18 February 2008
Building responsible world-class corporations - Global Business Leaders' Forum
Speaker: Paul Skinner, Chairman
Location: Mumbai, India
Good morning, ladies and gentlemen.
There was a time, some years ago, when the words "responsible" and "world-class corporation" might have surprised people by appearing in the same sentence or conference title. Not because doing business responsibly is a new thing; global companies have been doing business in this way for a long time.
What have changed are society's expectation that companies be seen to do their business responsibly; and the need for companies to communicate better how they put responsible business into action.
As business leaders, we bear responsibility for keeping the companies we lead on the course of responsible business, and for communicating that course to all the company's legitimate stakeholders. So I am very pleased to take part in this forum. Gatherings like this are great opportunities to learn from and support each other.
My own experience of global business spans four decades in the energy and mining industries, first with Shell and now at Rio Tinto. I have seen and heard plenty of protests about these industries - even though the world would not be in its present state of advanced development without our efforts.
It is true that the level of development is uneven from region to region. However, that is changing - most notably in India and China, as our forum programme highlights, but also elsewhere in the world.
My four decades in business have given me the opportunity to live and work in many locations - including Greece, Nigeria, New Zealand and Norway.
I was working in Norway about 20 years ago when the Brundtland Commission was set up by the United Nations. At that time, world leaders and pressure groups alike were getting concerned about accelerating deterioration of the human environment and the world's natural resources.
The Brundtland Commission is probably most famous for its definition of sustainable development, which has so much currency now: that is, "development that meets the needs of the present without compromising the ability of future generations to meet their own needs."
This kind of perspective is very relevant in the mining and energy industries, where the projects we work on typically last 30-50 years, i.e. several generations.
Consider the Troll gas field in Norway, for instance. It contains 60% of the total gas reserves on the Norwegian continental shelf. The field was developed in my time in Norway. It took 17 years to get from discovery to production; it has now been operating for 10 years; and it still has many years to run.
Gro Harlem Brundtland was prime minister of Norway in my time there, as well as leader of the Commission named after her. I was fortunate to meet and talk to her, and found her leadership on the issues of sustainable development inspiring.
My experience in business has also included having responsibility for a business - Shell Oil Products - in 140 countries. This kind of experience gives a profound sense of how interconnected and yet unique different regions can be. It brings home the meaning of the adage "think global, act local" and how important that is to building a successful business.
How do I define a successful business? It is a business that is sustainable. And a sustainable business is a responsible business: it is a business that meets all its legitimate stakeholders' needs in the short term and the long term. In my view of business, responsibility and sustainability are so closely interconnected as to be inseparable.
Take copper as an example of a commodity in strong demand. The research organisation CRU projects that the need for it will almost double over the next 25 years. We in Rio Tinto have a responsibility to our customers to help meet that demand, and a responsibility to our investors to do so profitably.
This forum's agenda focuses on how people go about building a responsible world-class business. Towards that goal, this morning I would like to highlight 5 key levers:
- having a distinct business model/value proposition;
- maintaining a strong local identity and awareness;
- constantly pursuing global connectivity and leverage;
- contributing to sustainable development;
- and maintaining a strong focus on talent and diversity.
Let me address each of these briefly.
A world-class business needs a business model that is global in scope and application. One that is clearly differentiated from the business models of peers and competitors. And one that can be communicated readily to people in any culture and any language.
The business model provides a coherent framework in which the corporation's customer value proposition works. That value proposition is unambiguous and recognisable globally.
A good example of this, I think, is the Shell value proposition for quality fuels and lubricants - assured product quality and performance every time.
As an integral part of the business model and value proposition, every world-class corporation - virtually by definition - will promote and comply with global standards, in every activity the corporation engages in.
"World-class" means aiming for the top, wherever in the world you operate. No double standard.
Rio Tinto, for example, has very clear policies and standards to drive performance across the group of companies and in every sector where we work - copper, aluminium, diamonds, energy products, gold, industrial minerals, and iron ore. These policies and standards are enshrined in a document called The Way We Work.
Our global philosophy meant, for example, that Rio Tinto's positioning in the 1990s on native title to land rights was ahead of its time in Australia; but it was fully in keeping with developing stakeholder expectations elsewhere.
In a world-class corporation, local identity is critical in products, services, behaviours, and community relations. As I said earlier, "think global, act local".
In my experience, it is very typical that products and services will have to be adapted to local customer needs, while sitting comfortably within a global product strategy.
Again, fuels and lubricants provide a good example: it would be business suicide to ignore the different temperature and terrain conditions in different countries, the different age and condition profiles of vehicles, different consumer preferences, and so on.
Local identity and awareness also encompass local relationships. I cannot emphasise more vigorously the importance of maintaining strong personal relationships and networks within local influencer communities.
