The ongoing dialogue between society and business

So, when I accepted Michael’s invitation to deliver to you a ‘commencement lecture’, I clearly ignored the wisdom of the proverb.

As you’ve heard from Michael, I am a person with over 40 years of service with the one company – Shell – here and overseas.   The time has passed very quickly.   And in that period, business generally, my industry, and my company, have undergone profound change.  And yet, in a way, things have stayed the same. 

This evening, I’d like to talk to you about some of my observations, and in particular about the way society and business have interacted over the years in an ‘ongoing dialogue’.   I understand we then have time at the end of my remarks for some discussion.

So, I thought I’d start this evening by getting something off my chest – a personal observation about business in society.

In my opinion, the role of business in society and its legitimacy, are not well enough understood.   I blame the educators. Starting right from primary level and extending throughout.  And I don’t think business itself recognises the problem.   Or, if it does, it certainly doesn’t do enough to help to fix it.

As a result, in this country and in many others, I perceive an ingrained distrust of business, its rationale and its motives.

Now, I would describe the role of business this way - to conduct economic activity and create value, with an eye to all stakeholders.

Business is here to fulfil multiple purposes, with multiple stakeholders, including the obvious ones, like shareholders, employees, customers.   And it’s as fundamental to society as education, medicine, the arts, or any other field of endeavour.

Now, my company Shell, operates in over 100 countries around the world, including many non-western and developing countries.    Countries where governments and local communities have their own, distinct views, about the role of a business enterprise and its relationship to governments and society.     And of course there are also diverse views about business and society in the West.

Because the role of business is not well enough understood, prejudices are easy to form.  Stereotypes, such as the ruthless, arrogant, anti-social corporation – so foreign to my experience over 40 years – tend to be embedded in popular culture.

Now, I will readily agree that business should be held to account for all of its actions.    Just like governments should be.   And just like not-for-profit organisations should be.

My basic premise, is that business provides benefit.   The dialogue about society and business would start better from that premise, than from the more polarised good/bad position that I see so often today.

Let me make a few obvious points about my industry and the benefits that it brings:

Without energy, there would be no heating, lighting, or air-conditioning.  No washing machines, tumble dryers or dishwashers.   No clean drinking water or sewage systems.   No planes or cars.   No internet, computers, television or mobile phones.   No plastics, and certainly no modern healthcare system.

Energy companies like Shell sit at the nexus of one the world’s most difficult and exciting challenges.   The challenge of building an energy system capable of meeting the energy needs of future generations, and at much reduced environmental cost.    This is a challenge that we in Shell are inspired by and thrive on.

Now, let me make an observation about the growing scrutiny under which business operates.   When I first joined Shell in 1968, I remember I had a couple of things on my mind.

One – I liked the idea of a business that created value – that was involved in activity fundamental to everyday life.   And I liked the idea of global scale.    I still do.

And two – I looked to join a company that was basically decent and followed the Golden Rule “Do unto others as you would have others do unto you”.   (When you think about it, this Golden Rule is at the heart of those complicated Business Principles Statements we see from companies today.) 

As with many things, it all seems to have become more complicated since then.   And yet, it’s still the same.    One thing is clear however - there has been increasing scepticism from society about the role of business.  
Archetypes have been generated, of business doing damage to the environment, to employees, and to the community.   More than ever before, business is being challenged to demonstrate its integrity towards communities, and the environment.

I could characterise the changes this way:
• When I started with Shell – it was about Trust.   Business said to society: Trust Us …. we know what we’re doing
• Later, a more sceptical society insisted that we Show them that we did know what we were doing.   Shell had to explain the reasons why.
• Now, it’s about Involve me … our decisions must be based on extensive consultation with our stakeholders and subject to third party verification.
• And it’s also about Deliver – with society holding business to account on delivering promises made.

Across our operations throughout the world, there is an expectation that companies like Shell must demonstrate a willingness to listen, to understand and to discuss social and community issues - often with people who have very different views.     

And the ease of electronic communication, means there are no longer purely local issues.   Everything is instantly visible to stakeholders throughout the world.   So, society’s expectations have moved on, from trust me … to show me …. through to involve me …. and deliver on your promises.

And there were trigger points, which moved us along this continuum – highly publicised examples over the years, where business didn’t follow the Golden Rule.

Examples such as the Bhopal disaster in India in 1984 – an industrial catastrophe at a pesticide plant, owned and operated by Union Carbide, that killed thousands of people.

The Piper Alfa North Sea oil platform, operated by Occidental Petroleum.   In 1988, an explosion and fire killed 167 men.   It remains to date the world’s worst offshore oil disaster in terms of lives lost.

The Exxon Valdez oil spill in 1989 in Prince William Sound in Alaska.

