Good afternoon everyone. Thanks very much for inviting me along today.
I'm delighted to be here. But I'm concerned that we are still talking about whether there can be such a thing as a good company. Why does this question keep recurring?
I think one reason must be the fact that trust in business remains at a low ebb. In the late 1970s a MORI poll found that the British public agreed by two to one that the profits of large companies help their customers. Now they disagree by two to one.
It's important to turn public opinion round again, because a lack of trust corrodes relationships. And without strong, constructive relationships - with customers, communities, governments and non-governmental organisations - it is hard to fulfil our potential as businesses.
But we can only rebuild trust if people understand our purpose. And understanding requires a common appreciation of what business is there for.
So it's important to clarify the proper role of business, and indeed the proper role of profit. And that means explaining why - and how - business can be 'good'. So let me try to do that from BP's perspective.
First we need to define what 'good' means in this context.
We could take the view that 'good' simply means legal compliance - that the only goal of business is to make profits and its only constraint is to keep the law. That would result in businesses whose behaviour was indeed legal, but also in my view deeply irresponsible. Such a definition excludes any sense of responsibility to have a positive impact on society and any concept that the way companies behave can be guided by their own set of values rather than simply by the external boundaries set by laws and regulations.
On the other hand, one could take view that 'good' means devoting the company to philanthropy - that the only goal is to promote human progress, regardless of profit, and therefore to channel shareholders' funds into a series of non-profit projects. That would also be deeply irresponsible. Those shareholders would quickly desert the business and it would fail, along with its good intentions.
These two definitions are clearly at two ends of a spectrum. Perhaps a more widely held middle view is articulated by those who say that companies should 'do business in a responsible way' - making a profit but doing more than the law requires, for example on issues such as safety or terms of employment, and also making a range of community investments. This is sometimes linked to the portmanteau concept of 'corporate social responsibility' or 'CSR'.
On the face of it, this sounds very reasonable. My concern however is that it can very soon lead to a false dichotomy between the core business on the one hand and the exercise of 'responsibility' on the other. CSR becomes a separate discipline, like marketing or finance. And if 'responsibility' is seen merely as one aspect of business, what does that make the rest of it - irresponsible? Soon the implication becomes that CSR is some kind of sideline tacked onto companies to atone for the supposed moral deficiency of the core business. And once we start thinking like this, then I believe we have really lost the plot.
For in reality, the core business is precisely where responsibility should start. Responsibility should not be a part of business, but the heart of business. Our whole aim as business people should be to make business a positive, responsible, constructive force in society.
And that is not incompatible with profit. A good business - in my view - is one that generates a profit by satisfying human needs. It makes a profit by making a difference. And this means satisfying a range of needs - at a minimum the shareholder's need for a return and the customer's need for a product - but in many cases other needs that arise from the particular circumstances of a given product or sector.
In energy, for example, our challenge is not just to meet demand for energy but to do so in a way that is sustainable for the environment and addresses concerns over security of supply as well.
In the consumer goods sector, many businesses now focus not only on meeting demand in the OECD world, but are looking for ways to meet the same needs in the developing world, creating products that help to alleviate poverty and bring development to low-income communities.
What this then means is that a good company tends actively to direct its activity towards difficult issues and challenging markets - the low carbon market or the low-income community - rather than staying in its comfort zone. However the quid pro quo is that there is often great opportunity in those difficult areas. They tend to be where future markets lie.
Let me try a quick test. Think of a company you regard as great - in the long term sense - one of the world's great enterprises. Now - ask yourself if you know what its profits were last year - or its RCOP or EBITDA. Now I may be in a room full of analysts in which case you'll all know the numbers to the nearest cent. But I'm willing to bet that many of you will know simply that the company you were thinking of made a profit - because it always does. But that wasn't why you thought of it as great. We judge greatness by something more than profit.
We judge greatness by the company's contribution to human progress, by its innovations, by its conduct as an employer - in short by what it contributes to fulfilling human needs.
So being a good company is not an illusion. It is vision worth pursuing and I hope often a reality as well.
So there we are - I've answered the question in about five minutes!
However, I've only answered it in general terms - and that's the easy bit. Defining what a company should do is simple. Doing it is much harder. The more needs you try to meet, and the greater those needs are, the more you narrow your options and the more difficult it becomes to pinpoint the exact nature of the business opportunity.
So being good also means being smart. In a moment I'll give you a couple of examples from BP's own experience of trying to fulfil a number of needs simultaneously in the energy field. But the principle holds good in any sector and there are many businesses today who make their profits in ways that fulfil societal and environmental needs.
I think for example of those businesses who create 'fair trade' products from sustainable sources.
Delta Cafes - based in Portugal - have created a premium brand called Delta Timor. This is the result of the company's work in helping to rebuild East Timor's coffee industry, with significant investment in training, playing a part in enabling the country to recover from the conflict of the late 1990s.
Today if you buy a top of the range Mercedes, it may well have headrests which contain coconut fibres once discarded as useless by Brazilian farmers. The discovery of this application for coconut has provided DaimlerChrysler with a cost effective source of supply and provided the farming communities of the Amazon region with an improved livelihood that does not involve slashing and burning the rainforest.
