Well, good afternoon, ladies and gentlemen.
Before we start the next panel,
I have the great pleasure of inviting
Hilde Schwab to come to the podium to
deliver a very special message
from a very special person.
During the preparation for the annual
meeting of 2011, we reached out to
inspirational leaders from around the
world. There was one person in particular
who we wished could share her vision with
all of us here in Davos. We knew there was
a very low chance of this happening,
given her current situation.
But just today, we received a very special
message from a very special person that we
would like to share with you as we
are gathered here in the plenary hall.
That person is Aung San Suu Kyi, from
Myanmar. In the spirit of Davos,
we present to you her audio message.
Distinguished guests, heads of states, government
and UN officials, leaders of
global companies, representatives of
the media, academia, NGOs and young global
leaders, I'm very honoured and privileged
to have this opportunity to address the
World Economic Forum in Davos. I
would especially like to extend my appreciation
to Professor Klaus Schwab and the organisers
of this influential gathering
of leaders who are committed to improving
the state of this planet.
Over the past few years, despite my isolation
from much of the world, I have
been able to follow closely the global response
to the economic downturn through
listening assiduously to radio broadcasts.
While the challenges were immense,
the response was broad, swift and strong.
Of course, much still remains to be done.
Our global interdependence has compelled
and resulted in increased cooperation.
In this context, however, I would like to
speak on behalf of the 55 million people
of Burma who have, for the most
part, been left behind.
We yearn to be a part of the global community.
Not only to be economically
and socially connected, but also to achieve
the domestic political stability
and national reconciliation that will enable
us to fully address the needs of our
people. Economic policies linked to human
development and capacity building, are the
best path to the achievement of stability
in a democratic transition.
We have already missed so many opportunities
because of political
conflict in our country over the last
50 years. Despite an abundance of natural
resources, Burma's development has
lagged far behind its neighbours.
Our government annually spends about 40%
of our GDP on the military and barely two
percent on health and education combined.
The young people of Burma need the kind of
education that has enabled young global
leaders, some of whom are present at
this gathering, to excel so early in their
careers. We need investments in
technology and infrastructure.
We need to counter and eventually
eradicate widespread poverty by offering
opportunities that would allow
the entrepreneurial spirit of our people to be
gainfully harnessed through micro-lending
programs. The National League for
Democracy has, in fact, embarked on
an experimental microcredit scheme on a very
small scale.
We need to address the tragic consequences
of preventable diseases, particularly in
conflict zones and rural areas.
At the same time, we also need to
pay close attention to the costs
and collateral damage of our development,
whether environmental or social.
These, however, can be contained
if we plan ahead responsibly.
In addition to these enormous challenges,
we also need to reform our legal system
that we might be able to attract Foreign
Direct Investment and guarantee the rule
of law.
I believe that, as necessary steps to its
integration within the global community,
Burma must achieve national reconciliation,
political stability
and economic growth grounded in
human resources development.
Without the first two, which are essential
for the basic requirements of good
governance, such as transparency,
accountability, credibility and integrity,
social and economic development
will remain mere pipe dreams.
I would like to request those who
have invested, or are thinking of investing,
in Burma to put a premium on respect for the
law, on environmental and social factors,
on the rights of workers, on job creation
and on the promotion of technological
skills. Such an approach would not only
be in line with a global sense of
responsibility, it would lead, in
the long-run, to greater benefits for all
concerned. I look forward to the day when
there will be a political and social
environment that is favourable to a wide
range of investments in Burma. We are
certainly in need of innovation
and diversification if our country is to
fulfil the aspirations of its people and
catch up with the rest of the world.
I would like to appeal to all those present
at this gathering to use their
particular opportunities and skills, as
far as possible, to promote national
reconciliation, genuine democratisation,
human development and economic growth in
Burma - that our people may, in turn, be
able to make their own contribution
towards a safer, happier world.
Thank you.
That was a very vivid reminder of why
we're all here, which is, in economic
rationale, to improve the state of the
world. My name is Robert Greenhill,
Managing Director of the World Economic
Forum and it's my great pleasure today to
introduce an exceptional panel to talk
about a critical issue: the future of
enterprise. Because if we look back over
the last three years, it's been
a challenging time for us all.
It's been a challenging time in terms of
realities and also in terms of reputations.
Today, corporation's balance
sheets are strong, but actually, societies
are still in a very difficult situation.
Governments' balance sheets are weak,
personal balance sheets are weak
and actually the reputational balance sheets
of corporations are still in a deficit
situation. And yet, what's the
alternative to the enterprise?
The idea of a state intervention of a
couple years ago is now disappearing
quickly. GM has now become a majority
owned by the private sector;
governments are having to cut their
engagement in many areas of social
programs, not just to mention economic
programs. And while corporations are
criticised, they are absolutely essential.
That inspirational message that we just
heard concluded within it a plea
for investment, an engagement - but in the
right way - in a way that would
actually improve societies.
This is the challenge and this is also the
great collective opportunity we have to
discuss here today.
And I'm delighted to be able to do
this with an exceptional panel.
And what I would like to do is to start
with Indra Nooyi, the CEO of Pepsi.
Talk about the future of enterprise, when you
took on this role, you were thinking very
much about that.
Perhaps share your thinking and how that's
evolved.
