CSR – A view from BP

Speech by Dr Gary Dirks, President of BP China, at the CSR Forum, held at the School of Economics and Management, Tsinghua University, Beijing, China (24 April 2004)

Chairman Dawson, President Wang, Distinguished Guests, faculty and students.
Good afternoon.

I am delighted to have the opportunity to join you here at Tsinghua University today to celebrate the 20th anniversary of the School of Economics and Management. I am honoured to contribute to a discussion about the important subject of corporate social responsibility. It is a particular pleasure to co-host this forum with my good friend President Wang of Sinopec.

As I see it, Corporate Social Responsibility is just one aspect of a larger debate that is both basic and very old - a debate about just societies, and the roles of the state, civil society and commerce in creating and sustaining them. Seen in this way Corporate Social Responsibility is specifically a debate about the appropriate and desirable role that companies play in society.

This makes the subject complex, but also rich for debate, particularly here in China where we are seeing a rapid reshaping of the social and economic landscape.

I am conscious that CSR is a big subject… too big to cover exhaustively here today. I will therefore necessarily be selective.

At the outset it is important to recognize that the role of corporations can be different from one society to the next. My company comes from a western market oriented tradition, where the primary role of companies is – by law – to operate in the interest of shareholders. Thus in the West on hears a great deal about shareholder value and creating shareholder value.

In contrast here in China enterprises come from a state owned tradition where companies were managed for the collective interest of society. Given that there are differences it is relevant to ask if there can be common ground when discussing Corporate Social Responsibility. I believe there is and the common ground is based on how companies perform their role in society – how they go about their day to day business.

Seen this way CSR goes beyond looking at a company’s philanthropic efforts. CSR is not about how companies spend a proportion of their profits. It is about the more fundamental question of how they produce their goods and provide their services. It is about how they make their profits. While philanthropy can be a worthy element of a company’s external affairs strategy, it is not an indicator of responsible behaviour.

This perspective is very much in keeping with much current debate in China around the role of companies, particularly as their role in society is reviewed within the notion of “scientific development” which Chinese experts have been exploring since the 16th National People’s Congress.

If CSR is about a company’s behaviours and practices, what is the standard against which these behaviours and practices should be assessed? I will explore this question from my experiences in BP, not because we have all the answers. I am convinced we don’t – I expect to learn much here today. Rather BP is what I know best; it is the frame of my own experience - of my own career.

At BP we begin the “CSR journey” by recognizing that the primary responsibility of the company and its management is to: maximize the value of the firm over time, and to operate the company in a manner consistent with the norms and values of its shareholders.

At first glance this looks deceptively simple, but on deeper reflection it is apparent that from this simple foundation flow some complex issues. Shareholders change over time as do their values and norms. And in maximizing the value, the concerns and expectations of all stakeholders are of great importance - as their views will influence our operating environment and how it evolves.

This leads to the notion that firms need to pay attention to their ‘licence to operate’ – not a formal legal licence, but an informal licence that looks not just at what is legally permissible but what is socially acceptable both today and tomorrow.

It is this concern about the operating environment, and a firm’s license to operate within it, which provides much of the impetus for many corporations, including BP, to undertake a broader role in societal affairs.

Let me explain.

At BP, we believe deeply in our economic purpose. Our products and services contribute directly and indirectly to a better quality of life. They provide the freedom to move, power to heat or to cool and light to see.

I’m proud of our core business: the products we make that satisfy millions of customers every day; the quality of jobs we provide to over 100,000 people around the world; the support we give to societies through payment and even collection of taxes; the innovations we make in technology and management.

We reward our shareholders and recover the cost of capital so that we can continue developing the new processes, products and ideas whose time has not yet come, but which will be vital if we are to conserve the environment for future generations.

But what about the apparent paradox that the very products we produce and impacts we make, may in certain circumstances - even if we stay within the law - have the potential not to be a force for good, by perhaps impacting negatively, on the environment or on the communities living near our operations.

Shouldn’t we just obey the lay, pay our taxes and leave everything else to be sorted out by others? Some Western thinkers would say yes.

We’ve felt in BP that simply operating within the law of the land is not an adequate answer to our shareholders – as over the long term, societal norms change – and laws change. Poor practices even if legal will cast a shadow over our future; ignoring changing circumstances - social trends or new scientific insights - present risk to our company and its shareholders.

I will illustrate this point with the question of climate change. In the late 1990s, there was growing evidence that precautionary action on climate change was desirable. As a company developing, producing and marketing hydrocarbons, we felt that we needed to tackle this issue, rather than avoid it. If mankind was in fact altering the climate, then the energy industry must be part of any solution. In 1998, in the spirit of the Kyoto Protocol we set targets to reduce our internal emissions by 10% on a 1990 baseline by 2010. Not because we had to by law, but because we felt we needed to respond to new information that over time would lead to measures effecting our operating environment and our license to operate.

In the event, we were able to deliver our targets in 2001 well ahead of plan. Why?

