. We began to look around. Because of the high-tech industries with overflowing inventory stacked in warehouses in the Thames Valley, there was a need for forklift operators.

We took the young men out of prison for a week, trained them, and gave them accreditation. After they were released, they went out and got jobs. Of the original 80 participants, we know of only four who committed crimes again.

I think the programme cost us about £74,000. Compare this to the cost of doing nothing. In Britain, it costs about £25,000 to keep one person in prison for a year. That doesn't take into account the waste of a potentially productive life.

Why am I telling you this? Because I like talking about it, of course. I am proud that Her Majesty's Prison Service was so impressed that it asked Lattice to expand the scheme to other prisons in the Northwest. In the meantime, the technology sector in the Thames Valley has been shrinking and there are too many forklift operators, so now they're training groundwork engineers. Hopefully, one day the programme will be scaled up across the country.

These two examples illustrate the public-private dynamic. Lattice had the resources to organise things and get on with it. The company provided a practical, business-oriented solution to a dire social problem, and it worked. Then the government stepped in.

I believe all the CSR projects currently being run around the country should be regarded as potential pilot projects for the government. If not, we are wasting invaluable resources.

Transparency: the next step

I have been quite outspoken in the last few years about some of the challenges I see in the world today. A number of trends worry me. The anti-globalisation protests have had an inhibiting effect on some of our efforts, and that's a disappointment. In recent years, the debate about economic development has become so polarised that it's incredibly difficult to talk about it without causing riots in the street. The World Summit on Sustainable Development in Johannesburg next September could be a highly confrontational event. I am concerned about that.

I am also aware that even as the momentum for CSR grows, so do the challenges. There is no consensus about the interplay between market forces and state control, and the debates will continue.

I am especially concerned by what I see in some quarters as a heightened level of cynicism. There is still widespread mistrust of the business community and the other large institutions that dominate our lives. I worry about cynicism, complacency and the possibility of a backlash.

Part of the answer, I believe, lies in our commitment to increased transparency. Business in the Community has worked hard to develop and promote tools to measure various forms of social engagement and create a level of accountability within the private sector. Transparent communication is essential for building trust and credibility. We must publish reliable information that gives an accurate reflection of performance. The current crises in accountancy and investment analysis underscore the need for integrity and clarity.

Transparency means being open and answering questions from the public. Being prepared to explain not just your operations, but the rationale behind your decisions. Being willing to expose your practices to scrutiny, to be evaluated openly, and to accept both criticism and approval.

I agree with Richard Lambert when he says we must be more careful about what we say, and how we use language. We are under such intense scrutiny that we must be judicious. We shouldn't boast that every pilot project is a resounding success. New ventures inevitably involve setbacks. We must be open about it. We must acknowledge when things go wrong, learn from our failures, and move on.

Ironically, if we do not become more transparent, we will find ourselves more exposed than ever.

In the same vein, I welcome the Global Reporting Initiative launched last month in New York. It is the first step in establishing clear principles for economic, environmental and social reporting by corporations. If it works, it could become the international standard for non-financial reporting.

At the risk of sounding like a romantic, I passionately believe that business has vastly more potential to do good in the world than evil. In partnership with the power and resources of the public sector, the possibilities are immense.

But success requires two-way interest. The government has to want it as much as the private sector, and respond with imagination and commitment. We must foster a mutual learning environment, crafting solutions together. The moral challenge is to work together to channel our resources towards meaningful and enduring social change. I believe in the transformative power of the relationship, and I am committed to promoting it.

Thank you.

Additional link
Business in the Community

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