Thank you, Robert, and I think this is
a topic that needs to be debated and talked
about. And I want to go back a little bit
to my own origins.
I was born and brought up in India
and spent a lot of my early childhood there
and I watched multinational companies in
India. They were both a force for good and
a force for not so good in the country.
There were multinationals that brought
in life-saving drugs - did a lot of good
things for the country - but they also
polluted streams and waters and did not so
good things.
I never then dreamed I would ever be
leading a multinational company, but in
2006 when I took on the role of CEO of
PepsiCo, I decided that I wanted PepsiCo
to always be a force for good in every
society in which we operated.
So the first year that I was CEO,
we articulated a direction for the company
called ‘Performance with Purpose'.
And ‘Performance with Purpose' meant that we
wanted to weave purpose into every aspect
of our performance.
Not in the sense of corporate social
responsibility, it was purpose defined
such that you could not deliver
performance unless you executed on purpose.
So let me give you an example.
The first aspect of purpose was
change the product portfolio.
Shift it so that there's a good balance of
products from ‘fun for you' to ‘better for
you' to ‘good for you' because we had
a product portfolio that was skewed to more
‘fun for you' products.
Lifestyles and societies had changed,
so we had to shift our portfolio.
On the environmental side, we committed to
shifting the portfolio so that we saved
water, we saved energy, we did all of our
products in biodegradable packaging to
commit to environmental sustainability
goals. And the third part of purpose was
to make sure that our employees were
treated very well.
Make sure that talent is sustained so that
the company can deliver great
performance year over year.
So ‘Performance with Purpose' was born.
Now, interestingly, in my heart, I knew
that ‘Performance with Purpose' was the
only reason that I could run the company
and I started to sell it inside the
company.
A lot of sceptics questioned why PepsiCo
should follow ‘Performance with Purpose'.
In fact, we even had some investors ask
the question whether ‘Performance
with Purpose' was, in fact,
diluting shareholder value.
And it made me pause and think whether I
was doing the wrong thing for the company,
even though if that was not the way we
were going to run the company, I couldn't
be CEO because I didn't know any other
model with which to run the company.
So I turned to our General Counsel and
said ‘Larry, I'd like you to go back
and write me a legal document on what
is a responsible corporation.
What is the definition of a responsible
corporation? Give me a legal definition
and if I'm violating the law by
articulating ‘Performance with Purpose',
let's talk about it.' So Larry wrote
a brilliant document on the responsible
corporation, going back to the original
laws of the joint-stock company,
which basically said the joint-stock
company operates under the laws of limited
liability and the reason companies operate
under laws of limited liability from
society is because you owe that
society a duty of care.
What we forgot is that we owe every society
in which we operate in a duty of
care. So, we focused on the short-term profits
and we forgot the duty of care.
Now, in articulating ‘Performance with Purpose'
we were not saying that we should
forget short-term profits and
focus on the long term.
We believe that short-term profits
and long-term sustainability are not mutually
exclusive because long-term thinking ensures
the sustainability of the business
but gives you a license to operate
in a society in the short term.
Long-term thinking generates short-term
value, and long-term thinking resonates
with the consumer today.
So I would just make a plea, Robert,
for all of us as CEOs and professors
and activists, we need to go back to the
future. The future of the company is a
good one, but the key lies in the past.
Let's go back to the origins of
the joint-stock company and take very
seriously this duty of care to every
society that we have to operate in.
And if we revive the feeling that we owe
every society a duty of care, if we look
out ahead, beyond the quarterly earnings
cycle, I think the future for corporations
will be bright.
If we don't do that, I think corporations
are constantly going to be questioned then.
I go back to a great statement by
a satirist, a guy called Ambrose Bierce
and he said: ‘a corporation is an ingenious
device for obtaining individual profit
without individual responsibility.' I
don't want us to be painted that way.
I think the time has come for us to take
this and the words ‘duty of
care' very, very seriously.
Thank you, Indra. Michael Porter, you've
been looking at issues of competitiveness,
value creation, strategy for a number of
years with great effect around the world.
You've tended to focus on issues that
you've felt passionate about.
You came out recently with, what I'm
sure will become a seminar article,
challenging some of these issues of short-term value
creation and, actually, the idea that it's
somehow separated - corporate wellbeing
from social wellbeing.
Could you share with us your thoughts on
that, but first of all why you decided to
focus on this right now?
Well, Robert, I feel like we in business
are in a very, very difficult place right
now and a very challenging place
in sort of a watershed moment.
I think that business is widely perceived
as profiting at the expense of the
communities in which it's operating.
There's been a real erosion of trust
and legitimacy in business and I can feel it
and touch it in many different ways and I
think most of us here, I'm sure, have felt
many of these same issues.
I think there is a sense in which the
corporation has been seen as violating its
fundamental purpose and I think that this
is not only a challenge for business from
the outside, but it's also a challenge
from within the corporations.
I think our young people and even not so
young people, working in corporations,
I think, are looking for a sense of purpose
that is more than ‘our job is to maximise
and pile up the maximum profits we can in
the short term,' full stop.
And so I became convinced that we had
backed ourselves into a very narrow view
of what capitalism was all about.
