Events & presentations

11/02/2004

Speech to HBOS Corporate Responsibility Forum

CSR: Answering the critics at a time of critical need

Thank you. It's a privilege to be here today with such an accomplished group.

You may remember - there was a time when banks would lend money to people based on their personal character. This arrangement had nothing to do with collateral, or credit history, or anything else that would guarantee repayment of the loan - except the personal character of the borrower. It was an old-fashioned arrangement. Business was done on a word - and a handshake.

To make a loan like this, a banker had to know his customers. Their reputations. Their personal histories. He had to know their place in the community. This was possible because the banker knew everybody. The bank itself was part of the life and times of the community. What a quaint idea in this age of multi-national corporations.

Today, I want to talk about the times we live in. For the past two years, it has been my privilege to serve as chairman of an organisation called Business in the Community, whose more than 700 member companies are committed to improving their impact on society. We strive to 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?
  

As many of you know, the notion that businesses should be responsible to their various stakeholders has recently come under attack. Critics have accused it of being merely window dressing, a marketing gimmick. The most recent attack has come from an organisation called Christian Aid. They have a political goal - they want the government to draft laws that will force companies to live up to their social responsibilities. They want to regulate corporate social responsibility into the business agenda.

I want to share some thoughts about this critique, and what I see as the real responsibilities of the corporate sector.

First of all, I agree with one point in the recent Christian Aid report. Social responsibility should never be a public relations effort. Companies that treat it that way are bound to fail. Pardon me for using acronyms, but CSR has got to be part of the DNA. It's got to be in the lifeblood of the organisation, or it's not going to work. To be effective, CSR - corporate social responsibility - has to be part of everything you do. It has to be implicit in your brand values. It has to be explicit in the high quality of your products and services.

Let me illustrate what I mean with a company I happen to know quite well - mmO2, the mobile network provider. We serve more than 20 million customers in the UK, Germany, Ireland, and the Isle of Man.

Mmo2 came into existence in November 2001 when BT Wireless demerged from BT. The O2 brand replaced the old BT Cellnet. From the beginning, we knew that O2 would be dramatically different from BT Cellnet. We knew our best chance of delivering long-term value to our stakeholders was through open dialogue, transparent operations, and a commitment to active involvement in society.

Bold, open, trusted and clear - that's what the brand was intended to signify. And that's how we wanted to run the company.

We have an ethics statement. However it has to be more than just a page on a website. It is not a department where people go and do ethical or responsible things. It goes much deeper than that. We've created a corporate culture where everyone is accountable for what they do, and how they behave. At O2, we feel the values conveyed through our brand - and enacted through our day-to-day business operations - are worth far more than any amount of promotions, packaging, or public relations.

People often make the mistake of thinking of a brand as outward-facing. It's the advertising. It's what the customer sees. It's blue bubbles. It's the English Rugby shirts or yellow football jerseys. What they fail to realise is that your brand is key to your company's internal foundation. A brand with strong values keeps you and your employees honest - and responsible.

The O2 brand conveys the message that our business is not only about the bottom line. It was also about taking an inclusive approach to our stakeholders, whether they're customers, employees, investors, suppliers, or community members.

At O2, we knew we had to develop strong community programmes. We recognised that we have a stake in the well being of the various communities where we operate, and that our products and services help strengthen those communities. It was a matter of allowing our image to inspire us to be as good as we appeared to the outside world. As Jack Welch, the former CEO of GE, once observed: "Perception is reality".

At O2, a commitment to community informs everything we do. It's in the way we relate to customers, the products we support, the quality and tone of our communications, the attitudes conveyed by management. More concretely, it's in our campaigns that merge our commercial with our communal interests.

For example, to market our products to the growing Asian market, we rolled out a Bollywood package of mobile data content that included news from Asia, gossip about movie stars, ringtones based on popular Asian musicians like Punjabi MC, and discounts on international calls. We've sponsored promotional events in cities with large Asian communities - outdoor summer festivals that allowed us to reach into the community and do something good for them. Essentially it's a chance for the Asian community to get together, with Asian music, food, and entertainment. We sponsored these events in Bradford, Leicester, Slough, Croyden, Leeds, and Edinburgh.

You could say it's part of our strategy on diversity - which is a major element in our corporate responsibility agenda. You could also say that we realised our mainstream marketing wasn't reaching this potentially lucrative segment of society, so we came up with a highly targeted marketing strategy. You could say that it's both. It helped us, and it helped the Asian community.

Another example is taking place outside at our UK headquarters in Slough, where our staff was repeatedly getting mugged in the parking garages. It was a delinquent youth problem. So we decided to help the kids, and in doing so, help ourselves. First of all, we bought a bunch of mountain bikes for the local policemen. Since Slough is pedestrianised, they needed the bikes to chase the criminals!

Then we set up a cyber café equipped with the latest technical gear to attract the kids. More importantly, we use the café as a base for our mentoring scheme. We're creating positive links between our employees and the residents of Slough. We're investing in the community. And we're making it safer for our employees to go in and out of the building.

We're investigating with other network operators the possibility of using mobile phones to help the elderly and disabled. We're doing research on what kind of information people with mobility problems need on their mobile phones. Suppose you're in a wheelchair in Trafalgar Square - would it be useful to know how many steps you have to negotiate to enter a nearby pub? Would you pay for this information? It's commercially advantageous for us to explore a potentially big customer base. It's also socially beneficial.

We're also developing content and products that would protect children from pornography, predators, and other inappropriate material on the mobile Internet. Children and teenagers represent a huge market for us. We would take a big commercial hit if their parents forbade them from having mobile phones. At the same time, we're protecting the most vulnerable members of society.

