Events & presentations

30/04/2003

Institute of Directors

"Business: Who Are Our Stakeholders of the Future?"

Thank you. It is a real privilege to have the opportunity to share with you some thoughts on our future stakeholders.

This location, The Royal Albert Hall, reminds us of the efforts of Prince Albert, a great patron of British science, technology, and business.

He wasn't very popular in this country, in part because he was a foreigner with a German accent, and because he was so powerful. But he is a particular favourite of mine, because of his Victorian can-do attitude about applying modern technology to social problems.

He arranged for the design and construction of modern housing for working class families. He replaced the old-fashioned classics and theology curriculum at Cambridge with modernised science and technology. And of course, he organised the 1851 Great Exhibition.

If he were here today, I'm certain he would share the same concerns of many of you right now . . .
. . . who's that calling on my mobile? What's that message on the Blackberry? Perhaps he'd be using his mobile to send a video clip to Queen Victoria.

In Prince Albert's time, social reform was in the air. Businessmen like Cadbury, Lever and the Rowntrees were devoting business resources to philanthropic schemes to improve the lives of their workers.

The word philanthropy has since become somewhat pejorative. We think of it as paternalistic. Yet the questions the Victorians were asking formed the basis of our modern day approach.

Today the role of the corporation and its relationship to society is being re-examined. The debate is taking place in the media, in the political world, at international gatherings, and in the boardrooms of the world's largest companies.

Business in the Community is committed to improving the impact of business on society. We provide answers to the question - to whom does a company owe its allegiance? Who are its rightful shareholders? What is the connection between a profit-making company and the community it serves?

Our wake-up call came with the Toxteth riots in 1981. When that deprived neighbourhood of Liverpool erupted in violence, we had to face the fact that much of our urban fabric had deteriorated. Its residents were disenfranchised. Something had gone desperately wrong.

Business in the Community was born the following year. The animating notion was that the fate of business and society are intertwined. That organisations need a philosophy of social responsibility that is embedded into their very fabric, at every level, not bolted on as an extra feature.

At Business in the Community, we know that companies that behave responsibly in their communities perform better on the bottom line. Our members recognise that they have a wide range of stakeholders whose needs must be addressed. Those stakeholders include investors, customers, employees, suppliers, and of course, the communities where they operate, at home and abroad.

Today we are at another turning point. The task of promoting corporate social responsibility has become even tougher because of a confluence of factors.

• Consider the ongoing economic uncertainty and the fallout from the war in Iraq.
  
• Consider the erosion of public trust in corporate behaviour. Increasingly, businesses are seen as part of the problem, not the solution.
  
• Consider Seattle and Genoa, and the continuing protests about the dominance of big business and globalisation.

Each of these factors has its own source and history, but they have converged at a single, precarious point. I think of it as the Perfect Storm. Those of us in the corporate world are riding the waves of that storm.

This leads to a new consideration for corporations, and that is reputational risk - the risk of failing to manage your company's reputation consistent with the goals and values of your enterprise.

Traditionally, a company's reputation was driven by the quality and price of the goods and services. Not any more. Today, managing a business means managing your reputation.

What is a company's reputation worth? Just think about why Enron and Andersen disappeared. Not because the courts or politicians pulled them down, but because of social sanctions. Because of public outrage. The public would not stand for it.

Companies spend many millions establishing and protecting their reputations through their brands. They can't afford to lose the public trust. The risk is too great.

This poses new challenges. Managing your relations with your community is not the same as managing your inventory or your bottom line.

There is yet another reason why companies need to safeguard their social reputations. In our knowledge-driven economy, companies compete on their ability to attract bright, intelligent, and creative staff. These employees do not want to work for companies with poor reputations.

I learned this first hand, when I was on the board of Shell UK during the Brent Spar disposal in 1995. I witnessed the damage it did to Shell's competitive position.

Or think of the BSE crisis a few years later and how quickly we lost faith in our government. We learned that reputation is not easily recoverable. That there is no benefit to spin without substance. That trust is not negotiable.

Today I am wearing two hats. In addition to my chairmanship of Business in the Community, I am also chairman of mmO2, a provider of mobile communications across Europe, with 18 million customers in the UK, Germany, and Ireland. We're less than two years old, and we operate in a new, fast-paced industry with very little precedent to fall back on.

We find ourselves in a communications revolution not unlike the Industrial Revolution in its sweep and potential for social transformation. We are in the midst of enormous, disruptive change that brings fresh challenges. Sometimes there are no easy answers.

I want to share two examples with you.

The first concerns the debate over a substance known as coltan -a metallic ore that's used in nearly all the mobile phones on the market today.

How many of you have heard of coltan?

The odds are, you've got some in your mobile phones or laptops. When refined into a substance called tantalum, it's used to make tiny capacitors that can withstand the heat generated in small electronic devices. Because of that, there's been a huge hike in the price of coltan, from $30 a pound to more than $350 a pound.