We backed ourselves into a very narrow
view of how to create economic value -
a value creation model that was extremely
short term that really ignored a lot of
the most important needs, that ignored
a lot of things in the community and
the society that was really affecting the
ultimate profitability of the corporation.
And so, out of that sense of concern came
this article which I called ‘Creating
Shared Value' and the basic idea is that,
in many ways, the company can better
create economic value by actually
addressing many of the most important
societal issues around it such as the
environment, such as health, such as safety,
such as the wellbeing of their
employees. And the question was how can
we rethink the role of the corporation
and really the boundaries of
the capitalist model itself.
When you're looking at the situation today,
or that challenge today, is it
simply going back to where we were before,
are there elements that are new, that are
distinctive today? Well, I think
that it's a combination of
going back and it's a combination of just
learning from a lot of work that's been
done over the last several decades.
If we go back quite some years,
corporations used to accept a lot
more responsibility for the community.
And there are many famous examples
of that going back in history.
Companies understood that it was their
job to make sure that their employee's
circumstances were favourable.
It was their job to address some of these
issues in their communities because they
understood that if that community wasn't
healthy, the company wouldn't be
healthy and it couldn't prosper.
Over time, I think, for a variety of
reasons, companies have started to see
those ideas as outside of their scope.
Indeed, there is a huge movement in
business that the job of the corporation
is to make a profit and anything else,
any other use of resources, is illegitimate.
I mean this is the Milton Friedman
argument that social responsibility
or philanthropy or any other activity besides
narrow maximisation of profit is illegitimate
- it's taking other people's
money - and we backed ourselves
into that very narrow view.
At the same time, as we started dealing
with issues like the environment,
we started discovering that actually water
usage is actually not just good
environmental practice - worrying about
water usage - it's pretty darn important
for running the company productively.
And not wasting packaging and not using
more energy and not shipping goods
and services around the world in
some supply-chain without thinking about the
true cost of that from the
company's point of view.
So I think there's a combination of
the evolution of thinking in business
narrowing, but also some new learning about
how to actually operate a company
efficiently. I have the concept that
I developed called the value chain and I
think we're learning how the way we thought
we were being smart in operating
our value chains actually wasn't so smart;
that if we understood the full cost
of logistics and the full cost of the
resource use we actually weren't being so
smart. So I think it's a combination of
going back and going forward but I tell
you there's a tremendous momentum behind
this kind of narrow, Milton Friedman-like
view of what capitalism is all about
and it's just exhilarating to listen to Indra
talk about her philosophy because I think
she's exactly moving in
the right direction.
Paul Bulcke, as CEO of Nestlé, you're leading
and organisation that has a great
history but is also constantly changing
as well. What's your reaction to what
Michael's just been saying and, actually,
how realistic is it to try to actually do that?
First of all, this question of the future
of the enterprise is touching the
fundamental thing in our society.
I would call it, as you said
for it, forward to basics,
basically. That is, what does the economical activity
do in society, let's say, and actually we
should get back to the better understanding
of how the basic mechanisms
and also the basic workings of enterprise,
of companies, or entrepreneurship together
combined with competition that is
driving innovation and give dynamics.
How that is fundamentally linked
with prosperity and creating prosperity in
society at large.
I am a fundamental believer that when you
combine, first of all, a long-term vision
of things and I think that the common denominator
of all that we're talking here
is having a long-term vision on
what the company should do.
You have to be long-term inspired;
you have to act today.
You have to combine that.
It should not be contradictory though.
And when you do that in a very strong set
of values, your economical activity should
also, and will, create value
for society at large.
So that is our fundamental belief, that
a company can only be successful over time,
in other words, creating shareholder value
- as you do or say or define it narrowly -
can only be successful over time when
it connects in everything that it does
positively with society at large.
And actually that's a fundamental
hypothesis that you can test.
If you then split your value chain
upstream, downstream, inside your walls
and you see in everything you
do ‘What's in it for me?
For the company's success? What's in
it for society?' And you see how
that interacts and actually you can measure
these things, to a certain extent.
You see how, actually, linking of society
is not something that comes after seven in
the afternoon.
It should be intrinsically linked with
your basic activity.
And so in that example, or in that line
we have defined at Nestlé and said ‘what
is our activity and how can we, in a more
meaningful way, interact with society in
a positive, creating value way?' And we have
seen that nutrition is definitely one of
these areas where we are, that's our
purpose of our company: how we can,
through our food and beverages,
bring nutritional arguments and how we can drive
research and development into that.
How we can use products as carriers of
micronutrients and we do that in over one
billion products a day can be carriers for
nutrients. And how that interacts positively,
also, with our business
purpose at large.
How we then also - nutrition first,
the second part was water - and how, through
our activity, we are so intimately linked
with water.
Raw material is agriculture,
agriculture is water.
How we need water in our processes.
Water is definitely something that we can
also meaningfully be part of global
discussions, put in the right
agendas, but also act upon.
And the third one is rural development.
Again, we have so many factories in the
world - 470 factories in the world -
and they are normally in rural areas.
How can we then again radiate with so many
farmers we work with directly and with
Agrinos working and creating better yields
for them - better, sustainable incomes,
etc. And so it should be, how companies
link up with society should be, linked
with their specific activity per se and it
should be in everything it does.
Actually, the term - and we have worked
with Michael on this term - of creating
‘shared value', stands in contrast to
sharing ‘created value'.
