Why Trust Should Matter To Every CEO
In the 1970s, a decade after I had joined the company, BP had just two main operations, in the North Sea and in Alaska. By the time I stepped down as CEO in 2007, the company was operating across the globe including in regions that lacked strong institutions and governance, had no tradition of respecting human rights, and in which people strongly distrusted Western companies.
In Papua, Indonesia, for example, where BP (ADR) was seeking to construct a liquefaction plant to enable gas exports, the company was working against a backdrop of ethnic conflict, secessionist demands and a history of environmental damage caused by Western mining companies. It seemed it would be almost impossible to gain the degree of trust necessary to develop the project.
BP’s response was to establish an independent advisory panel that would hear community concerns, examine BP’s activities and report its findings publicly and fully, and without interference from the company. BP saw the reports at the same time as other stakeholders. The well-respected former U.S. Senator George Mitchell of Maine chaired the panel, which was given its own independent resources. It was an innovative approach to engaging with society that eventually won people’s trust and helped generate the credibility BP needed to construct the plant successfully.
That experience in Indonesia sounds extreme, but the challenge of securing society’s trust is one that business has faced across the world for more than two thousand years. In ancient China, merchants were regarded as dangerous and immoral. At the beginning of the 20th Century, US presidents were busy breaking up the monopolies that the robber barons had constructed for private gain. And today, barely half the world trusts business to do the right thing.
In spite of its centrality to human progress, feeding, enriching warming and delighting us, it seems that business continues to provoke anger and suspicion. When people are asked what they think motivates business leaders today they talk about ‘greed,’ ‘personal ambition’ and ‘growth targets’, rather than the desire to transform people’s lives or improve the human condition.
For oil and gas companies, which rely on positive relationships with society more than in most other industries, this poses a serious problem. When people believe that a company exists only to make itself rich, the company’s actions are viewed as a zero-sum game where a win for the company means a loss for society. It makes it very difficult to secure a license to operate.
As oil prices have fallen to their lowest level for more than a decade, and as the industry cuts hundreds of thousands of jobs, concerns about the lack of trust in business might seem to be of secondary importance. Yet research by McKinsey shows that on average, 30% of a company’s value is at stake when it comes to its relationships with society. CEOs seem to understand this: the same surveys show that they spend 30% of their time addressing this issue. The problem is that less than 30% of these same business leaders feel that they are successfully engaging with society. Other studies have shown that if they could get it right, then their company could generate returns that are at least 20% higher than its competitors over the course of a decade.
In my experience, executives are often failing to build a productive relationship with society because the old models of engagement are dead. Over the past 20 years, companies have relied on Corporate Social Responsibility (CSR) as the primary mechanism for handling external relationships, but these CSR programmes are usually detached from a company’s core commercial activity. When we interviewed Howard Davies, Chairman of one of the UK’s largest banks, he told me that CSR is something that companies focus on “for half an hour on a Friday afternoon.”
As a tool for helping business overcome centuries of cyclical distrust, a detached CSR programme is wholly inadequate in today’s business environment. Technology is making business activity more transparent, forcing companies to be authentic in both what they say and do. The use of big data to track supply and demand offers unprecedented visibility of developments in the oil market. Increased Internet access and the growing prevalence of social media are also allowing a far higher degree of public scrutiny of the way in which companies behave. In order to gain society’s trust, companies cannot simply outsource society’s concerns to a department.
In place of CSR, business needs a new approach to the way in which it connects with society. From the boardroom to the shop floor, companies need to incorporate societal connection formally into their operations and strategy.
That will mean having a clear understanding of the value of different external relationships and ensuring the company defines clearly its contribution to society, beyond its financial benefit. Companies need to apply the process and operational expertise of commercial managers to help the company tackle social and environmental issues. And most importantly, companies need to engage radically, on society’s terms rather than their own.
Radical engagement does not mean that mistakes can be completely avoided. In the years before my old company’s oil spill in the Gulf of Mexico in 2010, cultural changes had already left the company without many American friends. It is possible that BP’s reservoir of goodwill was not as full as it might have been. BP responded by taking responsibility and committing funds to the clean-up operations. It meant that the reservoir was not completely drained. If they had failed to engage in this way, it would have been almost impossible for the company to survive.
The need for radical engagement should also lead oil and gas companies to address the threat posed by climate change head-on. If they fail to do so, they will face an existential threat to their business. Those which succeed will be rewarded.
In 1997, at Stanford, I made a speech acknowledging that the link between fossil fuel emissions and climate change could no longer be ignored. I committed BP to taking action and in the four years that followed we successfully engaged NGOs in our efforts to reduce carbon emissions. We won respect, along with a seat at the negotiating table when new rules were being written. It meant that our customers could see us planning for change, rather than seeking to preserve the status quo. And it meant we had the upper hand in the market for talented young people with a vision for the future.
More than a decade ago, BP’s solution to connecting with local people in Indonesia might have seemed necessary only in extreme situation. Today’s business environment and the failure of CSR suggests this sort of radical approach to engagement is the only way companies around the world can win society’s trust.
Lord John Browne is Executive Chairman of L1 Energy, former CEO of BP and co-author with Robin Nuttall and Tommy Stadlen of CONNECT: How Companies Succeed by Engaging Radically with Society (PublicAffairs; March 8, 2016).