The rationale for such effort is hard to contest. On the one hand, this is simple courtesy, acknowledging that business relies on people to succeed. Backing that up is a strong business case: elements include lower costs, better management of the risks of business disruption, and the ability to recognise and adopt more quickly any opportunities that arise on a local level.
An example from Rio Tinto: the Diavik Diamond mine in Canada's NorthWest Territories, where the infrastructure is still in development and the weather can be very harsh.
The project to establish the mine was completed in 2003, well ahead of schedule and under budget. Part of this success was due to the consultation that went on from the earliest days of the project with the local population.
In one instance, local people queried the siting of some buildings; changing their location and orientation meant that workers could access the buildings more easily and reliably, whatever the weather conditions.
Let me now turn to the third of my five levers: global connectivity and leverage.
A responsible world-class corporation has the technology, systems and processes in place to ensure that lessons learned from local successes and failures can be shared globally, so that the whole organisation benefits from the learning.
The right communication technologies and processes can significantly improve the efficiency and effectiveness of the business as a whole. This is increasingly evident in the emerging concept of global or regional shared service and data centres.
As a result, more companies are enjoying the benefits of being able to carry out transaction processes in a very limited number of centres in the world. Establishing single market interfaces in areas such as procurement helps to optimise business processes and costs.
Global connectivity can deliver real competitive advantage. Take the example of the Shell Trading organisation. It integrates Shell's worldwide trading activities, with a portfolio that includes crude oil, refined products, natural gas, electrical power and chemicals.
The organisation is distributed across regional centres - in North and South America, Asia, the Middle East and Europe. In this way, trading books can remain live 24 hours a day.
Global connectivity also gives a corporation the power to create unique centres of excellence. These centres can be staffed by people who are the very best in their field, using technology to service operations across the globe.
This means operations genuinely receive the best support in the world, while the corporation is saved the expense of carrying parallel expertise at several locations at once.
Global connectivity, overall, supports global standards - of performance, and behaviour. These are central to any company's ability to contribute to sustainable development - which is the fourth lever in becoming a world-class corporation.
Let me stress: sustainable development is not about being 'nice' or being 'green'. Managing a business with sustainability targets and practices equates to basically good management of resources - i.e. running a responsible business.
And the benefits outweigh the costs significantly.
The first benefit is reputation. Many industries are sensitive to risk in this regard: the speed with a share price can slide after reputation damage is remarkable.
The second benefit is access to resources. When we engage closely with local communities, we understand better their legitimate needs and concerns. Contributing to sustainable development can also enhance our relationships with national governments.
A third important benefit: access to talent. Many global businesses are struggling with the effects of a serious fall in science and engineering graduates in Europe and the US over the last few years. Rio Tinto's attractiveness as an employer - in a still very tight market - gains much from our proven commitment to sustainable development.
A fourth benefit is access to capital. Mining is a highly capital intensive industry. Investors want to know that risks to their capital will be well managed, to optimise the return. A proven ability to manage risk also improves the market value of our company.
Contributing to sustainable development also means having an impact on local capacity building. Higher local employment reduces risks to the business. Also, in the mining industry, we often operate in remote locations; so it makes great business sense to increase the local availability of goods and services.
Finally, the discipline and management tools that underpin sustainable development provide a mechanism for continually increasing efficiency and productivity in the business.
And so I come to lever number 5 for building a responsible world-class corporation: talent and diversity.
A successful global company needs the best leadership talent and requires a commitment to diversity.
By embracing many cultures and both genders, the company gains access to a broader range, and greater depth, of insight and experience among its workforce.
That is why, for example, Rio Tinto actively seeks to improve the attraction, development and retention of women employees in the Group: in engineering and the sciences, and also in other areas such as finance and marketing.
It's simple: we need to be able to resource both current and planned growth initiatives with the best people for the job.
We have diversity targets in place. But we know that targets alone will not realise the change we are seeking. So our businesses have programmes in place to promote diversity and equality of opportunity.
Look at Australia. We operate in some of its remotest areas. And we are committed to increasing indigenous employment by offering real opportunities to Aboriginal students.
So we work with the Commonwealth Government's National Indigenous Cadetship programme. This is designed to give support and vacation employment to full-time third-level students from indigenous communities.
Since Rio Tinto became involved in the programme in 1999, 11 cadets have graduated and gained employment in their area of study. Six of these have taken up graduate roles with Rio Tinto.
I have now described to you five levers and how I see them helping to build a responsible world-class business. Whatever levers you choose to focus most on, we must never forget: in the end, building and being a world-class responsible business is all about delivery.
For a company to deliver global performance in every dimension - financial, social and environmental - and to keep improving that performance, there must be continuous review of actions and outcomes, continuous reinvention, and continuous benchmarking against the world's "best in class".
Continuous reviews, reinvention and benchmarking provide the framework and the impetus to sustain business success through the peaks and troughs of economic cycles.
I look forward very much to the discussions that will take place over the next two days. And I wish you a fruitful conference.
Thank you.