We are not talking about philanthropy
here. We are not talking about doing
whatever you have to do for short-term profit
and then at the end of the year you
write a nice cheque and you go to heaven.
Which is actually, sharing created value
and then whether and how you get there.
That is basically the contrast that
is creating shared value in everything you do
that is so fundamental.
And that is not you.
This was the fundamental role of what
I call the ‘homo economicus,' the
entrepreneur creating something
positively in society at large.
And how do you deal with the tough
tradeoffs in doing this?
I mean, in the industry either for, or
Paul, you have this combination of
different products.
You know it would be easy to actually sell
products that might be attractive to
the consumer but not so good for them.
How do you actually deal with this?
When you talk about nutrition,
micronutrients, that's one way to do it
but how do you deal with this question of balance?
Well, you have to put things
in perspective again.
Long-term is something that is more important
in this whole equation than we
think. For example, nutrition. If we
see how nutrition is important for
the productivity of a country, of
the economical development of a country,
well why would you not bring micronutrients
into your products?
Actually, you give additional arguments
for your products but create also a better
environment and healthier economy.
So you're engaging your consumer in this
whole conversation?
It is this balancing act of long-term
inspiration and contextual thinking
and yet acting short-term,
too. So I don't see any conflict of long-term
contextual thinking of a company and yet
acting short-term.
So it looks like there are certain conflicts,
as you say, well we can have
a smart run here and profit from, but we
have been around for close to 150 years
now and, actually, we started off by bringing
a nutritional product to the
market and we have done that ever since.
So, I don't see a conflict here.
And it is our act also because you may now
come in and say ‘the financial world wants
results tomorrow, how do you combine that
with that long-term vision and all?' Well,
I think it's a little bit of our role as
CEOs to lead that and to comment on these
issues, too.
And to stand our point and say ‘no, we're
not going to compromise long-term vision,
in a framework of strong values,
for short-term gains.' And, actually, that
is what's happened over the last years.
When short-term vision takes over,
then you get against a wall and that's
something that we have learned the hard
way.
So, we've heard a couple of examples from
the consumer products category.
Tidjane Thiam, you've been involved in
looking at issues from the private sector
point of view, public service,
you've advised Prime Ministers, Presidents,
Secretary General, as now the Group CEO of
Prudential. I think you've tried to deal
with these challenges from the issue of
the financial services industry,
particularly the insurance industry.
Yes, Robert, I think I will echo a number
of things that have already been said here.
For me, the key issue in all this
is the time horizon on which you're
projecting yourself and managing your
company. Prudential is 163 years old,
so it's a bit like Nestlé at 150 years and
you don't get to be that old unless you've
managed things in the short-term very
well and also in the long-term.
And we are very lucky to the extent that
we are in the long-term business,
by nature. I define it as the business of
promises. When I tell a customer in the UK
or Indonesia that we will pay them a pension
in 2036, they have to believe
that. They have to trust the company to
invest their savings, $20 a month, for the
next 25 years and know that we'll be there
in 25 years to pay them what we've
promised them.
So, it is possibly easier for a company
like us to behave responsibly because of
the nature of our product and the damage
to our business would be immediate, in
the short-term, if we deviated from the
long-term approach and if that
became visible to people.
And it is actually very interesting because
that is absolutely in the genetic
code of the company.
It was a key part of the industrial
revolution in England. Those of you from
England, ‘The Man From the Pru' is a very
well known expression that has gotten into
the common language because it was part of
the development of a middle class, of
a saving habit and the notion that the
company would always be there to serve.
And I find it really interesting that we
have, then, been so successful in Asia
because that set of values, which served
us extremely well in the UK, has
been transferred, I would say seamlessly,
to Asia.
And if I'm a poor person in a village
in Asia, how does this work?
Well it works because you know in
poor countries life accidents are one the first
causes why people fall below the poverty
line. So if you've got the statistics it's
a huge contributor to global poverty,
the fact that people have no protection.
So first thing we do is protect people
against life accidents: losing a spouse,
losing a parent, etc. And that is
very important, it's an entry
point. The other thing we do,
it's a people business.
I mentioned Indonesia - we have 75,000
agents selling insurance in Indonesia.
When I was there last month I had to meet
the top 10,000 and we met in a stadium
because it's a people intensive business.
It's face-to-face.
People buy from you because they trust you
and they trust that you'll be there to
execute. So, if I step back and go back to
the question of the future of enterprise,
for me, we are looking many ways because,
again, the nature of our business means
that we are conducted to think long-term.
The challenge is for businesses that don't
have these characteristics.
How can you encourage that type of
behaviour and reward it, because I would
agree with Paul. I think if you take the
right time horizon, I don't feel
a tension or a trade-off.
A lot of those decisions only seem to involve
a trade-off if you look at things
on a very, very short time horizon.
Always, if you're running a company and if
you take a long-term view, very often a
lot of those decisions are no-brainers.
You know what is the right thing to do
and you are very strongly
incentivised to do it.
Sergio Gabrielli, when we are talking
about something in the DNA of a company,
I mean Petrobras was developed as
an instrument of the state to help provide
energy across Brazil. How do you think
about this issue, the future of the
enterprise and particularly one of
the hypotheses of the last couple of years was
to ensure you had a responsible corporation
maybe you had to have
a state-owned or state-involved corporation.