Because doing something good for the environment felt like the right thing to do for many of our staff, our policy generated enormous creativity. This led to a multitude of innovative approaches. Two of these new approaches (using emission caps and allowance trading), meant that every portion of our business had targets and became involved in finding opportunities to cut emissions. Surprisingly, as we look back on our work today, one of the most significant findings was that doing the right thing was good for business: in the first three years we added US $ 560mn of value to our firm for an investment of around US$ 20mn.

This example concerned our view of responsible behaviour concerning core products. I would now like to comment briefly on operating practices and corporate behaviour.

We live in a world where commerce is globalizing - where companies from virtually anywhere in the world can compete for business virtually anywhere else. A world where there are multinational corporations whose economic scope and scale is no longer limited by political boundaries.

This phenomenon is coupled with the rise of civil society and a communications revolution where news in one locality is beamed across the globe within seconds.

In this new world, how do we balance the need to be sensitive to local culture and circumstance, with the need to treat all our customers, employees, partners and other stakeholders with the same standards? Indeed do we need to treat them with the same standards?

As the BP group grew in the 1990s and spread its geographic base, we felt a growing need to articulate what were felt to be our standards or values.

This led to the development of a company document which set out the core values of our company. The document sets out our values, as well as setting aspirations and boundaries on business practices and behaviours. As an example of an aspiration we as a company aim to have no accidents. A boundary for our businesses prohibits knowingly employing child labour.

This document was the start of a journey to identify where we as a company felt that we had to behave in a consistent manner no matter where we operated. Many aspects of it were based on international law and guidelines. But there were also aspects of that document that reflected strong shared values at BP – prohibiting say the giving of bribes.

Of course a values based document raises the interesting question of cultural differences from one part of the world to the next. In producing that document, and as we have refined it, we have had to reflect on the meaning of values, norms and practices.

Let’s take values first. Though I'm aware I'm stepping into a long running debate on the philosophy of ethics, I maintain from my experience of working between different cultures that certain values are universal. Regardless of culture or creed, societies prize security and safety, dignity and respect, integrity and honesty, accountability and responsibility, fairness, justice and courage.

However different cultures find different resolutions when values conflict. These differences are reflected in different cultural norms. The differences are legitimate and need to be respected. They must be treated with respect and sensitivity. These differences may be reflected in what constitutes acceptable social behaviour or in religious practices.

Finally there are current practices where differences can again be significant. Practices need scrutiny. While they may often be derived from cultural norms, over time their founding principles may become blurred or even distorted, so current practices may become a perversion of norms and values rather than an accurate reflection of them. Thus a perfectly acceptable norm of gift giving can become distorted into the unacceptable practice of giving and receiving bribes.

Perhaps the simplest test of whether a practice has become a perversion of values and norms is to ask oneself whether the promotion of such a practice would win public support, whether a leader would be embarrassed to be heard advocating it, whether you would be proud to tell family or friends.

There may be some of you in the audience today who say: “be practical, in real life you might have to pay a bribe, turn a blind eye to the pollution your operations produce, or allow less than ideal safety standards in your workplace…”

My point is that neither I, nor my colleagues on the stage could set out a business manifesto based on paying bribes, producing pollution, or having an unsafe workplace. People do actually know deep down what their values are – and that they may differ from current practices.

I make this distinction between values and norms on the one hand, and practices, which may be common but which may be distortions of cultural norms, on the other, because I believe firms should respect cultural norms but work with others to eliminate aberrant practices. We also need to be in real dialogue with our partners and other stakeholders wherever we operate about how we best deliver common values, taking into account local cultural norms.

Let me give you an example. BP and Sinopec work together in joint ventures. I have served as a Board Director under the Chairmanship of President Wang for one of our joint venture and I serve under his Chairmanship now on the Board of the China Business Council for Sustainable Development. What we don’t need to discuss is whether we both would like to see a workplace free from accidents. Of course we both do. But where we do have real and meaningful discussion is on how best to deliver that aspiration. Both BP and Sinopec have clear safety standards, but in a joint venture context we need to really listen to each other to understand how best to make them live – taking account of our two different cultures. What neither of us would accept is to use local conditions as an excuse for failing to deliver a safe working environment.

This is a complex area, but one which I think goes to the heart of what we mean by CSR in a globalised world. I am optimistic that as we think more deeply about these issues, and as we have more opportunities like the one today to share opinions, we will over time get greater and great clarity on how we reconcile our shared values with cultural norms, even if at first glance they may seem to be in contradiction.

As BP’s staff and leadership have become more diverse our understanding of these issues and our internal ability to articulate our positions on them has improved. But this is just the beginning of a journey which will need us all to listen generously to each other.

To conclude, I should like to argue that multinationals like BP are bound for both moral reasons and business reasons to move away from practices which do not reflect the underlying values and norms of their shareholders or of the societies where they operate.

This in turn means that we need to push for a truly consistent application of standards globally. While no two companies will articulate their values in the same way, I truly believe that those of us working in international business should work together to reject aberrant practices - even if it means short term sacrifice in business or competitive advantage.
Thank you for you attention.

Author Dr Gary Dirks Publication Date 24 Apr 2004 Document Type Speeches Issue/Topic Business Role/CSR Region Asia Country China Company BP plc. Event CSR Forum		56 kb   143 kb