Lord Browne: Saving the corporation – it’s time to reconnect

Criticism of big business has long been a favourite pastime of the left. From Jeremy Corbyn to UK Uncut, such campaigners dominate discourse on the disconnect between companies and society, and the solutions proposed to deal with this issue consequently often have a punitive edge, from jailing bankers to renationalising industry.

 

Enter one of Britain’s leading business leaders, Lord Browne. Best known as the chief executive who led BP to sit among the biggest companies on earth, and as the driving force behind a campaign to break down barriers facing gay people in business, he is not the first leading light of capitalism to worry about public mistrust of corporations. But his new book Connect, co-written with McKinsey executives Robin Nuttall and Tommy Stadlen, should prompt anyone concerned about the future of enterprise to take note.

 

For the likes of Corbyn are not really what worry Browne (we didn’t discuss the new Labour leader when we met last week). His time horizon is much wider than that. Business’s real problem, he thinks, is that it has failed to moderate a punishing cycle of anti-business sentiment over two millennia, which now threatens to get sharper and more costly in the years ahead. Companies need to radically reconnect with society, and with some urgency.

 

What is wrong with business? Unsurprisingly, Browne thinks it is an “extraordinary motor of progress”. But unlike many of the figures he interviewed for his book, he doesn’t see the ebb and flow of public trust in big companies as either a permanent flaw in the system, to be greeted with a shrug, or as detached from the actions of the firms themselves. While many argue that businesses operate only within the frameworks set for them by governments – and that, if we want anger about issues such as corporation tax or environmental damage to subside, we need to change those frameworks – Browne thinks companies need to take the initiative. For him, a cycle of corporate antisocial behaviour feeds directly into a cycle of anti-business sentiment.

 

While not keen to point fingers – with the exception of sub-prime bankers, most of his examples are historic, including the rapacious merchants of Han dynasty China – there is an identifiable pattern to this. “Business has problems when it separates itself from the people it’s serving,” Browne tells me. “There’s the horse meat scandals, there’s the milk scandals, which come back again and again.” It is when businesses forget they’re in the business of serving society that they come unstuck. And when the inevitable crisis comes around, and they lack the trust to ride it out, the costs can be truly enormous. Generally, Browne illustrates his arguments with companies that get it right – the Cadburys and Hersheys of this world – but his take on the Deepwater Horizon oil spill under the watch of his successor at BP is illustrative.

 

What is the solution? Perhaps inevitably, people are focusing on what Browne thinks no longer works – namely corporate social responsibility (CSR), which is dead (“It treats reputation as an artificial construct and is disconnected from the firm’s core purpose and activity,” he writes). But his vision for a new world of “Connected Leadership” is less fluffy than it sounds.

 

In simple terms, it involves accepting that the success of a company depends on its relationships with the external world – not just customers and investors, but employees, regulators, politicians, activists, and more ephemeral “stakeholders” such as the environment. The business’s relationship with all these must be mapped, and its contribution defined. One of Browne’s favourite examples is Unilever – which in 2010 launched a Sustainable Living Plan, aiming to double the size of the business while helping 1bn people improve their health, halving its environmental footprint, and enhancing suppliers’ livelihoods. This combination of growth and serving society is vital. “It’s not just compliance. It’s way beyond that. It’s understanding the longer-term implications of what you’re doing, and you have to do that at every level of your company,” he says.

 

Crucially, Browne’s call for firms to reassess their relationship with society doesn’t stand in opposition to Milton Friedman’s famous dictum that companies’ only social responsibility is to increase their profits. “It’s so easy to misconstrue what Friedman said,” he says. For one thing, Friedman argued that firms should play within the rules of the game. For another, Browne cites research from Alex Edmans of London Business School, who found that companies with superior employee satisfaction generated 2.1 per cent better annual share price performance from 1984 to 2009 than their competitors. More broadly, based on a study conducted by McKinsey for the book, when engagement with society works, Browne says, “returns on equity go up by 20 per cent on average over a decade. That’s an enormous alpha”. 

 

But the final ingredient of Connected Leadership – “radical engagement” – may be the trickiest to manage. It involves companies going out of their way to find compromises with groups that may (irrationally) oppose developments that would be in the long-term interests of society (shale gas, for example). And it’s hard to escape the conclusion that some critics of big business will never rest until their enemy is dead and buried (or at least under state control). But for Browne, “it’s always better to engage early and be very very clear. You may not win on a rational basis… but somebody’s got to make some steps. Otherwise you’re in a standoff.”

 

One of the interesting questions is what this means for the role of the chief executive. Browne’s book draws on philosophy and history, alongside management theory, to make his point. Even in a world where data is king, does the chief executive now need to have a more wide-ranging view, drawing on multiple sources (some non-business) to make a success of his or her company? “Increasingly. Chief executives who are chief operating officers are not doing their job. It’s more complicated today.” Abandoning jargon (“I’m as guilty as the next, but you’ve just got to be very straightforward”), being strategic (“everyone can analyse the data a thousand ways over, so you’ve got to think about what you’re really serving society for”), and realising that history is not irrelevant (“we really are bad at learning”) will be what makes a great business leader in the future.

 

But why write this book now? Public anger at the bank bailouts is subsiding, and some posit that we are seeing a secular shift in attitudes towards business, with many more people starting their own firms, owning shares, and working in the private sector than, say, 50 years ago. “I’ve been intrigued with this topic ever since I was at Stanford Business School in the 1980s. This is not the first version of the book by any means,” he says. And Browne’s argument is not limited to clearing up the mess of the crisis: “It’s no bad thing to take it out of the eye of the financial storm.” 

 

And Browne really does think this time is different. Advances in communication technology mean that news no longer spreads “in a highly moderated way. Now a problem anywhere will spread immediately. The significance of a company doing something wrong becomes much larger – amplified by billions of points of amplification.” Equally, we’re now in an environment where it is increasingly difficult for firms to find competitive advantage, partly due to the rapid spread of new technology. If he’s right, Browne’s Connected Leadership may not only save companies from a new wave of regulatory crackdowns, mega-fines, and desertion by consumers. A more positive relationship with society could be a new frontier in the search for corporate profitability.  

 

Connect: How Companies Succeed by Engaging Radically with Society, by John Browne with Robin Nuttall and Tommy Stadlen (WH Allen), is available now for £20 in hardback.