Vipul Chhajer (Class of ’16) sat down with Lord John Browne, the former CEO of British Petroleum and the first openly LBGT leader of a Fortune 100 company, and his co-authors, Robin Nuttall and Tommy Stadlen, to discuss their new book, Connect, and challenges at the intersection of business and society. The following conversation has been edited for length and clarity.
Vipul Chhajer: How should companies manage conflict with government and society, as we have seen in the cases Google vs. the Chinese government or Apple vs. the FBI?
[Lord John Browne] There are two different ways to think about this. The most practical way is to go through the steps of really understanding how the world is changing around you and where power balances lie…whether it is doing business in Brazil, where there are signs of a kleptocracy developing or in Russia, where things are increasingly state-owned. The second is to think about your purpose, which gives you guidance. You’re never in the business of just making money. If you are, then you will fail. You are in the business of doing something for humanity and making a lot of money thereby. It is clear to me that Apple must stick to its prior commitment to its customers: that is what its role is. However, it’s important to precondition everything you do by engaging with regulators and engaging on their terms before a problem arises. Don’t try and capture regulators, work with them to get better and more sensible regulation that allows you to fulfill your duties. Do the same with communities and with nations. This allows you to define the starting point and build relationships. When things get out of hand, at least you have a relationship that you can build further on.
[Robin Nuttall] In our book, we talk about the concept of the 3C’s. The 3C’s are Contest, Concede and Collaborate. Contesting is seeking to correct misinformation about your company. We look at Walmart in mid-2000’s where there was a lot of misinformation about Walmart’s treatment of employees and claims that they paid lower wages. Part of what they did was to contest misperceptions. But what we’ve found is that if all you do is contest, which is essentially what tobacco companies did starting in 1960, you burn any external relationships and you also burn your ability to shape your external environment. As a result, tobacco is a now a recipient of regulation in every country in the world and has limited ability to try and shape it. Tobacco is facing packaging regulation in many countries which means you have a non-existent brand. The regulators are taking away their license to brand and communicate with their consumers. That’s where they have reached.
VC: Some sharing economy companies, Uber and Airbnb for example, maneuvered aggressively around legislation when they were small and started to work with government only after they reached a certain size. Is that a model that startups with limited resources should emulate?
[Lord John Browne] My experience is that when you are aggressive with regulation and legislation you begin to dig a very big hole which is difficult to get out of. We have seen it with fracking in Europe where companies initially ignored regulations and protests. Lo and behold, fracking is going to be stopped in most places in Europe now. They have dug a hole which is too big to get out of.
[Tommy Stadlen] There’s a great quote in our book from Travis Kalanick, Uber’s CEO, saying that Uber was in a political campaign without realizing it and without fighting it. Uber has started getting smarter about regulations. They have hired campaign managers. Uber’s valuation is predicated on their ability to win very localized political battles – city by city. So I think what you will see is them having to connect softly and less aggressively.
[Robin Nuttall] From a game theory perspective, essentially this is a repeated game. It’s a multi-shot interaction, not a one-shot interaction where you can beat the regulator in a single battle. What we know about repeated games is that firstly, there is value to reputation. The more repeated events, the higher the value of reputation. In a one-shot game, there is no value of reputation. The second thing is that in a repeated game, if one side has more power than the other, which government and regulators in general do, then it is very dangerous for the weaker side to play tit for tat because you will most likely lose.
VC: How do you think that companies should respond when local and competitive realities threaten to undermine standards they want to hold? For example, dealing with corruption in new geographies.
[Lord John Browne] The answer is that you cannot violate fundamental tenets of business; otherwise, you will always be at siege. If you pay off somebody, apart from the illegality of it all, you compromise the basics of everything that you do. The fundamental principles of your purpose cannot be adjusted and you should be prepared to walk away from business. You don’t have to make a big deal of it. You just walk away. But companies have to be careful whether they think it is their culture or principles that are under question, because culture and principles get mixed up easily. You can’t run a company in China on the basis of UK precepts easily. But what you can do is run it transparently and honestly.
[Robin Nuttall] The additional thought is that there is a disproportionate value to integrity in a market where everyone else has low integrity. If you look at Novo Nordisk and their development of diabetes drugs, you see that they have gained a disproportionately strong reputation in an industry which has a very poor measure of reputation. In some sense, a source of differentiation is to have higher integrity and values.
VC: What should companies do differently to tackle the gender pay gap, where progress, according to the latest World Economic Forum Report, has stalled in recent years?
[Lord John Browne] What is so different today is that nobody respects authority. You can’t do what you want and expect people to follow you. We live in a connected society where everyone can see everything and there’s no hiding places. So I think that these things are going to change faster than people think. I think it is imperative to keep your teams engaged to have inclusion. You have to create a level playing field, remove barriers, so people can be themselves. When employees are engaged, profits rise disproportionately compared to companies where employees are not engaged. But to get inclusion you have to get a lot of things right – one of which is to treat minorities equally with the majority in all cases.
I spend a lot of time talking about inclusion, particularly about LGBT issues. It’s great that Tim Cook came out. I was out. That makes two people in Fortune 500 companies. You would think there would be a few more gay people running companies. It is statistically improbable that that’s not the case. Time now has to move on. People need to be rewarded according to merit, not according to their sexuality, background, color or gender.
VC: In a world with power shifts afoot, with China and Russia flexing muscles, and with the US exercising restraint, how should global companies manage geopolitical changes?
[Lord John Browne] The answer is different if you are an American company or a company outside America. If you are a company outside America, it is important to be incorporated in a country that has some power but you have to remember the limits of it. The quid pro quos get weaker and weaker. You can nudge and push people a bit but no one is going to send a gunboat or no one’s going to threaten to cut off diplomatic relationship for a business matter. There are bigger things at stake between nations and I never felt that I could rely on the power of a government. If you rely on your government to change things for you overseas, it will not do that. What it might do is lean influence towards you in certain matters.
[Robin Nuttall] We articulate 4 tenets of connected leadership – map your world, define your contribution, apply world class management and engage radically. The first tenet is the one thing that companies need to do in a world of increasing geopolitical instability. They need to embed geopolitical risk assessment at the heart of their company. For example, alcohol beverage companies went into Russia and got burned in ways that were reasonably predictable. It is a new competency companies need.
[Tommy Stadlen] Connected leadership is going to determine competitiveness in the changing theater of business engagement. It is much harder for a Chinese or an Indian firm to be trusted in the US or UK than a German firm. There is a trust deficit. The way to overcome the trust deficit is to use radical engagement and not rely on corporate social responsibility.
VC: What advice would you give to MBA graduates who are going to be joining the workforce in leadership positions?
[Lord John Browne] I would take a very strong magnifying glass and ask how the company you are joining is dealing with inclusion. Because the litmus test of great leadership is how well they are doing that. Are they actually measuring inclusion? Are they advocating it? Are managers spending time on it? Because it would tell you a lot about how the company will evolve. That’s very important because MBAs need to be included and they need to be coached as they rise through a company. Secondly, I would look at the core purpose of the company. I think it’s tough to be in purely money making money jobs. That’s not something most people want to do over the long term. Getting up in the morning and saying, “I made another pile of money for my investors, that’s all”, is not something appropriate for everyone in my view. It might be appropriate for a small minority. I think the great challenges which face humanity, whether it is climate change, health, or poverty reduction, are what the great people of the world should be engaged in. They can do it and still make money.
Vipul Chhajer (HBS ’16) is passionate about technology, history, and video games. He left his heart on the West Coast and is figuring out how to get it back. For commentary on how the past and future intersect, follow him on Twitter @chhajerv.
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