Yet, in fact, Petrobras, which has been,
in fact, that, has moved the other way,
in fact, in terms at least a
partial privatisation. So what was the thinking
behind that as well?
Well, Robert, in the last five months we
went twice to the market to raise money.
The first time, in September last year,
we raised $70 billion with the biggest
stock issuance ever in the world.
$70 billion.
Yesterday, we finished raising
$6 billion on debt.
We access the equity market and the
debt market. Personally, I met almost 400
different investors, talking about
the future of the company.
So, what's the future? And it was
interesting because what was
clear for us is that we are really in
a conflicting stakeholders environment.
And our job is to keep balance in
a very clear, knife-edge path.
Because sometimes we are going to be loved
by the shareholders that have a very
short-run view of the profit for the
next quarter. Sometimes we are going to be
loved by the shareholders that have a longer
view that wants to see the value of
the company moving towards a big solution.
Sometimes, the bondholder will say ‘look,
you are affecting your habitat and then
you cannot pay what you owe me.'
And sometimes, the workers will say ‘we are
not getting the same type of wage as we
would like to have as you have big
profits'. And sometimes society, as a whole,
will say ‘you are producing CO2,
you are producing fuel, oil and natural
gas and you should be producing ethanol.'
Sometimes, society is going to say ‘you
have environmental spills and you have to
be helping us to solve our problems.' Our
supply chain is going to complain that we
are squeezing them and they cannot make
profits, they cannot survive in the long
run. Sometimes, our customers would say
‘your product is not the best product that
you have.' I think the role of the CEO and
the management of the company is to
balance those conflicting interests.
In order to do that, we have to have
a long-term view.
It's impossible to balance this every time
in the short run.
I don't believe that the corporate social
responsibility is going to be sustainable
if it is viewed as a philanthropic
position. However, I think that the
corporate social responsibility is part of
this solution of the conflicting interest
of the multiple stakeholders that creates
the environment of a company, of an
enterprise. I think the way to get through
the time horizon, the balancing of the
different interests, we require legitimacy.
And legitimacy would come from
giving profitability in the short-run that
is reasonable with a long-run pattern.
Keeping a very good relationship with all
the different stakeholders and dividing
part of the created value with
the society as a whole.
Especially in the supply chain.
Especially in the supply chain.
If we have a very clear procurement policy
that tries to give the supply chain
conditions to develop themselves we can
get legitimacy from the business sector.
On the other hand, the societies at large
would get a better view and a better
approval for our action, if they see
some of our actions creating jobs
and opportunities for them.
And I think that's the key point, to be
balancing between different
conflicting interests.
And let me ask a general question because
that sounds pretty compelling, the idea
that you balance the short-term and the
long-term you can actually help provide
nutritional food for consumers, you can be
helping people actually insure them from
accidents, overcome a family tragedy,
you can help build a supply chain and yet,
the criticism over the last few years is that
this has been happening.
So its either that it hasn't been happening
more broadly, despite these
great examples, or, if it has been happening,
it certainly hasn't been heard.
Because that certainly not what's reflected
in terms of how corporations are
viewed right now, today.
So why is that?
Why is there such a disconnect between
these opportunities and this integrated
thinking that we've just been hearing and
the reputation of corporations today.
Michael what's your thought on that?
Well, before I get to that I'd like to
actually hone in on this phrase in the
way that Sergio just said it, which
is ‘balancing conflicting interests'.
And, for sure, there's conflicting
interests and, for sure, pragmatically
there is balancing and there is short-
and long-term. I think the point that I've
been trying to make and I do in this
article, is that there actually are a lot
more opportunities where there is no
conflicting interest.
But we've just somehow looked right by
them. So, Wal-Mart reduced packaging and
saved $200 million of cost savings.
Johnson & Johnson put in employee wellness
programs, put money into employee wellness
- which most companies historically have
said this employee health stuff is a cost,
it's a disadvantage, it reduces
our profitability - J&J puts money into
corporate wellness programs
and they save $250 million.
So what this says is there's not necessarily
a conflict here, there's not
necessarily a balance between clean
environment and running the company
productively and making a profit.
There's not a conflict between worrying
about the health of your employees
and actually having a profitable
and productive company because the people
are there and they are not absent.
So, I guess what I am suggesting here is
that there's a much broader opportunity to
not actually have to make a trade-off or
a balance. Let me give you another example
and, Sergio, you mentioned this point.
And I'm not trying to be provocative here,
I just want us to really push to where
and how we think about this.
So let's take purchasing - you brought up
procurement. There's been a lot of energy
in procurement because of the idea that we
have these, for example, great cases of
poor farmers in developing countries are
not getting fair prices for their produce.
So what do we do about that in
the corporation? Well, I think we have the
more traditional CSR thinking that says
‘ok we have to be responsible and good
citizens so we will sign up for the fair
trade movement.' What's the fair trade
movement? The fair trade movement is we'll
have a compact to give the farmers higher
prices. We'll all agree that we'll
give the farmer's higher prices.
We haven't created any value, we've taken
the existing pie and we've redistributed
it. We've said that the farmers
get more because that's fair.