Why are we doing these things? Is it because we're interested in profits? Yes, absolutely. It's our job to make profits. We'd be out of a job if we didn't. We behave responsibly to protect our corporate reputation - of course we do. If we had a lousy reputation, we wouldn't get customers. But why should society pay a high price so that we can make profits? Society should share in the profits of our success.

CSR is one of those win-win propositions. It's good for us. It's good for the community. It makes employees feel motivated about what they're doing. It makes customers feel good about what they're buying. It makes good business sense.

Which is why I find the recent criticisms of CSR so disturbing. They come from many different directions, and they serve many different agendas. Let's take them one by one.

To begin with, there is the conservative, free-market view - that corporate philanthropy essentially means stealing from shareholders. As the Nobel Prize-winning economist Milton Friedman once famously said, the responsibility of corporate executives is to stay within the law and to make as much money for their investors as possible. Anything else is harmful to the owners of the business.

I agree with part of that formulation. It's true that CSR has costs associated with it. There are costs to the company - employees hired, programmes supported, relationships altered and expanded. Sometimes longstanding and comfortable practices are sacrificed. CSR is an added responsibility. It does not come free.

But that's a short-sighted critique. Shareholders are interested in sustainable profitability. In today's marketplace, companies need to be resilient. They need to be socially responsible to survive. Whatever CSR takes out, it puts back in - in long-term value.

A company cannot survive and thrive if it does not look beyond the bottom line. Companies need strong brands and sterling reputations. They need a satisfied workforce. Any shareholder who's interested in sustainable profitability is interested in all the benefits that CSR can bring.

The second criticism comes from the left end of the political spectrum. These critics say CSR is a good thing, but it's not working as well as it should. We therefore need to strengthen it with regulation. State intervention will fix it.

You can imagine what I think of this idea. A successful approach to social responsibility cannot be achieved with a regulatory cookie cutter. It has to be indigenous to the culture of the company. Each industry - and each environment - calls for a different approach. The case for regulatory mechanisms to achieve social responsibility is wrongheaded and pernicious. A one-size-fits-all regulatory system will do far more harm than good.

The final criticism that I've heard lately also comes from the left. This is the view that CSR is hypocritical. They say it's a smokescreen to hide the truth - mere window dressing on a system that is ruthlessly self-serving. The example they often give is the company that claims to be socially responsible - while making people redundant.

I find this kind of thinking absurdly na#, and simplistic. It makes sense only if you believe that the profit motive will always come into conflict with the interests of employees. My answer is: this is capitalism. The capitalist marketplace allows for the ebb and flow of competing interests. In a system such as ours, companies sometimes have to adjust their workforce to survive. That's an inevitable outcome of a dynamic marketplace. That's its strength. When companies downsize to survive, the system produces other opportunities.

Which would you rather have - a company that goes out of business and deprives all the employees of their jobs? We know that if worker protections are too strong, the company loses flexibility in hiring and firing, and the result is that growth, productivity, and innovation suffer. We only have to look to the Continent for proof.

I do not see any advantage in resisting the forces of the marketplace. All our experience in this country tells us this. Look at the coal industry and Fleet Street - they collapsed under the weight of the rising cost of supporting a nostalgic version of the past.

Inevitably, our system produces excesses. Inevitably, management is an imprecise business. But I firmly believe that a consciousness of CSR and a commitment to enacting its values serves as a corrective to the harshness of the profit motive. CSR is a mechanism that alleviates some of the conflicts. It's a counterweight. It's a necessity.

The problem with the critics of CSR is that they give priority to one goal and exclude the rest. They see the argument through one facet of the prism and forget that our system allows for the interplay of competing interests.

Finally, in closing, I want to remark on the admirable work being done by HBOS in the area of social responsibility. You've produced your first corporate responsibility report. You've taken the important step of joining Business in the Community's Corporate Responsibility Index, and you are working hard at your results. The HBOS Foundation supports many good causes across the UK.

I have reviewed your new Ethics Statement - which I believe is currently being discussed at the board level - and I want to congratulate James Crosbie, Phil Hodkinson, and the other board members for supporting such a strong statement. I know they are committed to the cause.

I want to call attention to one line in the Ethics Statement: "Our main contribution to society is the value we can add through our success in business". I believe this to be fundamentally true.

I do have one question about the Ethics Statement, which is this - how does your ethical behaviour relate to your business strategy? An ethical statement is just words, but what do they mean, exactly? The challenge of ethics statements is to find a way to link them to the purpose of the organisation, and to its strategic goals.

Our attempt at mmO2 to do this was to talk about resolving conflicts: Deciding how to act in the face of conflicting demands can be difficult. The following questions may help reaching the right decision.

• Is this action legal?
  
• Are you authorised?
  
• Have you taken account of any Company polices?
  
• How would this look in tomorrow morning's newspaper?
  
• How would you explain this decision to your family?
  
• Does it conflict with your own or O2's commitments to integrity?
  

The worst thing you can do with an ethics statement is nail it to the wall so everyone can see it, but not put it into practice. Enron had a code of ethics bound up as a volume- you can buy it on eBay. They also had a Lucite paperweight that said: "Vision and Values". What were those values?

So don't let the critics get you. Don't anybody say that what you're doing at HBOS isn't the right approach. Your efforts are not part of a PR campaign, or a smokescreen to deflect attention, or a scheme to boost shareholder value. They are part of the lifeblood of the organisation. By supporting them, you nurture your employees, serve your communities, reward your shareholders, sustain long-term value, and enhance the public good.

I applaud you for your efforts, and I thank you for your attention.

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