speech

Good Business

By Deval L. Patrick, Former Vice President and General Counsel

Business for Social Responsibility Eighth Annual Conference

New York, New York

Thank you very much Señor Murray and all of you for welcoming me today.

To Arnold Hyatt, the Chair of the Board of BSR, and to your board; to Bob Dunn, the President and CEO; and to Comelia Sanford who is the Director of this conference, thank you very much for welcoming me today. I'm delighted to be here.

We meet, of course, in the wake of yesterday's - and indeed today's - extraordinary events. Former Vice President Mondale described Election Day as the day when "Americans quietly wield their awesome power." And I agree with that. Whether you are, or will be, elated or depressed by the result, bear in mind what Ralph Nader has said: "There can be no daily democracy without daily citizenship." And he's right about that.

Citizenship is an old-fashioned word nowadays. And yet it expresses a very contemporary yearning to see people in positions of power act responsibly, to see them put their civic duty first. Business people are not immune from this yearning. Indeed, in business today civic duty means going beyond adding value to the bottom line. It means adding values to the way we do business.

This is what many call social responsibility. I call it simply "good business." And I want to speak today about why the new, globalized world market is making "good business" the only way to succeed in business today.

When I began my career more than 20 years ago, globalization was a vague and distant image, the dawning of a day no one could yet then quite make out. Back then, in the late '70s, I was a very green emissary for a UN Development Project traveling by camel, on foot and atop crowded cargo lorries in Southern Egypt and the Sudan. On one of my sojourns, I had reached a small town out near the Chadi border, about 500 miles west of Khartoum across tracks of sand, and I found myself in a conversation with a local innkeeper. He told me that he had heard years before of the civil rights movement in the United States. "What happened to it?" he asked. "Who won?"

Contrast that with Treasury Secretary Larry Summers' story about an official trip to another part of Africa more recently. He recalls riding in a dugout canoe when another man turned around with a cell phone in his hand and said: "It's Washington on the line."

Globalization is here. And it represents one of the most profound transformations in human history. It describes a shifting landscape, a wide open world enabled by the fall of the Berlin wall, the triumph of markets, and a silicon web that now connects Washington, D.C. to a dugout in Africa, or Shanghai to Palo Alto or Munich.

So much of the world is wired or connected by satellite now that the affairs of distant nations are almost as immediate and intimate as our own. Now, your business anywhere is everyone's business everywhere. Because it is such a compelling idea, and people can know more about it than ever before, democracy itself has been catching on and spreading.

For much of the world's people, globalization means steady, fulfilling work, reasonable wages, more abundant and cheaper goods, and levels of wealth unimaginable two decades ago. It allows countries blessed in natural resources, whether petroleum or coffee beans, to access reliable markets on the other side of the world. It allows countries blessed in intellectual resources - like Ireland and India, with their emphasis on education - to sell their services on the World Wide Web. Secretary Summers says that thanks to globalization, more than one-quarter of humanity now enjoys growth at rates at which living standards will quadruple within a generation.

And yet there are growing objections to slapping an "open for business" sign across the entire planet. Some fear that unbridled free markets will destroy the very natural ecosystems that sustain us. Others rebel against what George Soros calls "market fundamentalism" - the unyielding belief that the market, despite its occasional severe swings, always gets it "just right." Still others object to globalization because it threatens to overwhelm indigenous cultures by homogenizing - and by the way, I read that as Americanizing - their cultures.

What if globalization really does end up subjecting us all to faceless forces unaccountable for any of the considerable human suffering still prevalent across the world today? As many as two billion people may be added to the world population over the next 25 years, mostly in developing countries and mostly in cities. That's like adding to the planet, in a single generation, 200 cities the size of the greater Chicago area, where I grew up. Two hundred Chicagos! Imagine that.