Other companies are tackling poverty through microfinance systems which provide loans to small businesses. These include Deutsche Bank, ABN AMRO, Citigroup and many others, including some not from the financial sector. In fact BP supports microfinance programmes in Angola, Azerbaijan, Colombia, Georgia, Trinidad & Tobago and Vietnam.
Other businesses are focusing on bringing local people into their supply chains - using the company as a dynamo for economic growth. Coca-Cola creates opportunities for thousands of people to work as its vendors and distributors in countries such as South Africa and in Vietnam, where the system enables thousands of women to escape poverty by setting up their own businesses.
In BP we have begun to look at designing innovative solutions to serve the unmet energy needs of the millions of households in developing countries that lack access to safe and clean energy options. We are currently working towards beginning a trial in India that will involve marketing biomass pellets and LPG in conjunction with a pioneering combined biomass and LPG stove- a cleaner and healthier alternative to traditional biomass usage - and something that will also provide local people with the opportunity to work as distributors.
In many cases, expert NGOs play an important role, acting as guides by providing local knowledge and understanding that companies lack when they enter an unfamiliar market.
So let me give you two more detailed case studies from our experience in BP. Both are stories of how we've sought to make the profit needed to sustain and develop our business by meeting a range of human needs.
The first example is one in which our product not only meets the demand for energy, but helps to protect the planet, promote development and improve health and education.
The project in question is one of the largest of our solar projects in rural parts of the developing world. In this case it is bringing solar power to a group of villages in the Philippines and it is called SPOTS - the Solar Power Technology Support project.
The background to this is that around four years ago we took a hard look at our solar business because it had never been profitable. We faced up to the fact that it needed to become profitable in order to grow. Without profitability BP Solar would never be treated on an equal basis with other businesses in BP and secure the capital to expand. It would remain as a non-core activity and would be derided externally as "green-wash". It had to be a real business. So we stopped non-core activity and we focused on the most advantaged products and markets.
One question here was whether we should only focus on developed world markets, such as in European and the US, or whether we could continue to provide solar power to remote rural areas of the developing world. Solar has great potential to assist development. Not only can it bring power to communities among the two billion or so who don't have access to electricity, but it can do so in a way that creates no carbon emissions and has no impact on air quality. The challenge is to make such projects viable, given that low-income communities can themselves rarely afford the cost.
Instead of moving away from developing world projects, we decided to focus on projects that met particular criteria. The criteria were that the projects needed to be large-scale, widely beneficial, technically achievable and fully funded by aid agencies, international bodies or governments. We also decided to put a local member of staff in charge of any new project. We realised that local employees were better placed to make the project successful because of their understanding of the needs and mind-sets of our customers in that part of the world.
You may be wondering why we set funding as one of the criterion for projects and why as a large and profitable oil company we believe this is acceptable. In essence there are two reasons. First, the fact that a government is providing aid is a sign that the project is worth doing - it will have been fully assessed and identified as really beneficial to the community. But second, if solar power is to fulfil its true potential to bring energy to millions of people in developing countries then it has to be sustainable in business terms - and therefore profitable. We do fund some projects from our community investment budget, for example in Angola, but progress at scale is going to come from developing a robust economic model for such projects worldwide.
One project that fits our criteria very well is the SPOTS project in the Philippines, the biggest rural solar initiative in the world. It is a €21m project funded by the Spanish government which benefits around 400,000 people in over 80 communities. It involves over 5000 home systems and 500 public ones. Its benefits include refrigeration for medicines; clean drinking water and irrigation for farmers. As a result of the programme, water-borne diseases have been virtually eradicated, power has enabled people to work during more hours of the day and street lighting has helped to cut crime. Local people have been trained to maintain systems. And it's all zero-carbon.
We have several large-scale projects like SPOTS, including in Sri Lanka and India. And there are several other energy and power companies in the same field. It's a growing market but it's one that needs co-ordination at international level to bring in funds, bring down costs and spread the learning that comes from experience. Over time, as costs come down, it may be that rural communities are more able to finance solar power themselves, especially where it is an economic investment for them, as it is for example for farmers who can increase their income by using solar pumps to irrigate their land.
Although a large-scale project, the story of SPOTS is essentially a local one. Let me give you one more case study - this time a global one.
And this is a story which follows directly on from the efforts we made to build a profitable and credible solar business, not only through our insistence that projects in developing countries need to be viable but through a rigorous focus on our best products and sustained marketing campaigns in the developed world.
And last year, our solar business became an integral part of something bigger - a business which promises to offer part of the solution to the complex problem of how to address climate change and provide secure, sustainable energy for the future.
This business is called BP Alternative Energy and it brings together the different strands of our work in low-carbon power generation.
It includes the solar business - which we plan to triple in capacity over the next three years.
It includes our wind power business - which is currently small in industry terms - but which we plan to grow more than ten-fold in capacity terms in three years.
It includes our gas-fired power station business - that includes stakes in plants with a combined capacity of 12 giga-watts, enough to power 10.5 million homes.
