BUSINESS ETHICS AND CORPORATE TRUST

1. BUSINESS ETHICS AND CORPORATE TRUST Roger Bolton Brian Moriarty APCO Worldwide Business Roundtable Institute for Corporate Ethics Tuck Symposium on Communication New York City June 2, 2009

2. Agenda Brief Overview of our organizations and why we are engaged in public trust in business Defining Business Ethics Defining Trust Three Core Dynamics of Trust Recommendations What’s Next

4. Business Ethics The Dynamics Of Public Trust In Business – Emerging Opportunities For Leaders

5. BUSINESS ETHICS Is Business Ethics an Oxymoron or Pleonasm? • Is it defined by scandals? • Is it defined by value creation? • Is it relevant to both?

6. BUSINESS ETHICS “Business” • The idea of “business” as “cowboy capitalism,” that capitalism works because people are completely self-interested, and will only act for others if they have the proper incentives is outmoded and shopworn. • Business is a form of social cooperation, working together to create value that no one person could create on his or her own. • This idea of business is not new—it is at least as old as Aristotle • Ed Freeman: “Business is about creating value for stakeholders”. • At a minimum stakeholders are customers, employees, suppliers, communities, as well as shareholders or other financiers.

7. BUSINESS ETHICS “Ethics” • Too often we think about “ethics” as about deciding who the saints and sinners. • Ethics is about the most important parts of our lives, our core values and must be center stage—especially in turbulent times. • Ethics is about how we get along with each other, how our values and interest interact. • Ethics always works at two levels: personal and interpersonal.

8. BUSINESS ETHICS A Paradox or a Positive Sign? • An survey from 2006 reports that: • 81% agree the first priority for any corporation is to make a profit so they can stay in business • 88% agree the first priority for any corporation is to be a good corporate citizen by acting in socially responsible ways • 91% agree it is possible for companies to find a balance between making a profit and giving back to society – Source: American Management Association, The Ethical Enterprise: Doing the Right Thing in the Right Ways, Today and Tomorrow, A Global Study of Business Ethics, 2006, p. 2

9. BUSINESS ETHICS Putting Ethics At The Center: The Basics • Creating value for customers. • Managing suppliers so that they want to make your business better. • Managing employees so that they show up and use their brains. • Being good citizens in the community. • Making money for financiers. • Stakeholder interests have to go together over time. All have to win.

10. BUSINESS ETHICS Putting Ethics At The Center: The Basics Trust Panelist: “The values and culture of our company compels us almost to do things not expected or required.” • Ethics and values give us anchors, stakes in the ground. • They serve as stabilizers and shields. • They empower and inspire us. They lead to everyone pulling in the same direction. • In short, values and ethics can drive business strategy.

11. BUSINESS ETHICS Putting Ethics At The Center: Vision and Values • Value Creation: How does the firm make others better off? • Trust Panelist: “The question we need to ask is why does the world need this enterprise.” • Stakeholder Cooperation: What values and directives help build commitment to the firm? • Stakeholder/Societal Expectations: Do our values and commitments obey social norms and laws?

12. BUSINESS ETHICS Corporate Communications & Ethics Corporate communicators: • Have expertise in engaging stakeholders • Understand the uses and implications of emerging technologies and trends • Have a clear set of professional values • Arthur W. Page Society Principles • Authentic Enterprise Reports

13. DEFINING TRUST The Dynamics Of Public Trust In Business – Emerging Opportunities For Leaders

14. DEFINING TRUST Dimensions of Trust • Fidelity – Consists of caring, respect, advocacy and avoiding conflicts of interest • Competence – Avoiding mistakes and producing the best achievable results • Honesty – Entails telling the truth and avoiding intentional falsehoods • Confidentiality – The protection and proper use of sensitive or private information • Global Trust – A catchall, but also a significant component that is irreducible or not subject to dissection—what one might call the “soul of trust” • Source: Mark A. Hall, Elizabeth Dugan, Beiyao Zheng, and Aneil K. Mishra, “Trust in Physicians and Medical Institutions: What Is It, Can It Be Measured, Does It Matter?,” The Milbank Quarterly, Vol. 79, No. 4, 2001)

15. DEFINING TRUST Competence and Goodwill • How do you think business scores on competence? • How do you think business scores on goodwill? • The news is better than you might think • A Harris Interactive survey reported that: 63% of the general public trusts that “most companies have good intentions and work hard not to repeat similar mistakes again.”

16. DEFINING TRUST The Trust Arena is Complex • Interpersonal • Organizational • Inter-organizational • Institutional • Public

17. DEFININGTRUST Public Trust in Business Public trust in business is the level and type of vulnerability that the public is willing to assume with regard to business relations. It is a critical ingredient for social cooperation and market efficiency and a cause for deep concern when it is absent or threatened.

18. DEFINING TRUST Does Public Trust Matter? • Trust Panelist: “No one ever talks about public trust in the boardroom—we talk about customer loyalty and the Fortune 500 survey of the ‘Most Admired Companies’—things that seem more closely related to our company.” • What does public trust have to do with your company? • Annual cost of compliance with regulations post Sarbanes-Oxley estimated to be $1.1 trillion, more than 10% of the GDP • January 2009, The Conference Board Consumer Confidence IndexTM reaches all-time-low of 37.7.

19. WHY TRUST MATTERS • Trust improves the efficiency of transactions • Trust within firms impacts employee performance. • Trust among firms impacts customer acquisition and retention. • Trust among the business units of large firms impacts innovation.