How will most of these people live? Today, as advanced as our world has become, two billion of our fellow human beings still do not have access to electricity. Yes, I am connected to London and Shanghai and Sydney - but not to Harlem or East Palo Alto, or to any of Rio's favellas. More than one billion people live on a dollar a day. HIV-AIDS is on the brink of wiping out an entire generation in Africa, Sub-Saharan Africa, in particular. And much of the world seems content to sit and watch that happen. Hunger, disease and despair are grinding, daily realities in many places at home and abroad. What does globalization offer them?

These and other compelling concerns have found a voice in NGOs (non-government organizations). And this can be, in my view, a very good thing. With globalization, many governments - including our own from time to time - have been encouraged to withdraw from addressing social needs, to reduce themselves at their theoretical extreme, to mere market enablers. A rising cadre of NGOs - themselves global in scope, informed, organized and politically savvy - compels us to pay more attention to social concerns. Some - like BSR - work in partnership with companies trying to feel their way through uncertain territory to what "good business" means today. Others are more confrontational. All are playing a role in making a new market, with new rules and new expectations.

For businesses trying to succeed globally, thanks to many of you, it is becoming harder to avert our eyes from people crushed by poverty or human rights abuses or to ignore environmental degradation.

We cannot avert our eyes because television won't let us. The Internet won't let us. Our own people in the field won't let us. In an ironic way, globalization itself won't let us. Conscience shouldn't let us. And that's been the case all along.

As a very real result, a company's civic responsibility, its success at "good business," is becoming the price of entry into the global marketplace. None of us know yet fully what that means, because the rules are often unclear or conflicting. There are sovereign laws and government expectations. There are overlapping demands of NGOs. There are corporate codes of conduct that vary from company to company. And there is the complicating fact that for a global company, like ours, you must respect and respond to scores of different laws, codes and guidelines simultaneously.

But the confusion that comes from all these competing agendas does not defeat the value of trying to come together on a few clear principles, or the promise of that outcome. For years, it was believed that business faced a stark trade-off between shareholder value and social responsibility. I believe we are learning gradually that this was a false choice all along.

In today's world the right thing to do is also the prudent business choice. After all, there is no shareholder value in boycotts and sanctions over an accusation of human rights abuses in the workplace. There is no shareholder value in the inefficient use of natural resources.

On the other hand, there is shareholder value in being known as a responsible partner to governments. There is shareholder value in being an environmental steward. There is value in living up to and surpassing the expectations of investors, customers, business partners, employees and neighbors in the communities where we operate. All of these are factors in investment decisions today - albeit small ones. We believe their significance will increase. When people buy stock in a company, they ought not just invest in hard assets and smart business plans. They ought also to buy the way a company respects its employees, how responsibly it behaves as a steward of the environment and how engaged it is in the communities where it operates.

There ought to be a price paid for disconnecting social and civic responsibility, or safety to communities, from the bottom line. In today's world, doing good and doing well must be linked. This awareness is leading global business into new realms - not just realms of geography, but realms of responsibility - problems unimagined in the business schools of the 1980s. Problems like:

  • The spread of HIV and the globalization of disease.
  • The need to school a growing world population of poor children, especially girls.
  • Human rights abuses, from child labor to slavery.
  • The loss of indigenous cultures.
  • The ominous indicators of global warming.

And most international companies - including American companies trying to become truly global enterprises - are struggling to sort out what to do. We don't know all, or even most, of the answers. We do know that the rising influence and scope of international companies does not excuse local governments and communities from addressing human needs. Companies, however powerful they may seem, are no substitute for civic authority, and cannot hope to be so - and survive long as companies.

But at the same time I believe, as I have said, that the day is passing when businesses could credibly claim that social needs were somebody else's responsibility. Like most things, the answer may lie in the balance.

I think there are at least four basic tenets for "good business" in a global marketplace, four things a business must do to survive and thrive today. And they are:

  • Respect human dignity
  • Respect the natural environment
  • Learn to listen, and
  • Prosper

Here's what I mean.