Now, there's another way of dealing with
the same problem of poor farmers and I
think Nestlé has taken a very different
approach. They've said look, why are
farmers poor?
Because they have lousy yields.
Because the quality isn't good enough
and therefore the prices are very low.
And there's a massive amount of environmental
damage because they're not
farming in a way that allows them to renew
their fields and to produce sustainably
over time.
So, Nestlé, and I shouldn't speak for
Paul, but some other companies as well
have started to say ‘wait a minute,
let's work with our farmers, let's
help them create more value.
And then they're going to have much higher
incomes but we're also going to get better
quality, better supply, more reliability.'
So that's a distinction between what I
think has been the CSR movement: we have
to be good citizens, we have to be
philanthropic, we have to have
corporate foundations, we have to give money.
And I think this next evolution, I hope,
which is this notion that we can create
shared value.
It's not about re-dividing the pie.
It's about being smarter and thinking
more creatively about how to create value -
economic value - which will
allow everybody to share.
Now I'm sure Sergio doesn't disagree at
some fundamental level with what I'm
saying but I think this is the fault line
in corporate practice right now.
How to think about this issue.
I'm going to give him my own example.
My company, we have 67,000 small farmers
producing food stock for our biofuels production.
We have the same type of ideas
as Nestlé. We are giving to them better
seeds and proving the extension of the use
of new technology for production.
We are trying to give them long-term
contracts that they can have
a stable income flow.
We are trying to develop infrastructure
and logistics to get products to us.
We know that these are going to be
good for us, but this takes time.
It takes five, six, seven, eight years.
Whenever you have to reduce the dividend
yield to our shareholders to do that,
that's a conflicting interest.
We have to show to them that this is going
to be a good thing in the long run.
Let me give you another example, in a high
quality industrial production,
very sophisticated equipment: drilling rigs
for more than 10,000 feet of water depth -
that's a very sophisticated product
with a lot of robotics.
There are very few producers in the world.
We want them to build the drilling rigs
that we need in Brazil. We know that the
first rigs are going to be expensive if we
did that in Korea or in Singapore. We are
bringing Singaporeans and Koreans to
come to Brazil to work with us.
We know that in the short run we may pay
more, in the long run we are going to have
a more stable supply, increasing capacity
in this important role and this will
create possibilities for improving
our revenues. It's not philanthropy,
it's increasing capacity.
But there is a clear conflicting interest
in the short-run and in the long run.
I agree with Sergio. But I wanted
put another question back to you,
Michael. What happened to academia,
what happened to the business schools?
You know, for years, we learned in business
schools that we should focus on
the short-term deliver the returns.
The Milton Friedman approach is what was
taught in business schools until the world
collapsed around us and short-termism got
us to our knees.
And even then academia was late.
Until about 18 months ago there was no
oath, there was no Michael Porter article
in Harvard Business School. What happened
to the lawyers? Why didn't the
lawyers come and say ‘there
is a law of limited liability and you get
that because you owe society a duty of
care?' Didn't the law schools speak
to the business schools?
What happened? Well, I think
it's guilty as charged.
I think as we tried to get more sophisticated
about management we ended up
concocting this, again, very narrow
way of thinking about management.
The idea that ‘here's how you make money:
you rationalise, you lay off people,
you outsource to some low-wage location'
and that's smart.
And what you find over and over again
is that it turns out not to be smart.
It's kind of a self-defeating process.
You ultimately don't have a competitive
advantage, you don't build a high-quality
workforce, you don't innovate.
But yet, we got this very kind of narrow
view of what maximising profits was all
about and somehow we lost this perspective.
I love the word ‘contextual'.
I think we've seen management sort of in
a bubble, we haven't understood the context
and the impacts outside of that bubble.
And somehow it was a closed system and it
didn't matter if the community wasn't doing
well and it didn't matter if our
products weren't actually benefitting the
customer but we could persuade them to buy
it. So, I don't know, I'm not
answering your question.
I think we can do something, Robert.
We take all of the people who are financial
analysts, equity analysts who are trading
stocks, send them back to school to learn
about long-term sustainability
and short-term performance of the company.
Because it's not people in the company,
we want to do the right thing but working
within this financial system.
I think we ought to send them all back to
school and we ought to get schools to re-tool
them to think about the role of
the corporation the right way.
I think the time has come.
Tidjane?
I'm just reflecting Indra, I agree, but
I think it's a joint responsibility.
As I was listening to all of you I
was thinking, well, the reality is as
management you know often what is the
right thing to do and if you cannot
explain that to your investors,
well, that's your challenge.
My experience with investors, like you,
hundreds of investors - there's all kinds
of investors - it's your challenge
to build a case.
If what you're saying holds water and
is valid, for instance we invest a lot of
money in financial literacy, well that's
an easy example, because we sell financial
products. So it's completely self-serving
and it's true that if we educate people
then we sell more of our products.
But it's never challenged by our
shareholders. I think that often, and that's
why I think you're right to address
the question to business schools, management
imposes on itself constraints
and doesn't realise that actually
you have that freedom.
If you go out and make your case - investors
are not that stupid, markets are
pretty smart - and they can tell
the difference between the companies that
maximise profits.
I've seen companies that maximise
cost-cutting measures until their
share price goes down.
It does happen, people can
start to see through that.