20. WHY TRUST MATTERS

21. WHY TRUST MATTERS U.S. Trust in Institutions How much do you trust each institution to do what’s right? Source: Edelman Trust Barometer

22. THE THREE CORE DYNAMICS OF TRUST The Dynamics Of Public Trust In Business – Emerging Opportunities For Leaders

23. THE THREE CORE DYNAMICS • Mutuality • Balance of Power • Trust Safeguards

24. THE THREE CORE DYNAMICS • Mutuality • Based upon shared values or interests • Create value for multiple stakeholders • Concern for societal values and interests

25. THE THREE CORE DYNAMICS • Balance of Power • Risks and opportunities are shared • Mediating institutions have influence • Authentic dialogue occurs between parties

26. THE THREE CORE DYNAMICS • Trust Safeguards • Legal compliance mechanisms • Create protection for stakeholders • Reparations are required for violations

27. REPORT RECOMMENDATIONS The Dynamics Of Public Trust In Business – Emerging Opportunities For Leaders

28. REPORT RECOMMENDATIONS Goal of the Project on Public Trust in Business To help business leaders make better decisions by: • Exploring the unchartered territory of public trust in business • Offering business leaders actionable recommendations, including opportunities to build public trust in their companies, industries and in the institution of business

29. REPORT RECOMMENDATIONS • Ensure that values are adhered to consistently across your enterprise. • Build and manage strong relationships with mediating institutions. • Embrace transparency. • Work to build trust in your business sector. • Focus on the core contribution that the firm makes to society.

30. THE VALUE OF VALUES The Dynamics Of Public Trust In Business – Emerging Opportunities For Leaders

31. THE VALUE OF VALUES Globalization DigitalNetwork Revolution Stakeholder Empowerment

32. Implications for enterprises: Threats … Influential new stakeholders Demands for transparency Risks to brand and reputation Regulatory activism THE VALUE OF VALUES

33. Imperative for enterprises: The enterprise must be grounded in a sure sense of what defines and differentiates it (mission, values, principles, beliefs). And those definitions must dictate consistent behavior and actions. THE VALUE OF VALUES

34. THE VALUE OF VALUES Our Credo We believe our first responsibility is to the doctors, nurses and patients,to mothers and fathers and all others who use our products and services.In meeting their needs everything we do must be of high quality.

35. THE VALUE OF VALUES

36. STAKEHOLDER RELATIONSHIPS The Dynamics Of Public Trust In Business – Emerging Opportunities For Leaders

37. STAKEHOLDER RELATIONSHIPS Globalization DigitalNetwork Revolution Stakeholder Empowerment 37

38. How do you build relationships with disparate stakeholders? Authentic dialogue Free consulting Look for common ground Be willing to change STAKEHOLDER RELATIONSHIPS 38

39. STAKEHOLDER RELATIONSHIPS Aetna in the 90s • Put customers and shareholders first • Strong form managed care Anti Managed Care Backlash • Physicians, patients rebelled • Government mandates New CEO - A Doctor • New values – The Aetna Way • Balance the needs of ALL constituents • New approaches • Settle lawsuit

40. STAKEHOLDER RELATIONSHIPS The New York Times May 23, 2003

41. STAKEHOLDER RELATIONSHIPS “The once notoriously stingy and fiercely unpopular company is now frequently cast as the country's most physician-friendly insurer.” BusinessWeek, Jan. 4, 2006 By Jessi Hempel and Diane Brady

42. STAKEHOLDER RELATIONSHIPS • Engage in meaningful dialogue with responsible mediating institutions that have legitimate interests and influence traditional stakeholders • Create partnerships with groups that can enhance your value-creating activities

43. EMBRACE TRANSPARENCY The Dynamics Of Public Trust In Business – Emerging Opportunities For Leaders

44. Transparency leads to: better understanding of a firm’s good intentions more informed engagement with mediating organizations and other stakeholders. EMBRACE TRANSPARENCY 44

45. EMBRACE TRANSPARENCY Web 2.0

46. EMBRACE TRANSPARENCY • 108 million blogs, increasing by 175,000 daily • Nearly one billion camera phones worldwide • Second Life – 14 million people, 80 countries • YouTube – 100 million videos/day

47. Influence Source Brazil Ger Spain Italy India Sing Japan Average Rank News stories on TV or radio 11 11 12 12 10 7 5 9.7 Advertising 9 10 11 10 11 11 9 10.1 Direct marketing (e-mail or mail) 12 12 8 11 12 12 12 11.3 EMBRACE TRANSPARENCY Biggest Influence on Opinion about IBM Personal experiences with company’s employees 2 1 1 1 2 1 1 1.3 Analysts or professional organization opinions 1 2 3 2 1 2 2 1.9 Opinions of colleagues, peers, or friends 3 3 2 3 5 4 3 3.3 6 8 4 7 4 3 6 5.4 What companies are doing for others in your industry Company websites 5 6 5 8 3 5 10 6.0 White papers, research, or case studies 4 4 6 4 7 9 8 6.0 Articles in magazines or newspapers 7 9 10 9 8 6 4 7.6 Online sources, not directly from the company 10 7 7 6 9 8 7 7.7 Tradeshows, conferences, industry forums, events 8 5 9 5 6 10 11 7.7 IBM Survey of executives in seven countries

48. We continue to advocate IBMers' responsible involvement today in this new, rapidly growing space of relationship, learning and collaboration.

49. EMBRACE TRANSPARENCY • Be willing to disclose meaningful, nonproprietary information about the firm’s business, policy and lobbying practices • Embrace the notion that transparency leads to: • better understanding of a firm’s good intentions • more informed engagement with mediating organizations and other stakeholders.

50. BUILD TRUST IN YOUR SECTOR The Dynamics Of Public Trust In Business – Emerging Opportunities For Leaders