Respect Human Dignity

Firstly, my grandfather swept the floors of a bank on the south side of Chicago, where I grew up, for 45 years. And yet when he walked through that place, he was treated like a dignitary. They could not make him retire. When he died, the Chairman of the bank came to his memorial service and said that had it been a different time in America, my grandfather would have retired as chairman himself. His experience and others like it helped me understand and learn to see the dignity in every living soul. In important ways, my grandfather's day has arrived. We may not, on our own at Texaco or any other single company, be able to change the political environment on human rights. But we can no longer ignore it.

At Texaco, our commitment to human rights emanates from our core value of respect for the individual. We believe, if we keep our people in the forefront and if we hold respect for their safety, health and dignity as paramount, most other policies will fall into place. I am really talking about something as basic as the Golden Rule. But I want to say it out loud, rather than take it for granted, because I am continually astonished that after 2000 years since it was first recorded, people still act like it's late breaking news.

We are held to strict accountability at Texaco (and ought to be) on how we treat our employees. It is well within any company's power to reject child labor, to tolerate no form of involuntary servitude or physical abuse, to respect the freedom of association - including the right to organize - to offer fair compensation, and to ensure a safe and healthy work environment.

Ensuring such an internal standard is, frankly, the easy thing. It is expected in most cases, and indeed, it is the law in many places.

Many companies go or ought to go beyond the law in exercising direct influence over joint ventures, alliances, contractors and vendors, by insisting that they meet the company's internal standards, too. This is becoming the norm for us no less than for the major retailers who learned to apply strict codes of conduct to apparel suppliers in the developing world.

Our challenge may in fact be more complex, for we recognize that we must partner with and contribute to the economic and social development of the countries in which we operate - and in doing so, promote positive social change.

This challenge is especially acute for us because more than 95 percent of all the fields our industry develops are controlled by governments, and the oil itself is considered a sovereign resource. As luck would have it, these holdings are most often found in countries with some of the world's most challenging political environments.

Here we have to be realistic about our role and managing expectations of that role, for we are guests in our host countries and a private company cannot deal with a sovereign government as an equal. We certainly cannot dictate social policies.

We have to be, on the other hand, "a force for positive change wherever we do business - to [be] a responsible global citizen," as our Chairman and CEO says.

Let me add a point here about how we value diversity - because for us this relates directly to respect for human dignity. Texaco, like many of the companies represented here I suspect, has long had a commitment to diversity. But we learned the hard way an adage that I increasingly believe is true: when it comes to making diversity work, if you always do what you always did, you'll always get what you always got. We learned that you can have all the directives imaginable and all the right intentions. But, if you do not have a sustained, focused commitment from the top and a means to hold people accountable for workplace fairness, you will come up short.

So at Texaco today, one factor in determining executive compensation is the ability to recruit, retain and develop a diverse workforce. For us, this is as important in executive compensation, as profits, workplace safety and the environment. We also use clear, relevant job competencies to assess new hires and candidates for promotion. As a result, in the U.S. racial and ethnic minorities now make up 44 percent of new hires, and women comprise about half.

Texaco is also taking a leading role in partnering with women- and minority-owned businesses, and we've committed to investing a billion dollars in minority contracting over five years.

And one more thing about diversity particularly in a country like this one: by drawing on the unique diversity of America, global companies can only strengthen their competitive position around the world. And that is an important edge to consider.

Respect the Natural Environment

My second tenet for "good business" success is respect for the natural environment. By this I mean living off the earth's income, rather than its capital - and learning not to make long-term decisions on the allure of short-term factors. I mean sustainable development.

Understanding and acting on this imperative is, in the view of Arthur D. Little, "the least appreciated and potentially most significant set of major business opportunities facing industry in the decade ahead."

The environment is not distinct from our other duties for you cannot respect human rights if you trash the environment. You cannot maintain a safe and fair workplace if you allow the surrounding community to decline. These are not competing, divergent policies. These are goals that converge - interwoven and interdependent.