Back in Australia, in the 90s – Alan Bond oversaw Australia’s biggest corporate collapse.

And in the USA, Enron in 2001 – that name is now a symbol of wilful corporate fraud and corruption.

All these examples, and there were others, generated outrage from society.   They were all highly publicised, and as a result, a whole legislative consequence was unleashed, that swept over all businesses. (eg Corporations Law, Sarbanes Oxley).

Reaction to tragedies like Bhopal and Piper Alfa meant that the safety of facilities and our employees came under higher scrutiny than ever before.  

The actions of environmental activists, such as Erin Brokovich, meant that it was simply not open to companies to ignore the environment.    But more than that, the bar of expectation was raised, even for companies with exemplary records.  And rightly so.

In Shell’s case also, there were some highly publicised examples, where it became clear that society’s expectations of Shell were very different now, compared to the past.   And very different to what Shell thought they were.  Trust me, was no longer good enough.

1995 was a shocking year for Shell.  A year in which Shell really became alert to the changing expectations of society.   In fact, you could say we were hit over the head with them and forced to sit up and take notice!

I’ll mention two key events in particular:
First Nigeria.  Shell operates as a minority joint venture partner with the Nigerian government and several other multinational companies, in producing oil for export.

The local Ogoni people, who live in the oil-rich Niger Delta, were angry about their share of the Nigerian Government’s distribution of royalties and other benefits.   This was a major catalyst in a violent separatist struggle against the government.

Sabotaging pipelines and attacking the sites we managed, was a tactic in the struggle, and government forces used strong measures to defend these facilities.   Shell’s engagement in the defensive action was misrepresented in the propaganda war.

Shell’s vulnerability to international criticism was greatly increased by the government’s trial and execution of a group of Ogoni, led by poet and local hero Ken Saro Wiwa.   This episode became a major focus for global human rights activists.   They campaigned vigorously in western capitals, holding Shell accountable in the international court of western public opinion, for not doing enough to stop, and therefore allegedly for being complicit in, the execution.

Some of you may recall that university students around the world pilloried Shell with posters, street theatre and calls for boycott.

Now, these events were very unsettling and distressing for our employees around the world.   I recall that a colleague, with his young family in a Melbourne suburban church, had to listen to the vicar praying to redeem the lost souls of Shell executives.

Let me now move to the Brent Spar story, which also happened in 1995.

Shell, with our scientific consultants, concluded that deep-sea burial was the most environmentally friendly means of disposing of the redundant North Sea offshore oil production facility – the Brent Spar.  This was confirmed independently by British Government agencies.   However, Brent Spar became a cause celebre for Greenpeace, who was looking for a peg on which to hang a campaign on ocean pollution.  And what could be a better peg than a multi-national oil company who was going to throw its ‘rubbish’ into the ocean!

After a global, high profile campaign by Greenpeace, in the media and on the streets, Shell was forced to back down and to pursue an alternative and less safe disposal course.  
The Brent Spar has now been dismantled and forms the basis of a jetty in a Norwegian fjord.   In this case, Shell stood by what it believed to be the best technical course, withstanding a deteriorating reputation, and consumer boycotts.   When Molotov cocktails were thrown by activists at German service stations, putting our employees and customers at risk, we changed course.

Now, there were profound lessons for us in these events.  Clearly we could have handled both situations better.

From Brent Spa, we now know that the right engineering solution was not the right solution all-around.    From Nigeria it is now clear that the right logical solution was not the right way to go.   Show me …. just didn’t cut it in these cases.

We now know, that we should have sounded-out interested stakeholder groups, such as relevant governments and non-government organisations, much more than we did, before deciding on our course of action.

Reactions to Shell’s way of doing business in 1995 showed us that it was critical to acknowledge society’s changing expectations, to recognise its views, and to have meaningful dialogue with it.

In the 15 years since 1995, profound changes have occurred to the way Shell and other companies approach ongoing dialogue with society.

A whole new discipline called ‘Social performance’ has emerged.   This area focuses on how companies manage the impacts of their business on the communities and societies in which they operate.   It includes both positive and negative impacts.

Examples of common negative impacts include:
• Resettlement – which, if not well managed, can result in disruption to livelihoods, social structures and quality of life.   If you’ve seen the Australian movie “The Castle’, you’ll know what I mean.
• In-migration – that leads to crowding out of infrastructure and rapid increases in the cost of living – as in the WA mining boom
• Impacts on indigenous peoples and cultural property
• Environmental impacts that become social issues – such as pollution and deforestation

How well we manage these negative impacts, affects the well-being of our neighbours and ultimately of our business.