But you're destroying your social contract
with your employees and you're actually
decreasing the value of the
company by doing that.
Paul, let's get to your comment
tonight to open up.
I saw about 25 financial analysts just
came in through the door so we want to
give them a moment.
But going back, I don't see conflicts
here. Actually, I never went to school
and they never taught me ‘you're now going
into the economy, you're going to be an
economist or an entrepreneur or whatever.'
So that's a hit and run.
Make your buck and go.
I never learned that, I must say.
You're always part of society, you
have some values, some principles.
So perception is reality, I know,
the discussion is here because we feel in
society that business, big companies, multinationals,
all that we have work to
do to connect again with society, a little
bit of saying what we actually do.
You see what happened.
The World Economic Forum has 40 years.
What happened in the 40 years? Basically
the 40 years of globalisation,
you see, in general, a few things: worldwide
GDP has more than doubled,
the absolute poverty level has
been reduced by half, and why?
What was the engine behind this? Well
it was the entrepreneur, it was the
economic activity and again, there are
many bad things that have happened the
last two or three years and we speak
about the financial crisis.
This was not a financial crisis,
this was a value crisis.
Somewhere we mixed up short-term/long-term.
Somebody told me
very wise words, he said ‘when ambition
turns into greed and confidence turns into
arrogance, then you hit the wall.' Let's
face it, 99.9% of the entrepreneurs
and the businesses went about their business
in a meaningful way, trying to connect to
society at large, creating jobs, creating
better products that are answering some
needs in society.
What we have to do, though, is make these
things more explicit and actually the
whole theme of this Forum is ‘common
norms'. It's a request of ‘let's go back
to certain basic principles here and basic
values.' And actually it should be
the counter-weight to what we start seeing too
that they want now to over-regulate.
It's like, if you would have asked
somebody to write down or regulate, honestly,
he needs quite a few books to do
that so don't try.
People know what honesty is.
So we have - and that's contextual thinking
- so we should put things in
context again.
I do believe we have a role to play in
making that explicit to society at large.
It is true though that in the western
world, that was more criticised.
You go to the developing world and
the entrepreneur is pretty much liked because
he sets up a factory where there was no
work. So you have to see a little bit
where it comes from and we see the world
too much from the western world and you
cannot please everybody, that's
true, so you have conflicts.
But I don't see my role is trying
to combine conflicts.
What I do, or try to do, is through these
different angles of view shaping what I
want to be, what the purpose, as you call
it, Indra, of your company is and then to
enthusiastically align our people behind
it with a sense of purpose and pride
and go about what we want to do with conviction
and connected in the broader
context. Because if I would only drive
and define what I have to do by trying to
combine all of the possible conflicts and
all, I think that would be stressful.
Well let's continue this conversation.
We're saying we have a sense of balancing
the short- and the long-term.
Part of the opportunity seems to be realising
these things aren't necessarily
contradicting. You can actually do both
with the amount of imagination and focus.
Part of it is, perhaps, the education
of what people are actually thinking.
Lot of it is about leadership
and communication. Let's see what
are other views are out here.
But I'd like to also start with Sam
Di Piazza whose just here, because,
Sam, you've been spending the last year as
chair to the Global Agenda Council on the
Role of Business. What are you hearing
here and what's your reaction?
Well, Robert, I would first say that these
four CEOs, and there are hundreds of
others like them, recognise that they operate
with multiple stakeholders in an
ecosystem. And that they don't have
an absolute license to operate.
And so what we've been trying to do
is define, okay, if we agree that there are
multiple stakeholders, if we agree we have
to confirm our license, why do we have
conditions that don't seem to
work, that don't go well?
And, frankly, it's a few things.
Frankly, the corporate social
responsibility movement, which in
some societies worked very well, but in others
it doesn't.
If the corporate social responsibility
officer reports to marketing, you got it
wrong. And I'm not going to turn around
and ask how many CEOs have it reporting
to marketing. If it's not strategy,
straight to the head, I won't ask you
to tell me where yours report.
That's the first thing.
The second thing, long-term investing
is not necessarily, we all agree its right,
but it's not built into the markets.
Markets treat short-term equity and
long-term equity the same way.
You have long-term yield curves in debt,
why don't you have long-term yield curves
in equity? Why don't we have
policy that actually
says ‘if you own a share of stock in one
day, you're treated differently than if
you own it for five years', ‘you have to
stay a shareholder for three years to get
a dividend'? These are some
of the things that we
really think.
A lot of CEOs want to do the right thing,
but our framework is not necessarily right
and business has to begin to face it.
I'm curious to get reactions
from the people on stage.
Mutambara from Zimbabwe. This is an
excellent discussion and I think we can
use this as a basis to define the new
reality. And Michael Porter has done
a very excellent article, but I think when
you start fighting the issue of balancing
conflicts, or when you said fighting the
issue of trade-offs, I think you are
overstating your case.
I understand when you say sometimes you
can have value but without managing conflicts,
you can avoid trade-offs.
But I remember your five conditions
for strategy, number three is trade-offs.
So having trade-offs is actually part of
your definition of what is strategy.
Well there you go.
The deputy primer mister of Zimbabwe has
been studying your work so I actually
think that's a good thing for the future
of the country.