As far as our environmental responsibility is concerned, we recognize that compliance with the law is critical, but it is not enough. Expectations are rising and overlapping and we must understand not only at what level the bar is, but also to what level the bar is being raised. And often this is not as clear a path as we would like. For example, in 20 years as a partner of the Government in Ecuador, we complied with the law. We cleaned up everything we were told to clean up when we left 10 years ago. But, the expectations of the community near that operation have continued to evolve; long after we've left, and the government has not stepped up. The litigation our company is now facing speaks to the complexity of these issues.

We have to learn not to see the environment as a cost, but as an opportunity for what our CEO calls "Environmental Enterprise." For Texaco, this means, among other things, developing technologies - such as cogeneration, gasification, fuel cells and other clean renewable energy technologies - to augment top tier environmental performance in our core business.

On the critical issue of global climate change, we at Texaco believe that enough is already known about the global threat to take action now. We have moved beyond a debate over science to a discussion about solutions. And we believe a world market in emissions credits is one of the ways - to achieve the huge take-outs of greenhouse gases the world needs.

At Texaco, we are trying to make the most of these opportunities. As a result of commitments made and met, we have been included in the Dow Jones Sustainability Group Index, representing the top 10 percent of companies that are leaders in sustainability from more than 2000 stocks listed in the Dow Jones Group Index. I am proud of that. That's the right direction for good business.

Learn to Listen

Thirdly, successful global businesses must learn to listen. Before a global company can bring any benefit to the table - whether it is social, economic or humanitarian - we must first rely, not on our preconceptions, but on local partners to show us what is most needed. It is up us to ask, but up to them to tell us whether they need business incubators or micro-credit lending, vocational schools or clinics.

In Angola, the government shared its concern over homeless young women, orphaned by the war. We responded by helping to create a center and a program of vocational training that is providing real hope where little existed before. In Kazakhstan, the local community reached out for help in upgrading its ability to provide health services, and we responded by refurbishing a hospital and providing state of the art medical equipment.

We cannot address every need and no business should presume to try. But in consultation with local leaders - and my emphasis here is on the consultation - we can focus on a few areas that make business sense, and where we can have an impact.

We have also learned that most of these projects must be designed for the long haul. They must be able to grow capacity as the needs of the local population grow and they must be capable of eventually supporting themselves, separate from corporate subsidies. In a word, they must themselves be sustainable.

Global corporations are learning that if we seek out strong partnerships, we can create local projects that can be leveraged into regional, even national, models. We can create social results that are measurable in scope, yet immeasurable in their impact on the lives of individuals.

Prosper

Finally, for a business to do good, it must also do well. Global companies that enrich their shareholders while disrespecting their employees, their neighborhoods and the local leadership will fail in the long run - and they will deserve to fail. By the same token, companies who focus on social agendas, at the expense of profits, will also fail.

The point is that neither extreme is a formula for success. For a "good business" to succeed, emphasis must be placed on both the "good" and the "business."

I mention this obvious point because I believe that, just as global businesses must learn to understand and embrace the social impact of their operations, NGOs must learn to understand and respect the profit motive of private businesses. The solution, like most things, lies in the balance, and if NGOs are to help us "do right," they must also help us fashion initiatives in ways that permit us also to "do well."

Now the tenets that I have spoken of today may not have been imagined when Texaco incorporated in 1902. They spring from lessons learned from more than a century of doing business around the world. You have much to teach us. We, I am certain, have more to learn.

Whether we're talking about diversity or human rights, community development or the environment, we must all learn to look beyond short-term gain to long-term mutual advantage and interests. We must learn that there need be no trade-off between shareholder value and corporate social responsibility.

These tenets are not imperatives for a single company. They are the imperatives for working within a polyglot world, a world that is developed and developing, a world burdened with need and still trembling with hope.

UN Secretary General Kofi Annan, may have been right when he observed that: "Whatever cause you champion, the cure may not lie in protesting against globalization itself. The poor are not poor because of globalization but because of too little globalization, because they are not part of it, because they are excluded."

There is a constructive role, I believe, for business in this revolution. There is a vital role for NGOs, too. We have an implicit challenge to include the excluded. That challenge must be accepted.

And it must be met.

Thank you very much.

Updated: November 2000