The complication is that some of the world's coltan is mined in the African nation of Congo. The rest comes from Australia. Analysts say that much of the ongoing civil war in Congo is financed by the illegal mining of coltan.

To make matters worse, Congo's lowland forests are being overrun. The miners and the rebels are destroying the habitat of the endangered gorillas. Animal rights groups are starting to protest.

The Dian Fossey Gorilla Fund has launched a £1 million campaign to combat the impact of coltan mining in eastern Congo. Even Leonardo Di Caprio - that seasoned voice of human conscience - has launched a campaign to promote gorilla-safe mobile phones.

When Hollywood gets involved, you know your reputation is at stake.

In all seriousness, it's a complex situation. The problem isn't coltan, but illegal coltan. We don't want to wipe out an entire legal industry in Australia and in other parts of Congo - one that has been sustaining companies and communities for years, and works just fine.

And remember, we do not manufacture mobile phones. We provide the network on which the phones operate, and we sell the phones through our outlets on the High Street. We're a large company, but are we large enough to have meaningful leverage over the manufacturers of the handsets? Probably not.

O2 decided to take a proactive approach. So far, none of our customers have complained about coltan. But we wanted to know what they thought. So we asked them.

We conducted a poll and here is what we found:

• 100 percent of our customers were ignorant about the issue. Most had never heard of coltan.
  
• Overwhelmingly, they said it was our job to inform them about the controversy. They expected us to be forthcoming.
  
• Overwhelmingly, they said their decision about which phone to buy would not be influenced by the controversy. In other words, they would continue to buy mobile phones just like before - based on price and features.

How can we explain this? It's a contradiction - they say they want to know, but then they don't care. Perhaps one explanation is that the public hasn't seen enough grisly photos of gorillas. Perhaps a better protest campaign would raise the level of outrage.

Perhaps gorillas will become the new dolphins.

Another explanation is that our customers have very high standards for how they think we ought to behave - higher even than the standards they hold themselves to.

This presents a challenge. Who are our stakeholders in this situation? To whom do we owe allegiance? If we go out and source alternatives and sell only coltan-free phones, we'd be seriously compromising our business proposition.

What about our commitment to those other stakeholders - our shareholders and employees? What about our commitment to the environment, and the gorillas?

For now, the decision we've made is to go back to the manufacturers of the handsets and ask what they're planning to do. Letting the manufacturers know that we are concerned is a first step in what we hope will become an ongoing dialogue.

My second example today concerns what is known as adult content. For some it is just that, but for others it is pornography.

To illustrate this problem, we searched and searched for an appropriate image to show you - one that Prince Albert himself might approve of. In the end . . .
. . . we gave up.

We all know that the mobile phone industry has vastly improved communications, enhanced business opportunities, extended the notion of family and community, and brought people closer together all over the world. But like any other communications medium, it has the potential for abuse.

The fact is that mobile technology has evolved to the point that it's possible to send and receive adult material across the handset. Text, images, and full-motion video.

Consider the experience of the Internet, where 60 percent of images transmitted today are adult content.

I should point out that we are not talking about material that is illegal. That will not knowingly be transmitted on our - or any other - mobile network.

What we're concerned with is legal material. As channel providers, we are not in the censorship business. We do not consider it our job to legislate morality. It is our obligation to remain within the law. And to be frank, beyond that - and regardless of your or my personal preference - we recognise that adult content is an inevitable part of our business.

We could choose to ban all such material on our networks, but the commercial repercussions would be severe. And we'd be engaging in censorship.

Our main concern is minors. A mobile phone is not like a television that can be monitored by adults. Children carry them around without parental supervision. Many of you, I'm sure, would like to be able to buy your children a mobile phone and be guaranteed they'll never receive a pornographic text message or image.

How do we resolve this problem?

Partly, the answer is, through a considerable investment in technology. We have to develop and put into place a complex system of rating schemes, and filters, and bars that keep out the unwanted material.

And partly, the answer is education. We have to teach our customers to use those tools so that they can control the content that they, and their children, receive.

At this point, most of the public is still unaware of the potential for adult content in our industry. That's about to change.

At O2, we are looking to develop an educational programme that will explain the new technology. We want to do this before it becomes a public issue, because we believe it is our corporate responsibility - to protect minors, and to help our customers make informed choices.

On both of these issues - coltan and adult content - we are taking proactive steps. We are wrestling with them before there is widespread public concern. Before they became a problem. Before there is regulatory intervention.

Because frankly, we do not believe these issues are better off decided at Whitehall, or Brussels, or Washington, DC.

With their unflagging optimism, the Victorians genuinely thought they could go forth and fix the world. We know better. Our aspirations are more realistic.

We know that companies cannot provide a corrective for all the social maladies that beset us. The business sector does not have all the solutions, but we can serve as the catalyst for a creative approach. I believe that the corporation's ability to mobilise its human and capital resources - within and across geopolitical boundaries - remains our best defence.

And that meeting the expectations of our stakeholders will remain our abiding challenge, and commitment.

Thank you.

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