Shell has launched an ad campaign proclaiming that it’s not just after profits. Roger Cowe looks at a new trend among multinationals
Shell launched a series of advertisements in Britain this week as part of a $25-million campaign the oil company is calling ”stakeholder consultation”.
Stakeholders are all those affected in one way or another by a company’s operations other than the shareholders, whom current law recognises as the legitimate owners. According to the chair, Mark Moody-Stuart: ”We won’t achieve our business goals unless we are listening to and learning from the full range of our stakeholders in society.”
To some this will sound like public relations puffery – attempting to burnish an image tarnished by the notorious attempt to dump the Brent Spar platform in the Atlantic, and oil company involvement in Nigeria. But there is evidence that those traumatic events brought home to Shell’s bosses the need to overturn its culture of secrecy and arrogance. And it is not just Shell that is changing. There is growing awareness among business leaders of the need to behave responsibly to employees and suppliers as well as shareholders.
This month senior executives from leading multinationals – IBM, British Telecom (BT), Levis and Kodak among them – met in London to mull over problems they all face doing business in the 21st century, including how to influence governments.
Sinister? Only if you believe that the sole purpose of business is to turn a profit. Here was an intriguing sign of the times. The topic before this group, convened by BT, came from a publication in which its chair, Sir Iain Vallance, proclaimed: ”The pursuit of sustainable development is not an option – it is nothing more or less than a necessity for our economic survival.”
He was talking about much more than the environment. BT’s paper focuses first on world poverty and the widening gap between rich and poor. Once poverty and equity were considered matters for the state alone; all this would have been considered outside the sphere of interest of even the biggest corporations.
Today’s spirit of the times says otherwise. It has become incumbent on business to take a role in all walks of life. Companies are struggling with how they can fulfil their responsibilities to society at large.
Avoiding a Brent Spar crisis is part of it. BT believes that its reputation is a competitive weapon. But reputation is based on how governments (and people) at home and abroad assess a company’s behaviour. The oil company British Petroleum (BP) has come to a similar conclusion: social and environmental performance will determine the future success of the oil industry.
The past few years have seen shareholder returns threatened because companies have failed to please other ”stakeholders”. Few industries are immune from attack on issues ranging from environmental destruction to the use of child labour. Shell has been followed into the headlines by BP, in trouble for its Colombian operations.
In Britain supermarkets are in the firing line for allegedly making excessive profits while banks have been criticised for creating no-go financial zones in the inner cities. And with its genetically modified soya, the biotechnology multinational Monsanto has discovered the truth behind all the controversies – big business can no longer rely on the public’s trust or hide behind the single-minded pursuit of profits.
Business has to prove it operates in the broad public interest. That was borne out in Britain by Mori poll last month which found that the corporate world’s approval rating is at a 30- year low. As many as two-thirds of people say companies pay too little attention to their social and environmental responsibilities. And when the public decides to use its power of veto – a boycott – those companies who don’t take their responsibilities seriously can face a serious slump in profits.
In Britain a rash of initiatives is under way, some backed – at least informally – by the government. The prime minister has lent his support to an inquiry into the relationship of social responsibility and competitiveness, backed by BP, the supermarket chain Tesco, and other leading companies. It will report next month.
Another committee, appointed by the Department of Trade and Industry, is beavering away on a new model of company law, aimed at replacing its Victorian underpinnings. The committee imagined a ”stakeholder company” in which directors are formally responsible to all interest groups.
Debate is going on in some unlikely quarters. Chartered accountants wonder whether companies’ annual reports should include ”stakeholder dialogue” and quantified assessments of performance with each interested group as well as the traditional profit statement and balance sheet. Even the laissez-faire Institute of Directors has got in on the act, with the remarkable news that at least three-quarters of its members in large companies believe businesses should report on social and environmental issues.
Businesspeople in the main still believe that market forces and the retreat of governments are cure-alls. They will work to circumvent social legislation. Companies go along with the drive for greater director accountability, but see it purely in terms of shareholders.
But if such diehards do not believe in the carrot of higher profits, they will perhaps be persuaded by the stick of public exposure and private pressure from ethical investors.
Christian Aid, Oxfam and the World Development Movement have been shifting their focus from governments to big business. They have exposed appalling conditions in factories from Bangladesh to China, where T- shirts and trainers are made. Companies in the firing line include Walt Disney, with Nike recently taking the biggest hit.
The danger of such exposure has encouraged British companies to join the ethical trading initiative, and has sent scores of European and United States importers rushing to the Council on Economic Priorities (CEP), which has developed a system for independent supplier audit. The CEP has a handbook for worried executives setting out how to deal with the new demands.
Businesses cannot escape pressure from a source much closer to home – their own shareholders. Most financial institutions care less about the social performance of their investments than the companies do themselves. But ethical funds have been growing fast during the 1990s. More than 300 000 people in Britain have invested in the 40 unit trusts or other funds that have specific ethical criteria, and which are now worth more than $3,5-billion.
At a private meeting recently Britain’s leading ethical investors drew up an agenda, which ranges from human rights to advertising standards. Their demands are informed by the fuller list of social and economic indicators in the Global Reporting Initiative backed by the United Nations.
The merging of social, environmental and financial objectives is creating what has been dubbed a ”triple bottom line”. The book suggesting it has a title that sums up the apprehension of many outside the business world: Cannibals with Forks. Is it progress if cannibals start eating their victims with cutlery instead of using their hands, if oil companies start worrying about the environment while still pumping billions of gallons of carbon dioxide into the air?
How do executives balance these multiple bottom lines? For example, BP has the chance to invest in Angola, but wants to avoid another Colombian nightmare. Should it pass up the chance, allowing a less concerned oil group to exploit the opportunity? And if not, to what extent should it interfere in the Angolan government’s use of the oil money?
Some executives wonder if they are facing excessive demands. One manager at the recent BT meeting said hesitantly, ”I feel I ought to mention the G word,” suggesting that the government should be told it has responsibilities too.
Cannibals with Forks by John Elkington (Capstone 1998)