Listen, we don't have very much time but
let me ask you, what would you take away
from this in terms of what are you going
to be communicating to the CEOs or others
who are listening in on this.
Is it just an easy thing to do because,
in fact, there's a win-win solution
that people hadn't recognised?
Or, is it tougher or different than that?
And really, what is it that people should
be doing differently as a result
of this conversation?
Well, I don't want to get technical on the
trade-offs point, but, again, I would say
that the point of the article - and I think
that we've actually seen quite a few
examples of the principles in the
article discussed here - is that we must not
presume that to attack or deal with
an important social issue actually requires
a trade-off with the economic
performance of the company.
We should not start with that assumption.
And that's been deeply embedded
in a lot of thinking.
And the whole CSR movement
is based on that thinking.
That there's business and then there's
CSR. And we make money in the business
and we take some of that and
we deploy it to be good.
So the number one part of the
article is that's not right.
There are a lot of cases where that
trade-off doesn't exist and where we can,
if we think more broadly about context
and truly if we think more long-term, then we
can actually run our companies differently
to have much greater impact on society at
the same time as we can meet our economics.
That's the central idea.
And let me ask, one of the elements that
came out that Sam was mentioning,
this idea of the upward sloping yield curve
for equity, the idea that ‘you know what,
if short term debt gets paid a different
amount than debt that's prepared to commit
for five or ten years.' Should a shareholder
who is prepared to invest for
five or ten years actually have certain
advantages, whatever they may be, that are
different than a shareholder who is
going to invest for a nanosecond?
It's a good idea.
I think that this is one of the sources of
the conflicting interests.
But I think that if I agree with my friend
here, that if we have to be everyday
managing conflicts we cannot do anything
and we lose our license to be CEOs.
I think you have to find ways that you can
get the majority of the interests aligned
in some ways.
In my company, for example, we have 57
years. Since the beginning, we have, in
our strategic view, the responsibility
with our community as one of the strategic
pillars of our strategy.
It's not a linked to marketing.
And I think that's very important,
because otherwise you can sit face-to-face with
a short-run guy who wants a dividend yield
this year and you have to provide a popular
result that's excellent and they
have to accept that our total shareholder
return is much bigger than dividend yield.
Indra, what are your takeaways? Well,
I tell you, I think every company
is made up of employees and employees are
people who live and work in every one of
the communities.
When we operate a company just for the
short-term, we are basically telling
the employee ‘when you come to work,
leave yourself at the door.
Come into the company be somebody
different because we're going to operate
this company irrespective of the impact on
society.' On the other hand, if you
really operate the company with purpose,
that you're ensuring the sustainability of the
company, you're asking that person bring
their whole self to work.
And an employee who brings their whole
self to work is a hell of a lot better
than somebody who leaves half of
themselves outside.
So you get them to work head, heart
and hands on the job.
Pretty much in the same direction.
I think, also, it's overall to give your
company a profile and then investors they
know what profile they've invested in
and the alternatives.
But we are definitely, in our activity,
linked with long-term dimensions.
For example, if you set up a factory,
a milk factory, we connect with milk farmers
and these are long-term commitments
and you cannot shut down a cow, you don't run
away. And that's intrinsically linked with
our company but we have to be explicit to
do all that and connect authentically with
the world and then the choices are there.
It's true that there are conflicted
tensions. You have to make choices.
But then when you make these choices,
be explicit about them, justify them, or not
justify, argument, them and that's true
when you do that there's two dimensions
to it. First of all, Nestlé has 280,000
people in the world.
Having that alignment and that enthusiasm
for that ‘purpose' as we call it
and also to the outside world.
So I feel, also, you cannot please everybody
because then your start pleasing
nobody. And it's a not a matter of pleasing,
I do feel that you have to stay
true to yourself too and
to your convictions.
I think human beings are fantastic.
I was reflecting on the first job I got,
when I went back to Africa I was told
something that I didn't know before that
nobody had been paid for six months and I
was told that we cannot pay anybody
for the next six months.
So one thing that I certainly know from
experience is that, actually, people don't
work for money because I've run a company
with 4,000 people for six months without
being able to pay a salary to anybody.
People they need the money, but they don't
work for money.
They work for a higher purpose.
And I'm going back to what Indra was
saying and that's what a company
ultimately provides.
It helps people fulfil their ambitions -
their self-esteem - and I think it's
very important to keep that in mind.
So it goes back to leadership, it goes
back to what Paul was saying about
articulating that for the market,
for investors, so that you differentiate
yourself. But it's my experience that
really companies that do that, over time,
succeed. Succeed on every measure.
Whether it's on profit or it's just on
ability or it's the quality of the people
they hire and it's really having the
courage to lead in that direction and
being unapologetic about it and being very
explicit. I don't accept that the markets
stop you from doing that.
I actually think that there is a space for
such companies and I think that my
colleagues here are very good
illustrations of that so we need to spread
the good word and continue demonstrating
that you can do well and do good at the
same time and that that position is
a favoured position,
really. Well, it sounds like one of the
conclusions has got to be that the only
viable future of enterprise is a
long-term future for enterprise.
And the element of strategy is actually
identifying these opportunities to
actually link creation of value for
the community with the value for the
shareholders. And leadership is part of
actually making those tough decisions to
make sure that really takes place.
Well, please, join me in thanking this
great panel.