There are of course positive impacts, that can be delivered in different forms.   For example:
• through local employment, contracting and procurement, and by paying taxes or
• through social investment – which, if well done, can make a lasting contribution to communities and business objectives

Now, I know many of you are embarking on study in Social investment.   For me, social investment is one part of overall social performance and it is about delivering benefit – or maximising the positive impacts - on the communities in which we operate.

In Shell, we feel that our social performance is critical to the health of our business.    Society wants us to perform just as well in this area as in our financial performance.   To many of our shareholders, and certainly to many of our employees, financial and social performance, are equally important.

Lying at the heart of good social performance, is the ability to listen, exchange views and react to society’s expectations. Stakeholder engagement is very important to us, especially around locations where we have operations, such as refineries.    We want to understand stakeholders’ interest in us, and we want to engage with them so they have a chance to get to know us better.

Indeed, building those relationships is a key reason why our social investment programme is important to us.   And that’s a change.   20-30 years ago, we would not have listed ‘building relationships’ as an outcome of our social investment programme.

Shell has a long history of community giving, both here in Australia and overseas.   Over the years, Shell has been a strong supporter of education, youth, science, the environment and the arts.   And we’ve made many philanthropic donations to many different causes.

For a long time, corporate giving was the province of the Board, with minimal employee involvement.   The ‘deal was done’ when we sent off a cheque with a letter wishing the recipient well, with whatever we were supporting.   And we kept a register of those names in a big brown leather book!

All that has changed now, as society’s expectations of business have changed, with a much deeper level of involvement.

Shell now undertakes pro-active research into community needs.   We form community business partnerships.   We work with governments where we can, and we involve our employees.    We do have national projects, but even these are about local communities and what is going on at a very local level, with much more stakeholder engagement.

I think society expects companies to be out there in the community, discussing issues, hearing what is going on, and contributing through some type of community investment, over and above the benefits the business brings to the area through its operations.

But, to return to my original theme, even though the approach to social investment has changed over the years, one thing hasn’t changed.

Social investment is still … the ‘right thing to do’.    It is as natural as the “do unto others” Golden Rule.    It is, and should be, an integral part of any business.   

In my view, businesses have obligations, which can be stated quite simply:
• make the right products
• don’t hurt people or mess things up, and
• participate fully in the community
And I can’t see these fundamentals changing.

But we do need to remain alert to what the community needs are.   I wouldn’t like Shell to be caught napping (again) when it comes to society’s expectations and the role that dialogue with stakeholders must play in our decision-making.

Now, Michael suggested that I do some crystal ball gazing.  The good thing about predictions is, that if you get it right, people remember, but if you don’t, people don’t remember that you got it wrong anyway!  So here goes….

One area that I do see continuing, and growing more integral to the way business conducts itself, is the development of partnerships with organisations that are sincere about helping business improve its social and environmental performance. Organisations that believe business, when it says that it too is sincere about improving its performance.

In Shell’s case, examples include partnerships with international NGOs, such as the World Conservation Union and Wetlands International.   In Australia, we’ve had fruitful community business partnerships also with organisations like Conservation Volunteers Australia.

These sorts of alliances help business stay-tuned to the complexity of the world, and they help get access to NGOs’ unique and authoritative know-how.   Importantly they also ensure that mindsets within business remain alert to the non-technical inputs that help determine success or failure of projects.    

Another prediction – probably not a very brave one – is the major role for social media, in holding companies to account for their decisions and actions.  There’s an obvious parallel between the rise in use of the internet and what we’re seeing now with social media.  In an instant, local stories become national, and then international, potentially spreading to millions. 

The social media will obviously continue to grow – and who knows what the next ‘Twitter’ will be, or where it will come from. In the same way that Shell has had to respond to the internet as a forum for airing views, expectations and perceptions of our company, we clearly need to remain across social media as a method for communicating with our stakeholders.

I can’t tell how the future will evolve, but I do think that industry has to remain alert to what the community needs are, and seek to operate in tune with those needs.   And after all, that’s what the past 30-40 years of ongoing dialogue has been about.

Michael asked me also to say a few words on perception in closing.  

I have long reconciled myself to the fact that petroleum companies are not top of the popularity charts.   But we do undertake research to try to help us understand what we’re doing right and where we can improve.

The research reminds us that reputation is something that must be worked on continually.    Not by words but by actions.  Not by special programs, but by the way you go about your core activities.     It’s not enough to undertake reputation-enhancing activities, such as social investment, in response to a crisis or event.   People see straight through that.

Shell could have the greatest social investment programme in Australia but, if Shell is perceived as a company which does not ‘do the right thing’, economically, socially, environmentally, or in any other way valued by the community, our reputation is injured.

And perception is a very difficult thing to shift.

Ladies and gentlemen, I appreciate the opportunity to address you this evening and I wish you all well with your studies in this fascinating field.

Thank you.   Now, I am happy to take questions.