Sustainability in business – towards a social contract that balances community enrichment with

global competitiveness?

21 October 2010

Perceptual asset managers

Company success creates wealth. Without that, there is no wealth to share

• A company should be “good” – it must contribute to society; it must reward investors; it must create jobs; it must inspire people and communities; it must empower people; it must inspire the youth; it must encourage innovation in industry; it must put more back into the environment than it takes out; it must pay taxes; it must reward productivity.

• People will be productive when they believe in their future – this is only partly a function of wages and benefits – it increasingly lies in their participation in the future of the company.

• In all societies, even low paying jobs slowly grow into higher wages and better standards of living.

• As the ambassador of Mexico to the US said, the alternative of low-paying jobs is no jobs! Ultimately, once the multiplier of income starts working, most societies increase the wealth of their people.

Yet today, it is about a social conscience & reciprocity, not only profit

• A company has to be globally competitive to survive long term. It needs to operate well and be productive – without that, it will not succeed. That means extracting greater value from the same resources as its rivals. This has nothing to do with governments, these rules are set by global competitive forces. A company can ignore these – and go out of business, which means no jobs at all!

• To stay in business, you have to do “the business-of-business” well.• Today no company will survive without a social and environmental

conscience that is real. It is actions, not talking, that matter now. • Society enables the company to operate. Countries, governments and

communities set the rules of what they expect from the company – in that respect, they will also ultimately only deal with companies that satisfy their requirements. Companies will invest where they feel welcome and it is easy for them to operate. Yet, society has a right to demand respect and returns, exactly like investors.

The new balance of power requires both sides to understand their mutual expectations and obligations

• What the workers and society want and need to increase their standards of living, working conditions, happiness and future potential.

• What business requires to be globally competitive and what it is able and required to “pay” for that.

• This requires a “social contract” between workers, communities, governments and companies.

• A social contract means that society cannot just demand without committing to reciprocal increases in productivity which will make a company globally more competitive.

• On the flipside, a company cannot expect more productivity without actively engaging with society and empowering it to create a prosperous future.

• The one without the other will never work.

5Presentation title

Business depends upon a complex set of stakeholders who needs to co-exist within a state of equilibrium

The individual

Investors & Shareholders

The community

Government and other interest

groups

The environment

6Presentation title

The traditional scenario was fairly one-sided

The individual – be productive and

flexible

Investors & Shareholders

The community

Government and other interest

groups

Invest for maximum short-term return

Pay taxes, stimulate investment into the

economy

Creating wealth through jobs and

taxes, enables communities and political support

Create jobs

Leverage the resources of people, raw

materials and capital

7Presentation title

The demands of customers - and the challenge of competitors - create a highly competitive mega-context

The individual – be productive and

flexible

Investors & Shareholders

The community

Government and other interest

groups

Invest for maximum short-term return

Pay taxes, stimulate investment into the

economy

Creating wealth through jobs and

taxes, enables communities and political support

Create jobs

Leverage the resources of people, raw

materials and capital

8Presentation title

The traditional balance of power – workers create investor wealth, often against all odds

The individual – be productive and

flexible

Investors & Shareholders

The community

Government and other interest

groups

Invest for maximum short-term return

Pay taxes, stimulate investment into the

economy

Creating wealth through jobs and

taxes, enables communities and political support

Create jobs

Leverage the resources of people, raw

materials and capital

9Presentation title

The changing balance of power – a finite balance: the right to operate balanced with the right to superior returns

The individual – be productive and

flexible

Investors & Shareholders

The community

Government and other interest

groups

Invest for maximum short-term return

Pay taxes, stimulate investment into the

economy

Creating wealth through jobs and

taxes, enables communities and political support

Create jobs

Leverage the resources of people, raw

materials and capital

The rights of workers and society cannot be met and will not be sustainable if a company is not globally competitive – society has to balance its own demands within the context of global competition.

Companies will simply operate elsewhere if these demands are to great.

However, the more the company listens, the more productive the workforce, the more productive the workforce, the more successful the company.

Ultimately the greatest mutual benefit will come from this delicate balance.

10Presentation title

The drivers of this new balance of power

The individual – be productive and

flexible

Investors & Shareholders

The community

Government and other interest

groups

Invest for maximum short-term return

Pay taxes, stimulate investment into the

economy

Creating wealth through jobs and

taxes, enables communities and political support

Create jobs

Leverage the resources of people, raw

materials and capital

• The democratisation of the individual• Democracies in most countries• Open-societies and opportunities• The globalisation of labour• Open information flow and access• The importance of meaningful work for people

• Greater government accountability• Greater democratic demands• Greater demands from labour and trade unions• Greater say of the individual in how taxes are spent• Difficulty in disguising bad practices• Social media and natural and organised communities everywhere• The mobility of labour• Global competition for investment and scarce resources• The demands of customers

11Presentation title

The future scenario

The individual – balance productivity with enrichment and

job satisfaction

Investors & Shareholders

The community

Government and other interest

groups

Invest for the longer term wealth creation, without entirely

jeopardising short-term results. Have a social conscience. Be prepared to trade benefits for

returns. Listen. Be a partner in all respects.

Pay taxes, stimulate investment into the

economy, attract investment into the

country

Creating wealth through jobs and taxes, enables communities and

political support. Create an investment and sustainability

conscious environment

Create jobs that pay and reward well

Sustainable management of

people, the environment,

health, safety and natural resources

12Presentation title

What has MTN done in Africa?

• Connects people with family, friends and jobs.• Creates jobs – directly in their operations, with entrepreneurs who sell

airtime, cleaning services, advertising services, office rentals, security services – it generates the economic multiplier.

• Creates a positive atmosphere for other investments into the countries.• Pay taxes which enables government to invest back into the communities

with infrastructure development.• Creates infrastructure where none exist (in place of rail, roads). • Inspire the youth.• Upliftment programs.• How can that be bad? In fact, if it did not make money, it could not do that!

The most important thing it did in Africa: makes people believe in themselves. And gradually, makes the world believe in Africa.

13Presentation title

A discussion with Mark Cutifani, CEO of AngloGold Ashanti

• Reciprocity – caring for people and the environment, balanced with superior short and long term returns.

• The way people are treated, and the way you integrate into - and respect - the communities within which you operate, will determine your results through greater commitment of staff and greater productivity.

• It is never either/ or. The global scenario today demands that – but it is also the right thing to do!

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Conclusions

• Be aware of the changing context. • Be open to all sides. Listen. Understand the new social contract. • Be willing and able to balance apparent conflicting viewpoints.• A new style of leadership is required. • The demise of corporate philanthropy and social responsibility. Integrate society with

business strategy. • Vision now more important than management. People will buy into a vision, from

investors to workers. • Balance interests. Be open about issues and demands. Reward productivity with

greater returns for people. • Ultimately, without productive business, there is no wealth to distribute, salaries to

pay or jobs. Neither factors predominate – it requires balance. But yes, the balance is not as simplistic as in the past!

• Accept that every individual co-creates the future of a company and of society – it does not belong to the CEO or the executive.

• Do it willingly!

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If we do this well….

• We will create a new paradigm of how business operates within society.• It will create a new sense of mutual respect.

– Business will not be seen as exploitative and demanding. – Workers will not be seen as demanding without increased obligations. – And society will not feel they do not benefit from their resources.– And future generations will respect us for enabling them a better standard of living and a

healthy planet. • Being an emerging economy ourselves, we are in a unique position to set the

benchmark for how to integrate how society creates wealth.