And it includes something very new in the shape of hydrogen power stations that are linked to the capture and storage of carbon dioxide. In Scotland and California we're planning projects in which we will convert natural gas or petroleum coke into hydrogen and carbon dioxide. The hydrogen will be used to generate low carbon power while the carbon dioxide will be injected underground where it can be used to help force oil out of mature oil reservoirs.
These two planned power plants would together generate enough power for over 800,000 homes and eliminate over five million tonnes of carbon dioxide emissions, equivalent to removing over a million cars from the road.
This is a really exciting business, one in which we plan to invest $8bn over the next decade. So it's by every definition a 'business' - designed to make a satisfactory return - but it is also a business positioned to promote progress by being directed towards the growing low carbon market. Power is the world's largest source of greenhouse gas emissions - producing roughly twice as much as transport - and we believe that governments and utilities will increasingly look to generate power in ways that limit carbon emissions. This business will provide the tools to do that at scale.
So - commercial break over! What I want to share with you as people who study the disciplines of business is the way we came to this idea.
I said earlier that to be a good business - to satisfy several needs at once and make a return - you need to be a smart business. And to be smart you need to harness everyone's talent and ideas - to release the power of what we sometimes call the 'big brain' - the collective wisdom of the organisation.
I'm proud of what our team did in creating BP Alternative Energy. But I don't claim the credit as an individual. Neither does anyone else. It was a collective effort. And collective efforts aren't easy. They too often end up in trying to do detailed things by committee or alternatively by no-one taking ownership of the fundamentals.
In this case it was a solution that we came to as a team after considering the problem from all angles - and doing so in a relaxed environment.
The critical point was two-day meeting where we all got away from the office and held what we called a 'strat-fest' - a very open look at our strategy as a business. And there were certain characteristics that I think made this event distinctive.
On one hand, we tried to get away from traditional business agendas and tools. But on the other hand we didn't skimp on data and detail. It was a blend designed to mix inspiration with application.
So for example we provided the background information in a book which had on its cover a quotation from Mark Twain, saying: "20 years from now you will be more disappointed by the things you didn't do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbour."
I opened the event by calling for people to give the issues some space. I said it was not - in the first instance - about convergence but divergence. We needed to hear all the different points of view and options. It was not about getting to a quick answer because quick answers aren't always the best answers. It was about keeping open to ideas, listening and using the collective experience in the room.
We had no agenda in any formal sense. In fact it was visually presented as a winding road - open to diversions.
We started by looking at clips of world leaders setting out the multiple needs we were trying to meet; the Chinese president Hu Jintao saying how China aimed to quadruple its GDP over 20 years while only doubling energy consumption; President Bush talking about reducing dependence on imports; Prime Minister Blair talking about the role of technology in reducing emissions without reducing economic growth.
Instead of linear briefing papers we used large and very detailed posters of each of the business areas we were examining that captured key elements of the story in words, data and pictures. Instead of minutes, we had an artist who drew cartoons to sum up what we had covered. We also had a huge map of the world produced for us which showed "World Needs". For each region of the world this map showed the GDP and Energy needs now and in 2025 and also showed pictures of the resources and energy that the country had. This allowed our discussions in the meeting to really focus on the important needs that exist in different regions.
Sessions in the meeting were planned, but not structured, and everyone was given space to think and contribute because no specific outcomes were required.
Some of the quotes from the final cartoon give a flavour of what we had arrived at. They said things like: "A great 2 days"; "An integrated view"; "Convergence through power"; "We need to support each other"; - and that - in its simplest form - was the answer.
The solution was to create a business that is not defined by the resource it produces or uses, but by the use to which it is put. It is defined in terms of the customer's need rather than the producer's product. In this case the market is the generation of what we originally called 'green power' - low-carbon energy generated from gas, solar, wind and hydrogen - and traded around the world.
None of us would have come up with that solution alone - it was the result of applying our collective intelligence.
And turning back to the broader theme, if business is to regain trust, it has to demonstrate how it is seeking to apply its collective intelligence in the cause of human progress.
If those efforts are understood, then perhaps we can start to move away from the idea of big businesses as organisations that occasionally do some good towards a vision in which business is seen as a major agent of change.
And then we need to look not only at how we can be agents of change - but at the changes we can be agents of. What does the world need and how can business play a part in providing it?
Two of the key challenges I have discussed are climate change and poverty. I have discussed how businesses are already addressing these and we will doubtless do more in the future. There are many other challenges, from water shortages to population growth to security issues.
However, I want to finish by stressing that business cannot do it all. Our ability to make a profit and to make a difference is determined by others as well as ourselves. For example, will governments provide the regulation necessary to favour progressive products and services? Will customers understand the benefits of buying products that have social and environmental benefits? Will academics and NGOs contribute their expertise to help us find solutions and understand markets?
For example, in our sector, governments can encourage the market for clean energy. Academics can help us to explore technologies. NGOs can provide expertise on markets, policy areas and environmental and social issues.
As businesses we do not have the mandate of governments. We do not currently have the trust enjoyed by NGOs. And we do not have the specialised knowledge of academics. On the other hand we do have the resources and presence to make large investments and take risks on new technologies. We can be the motor if others help design the wider machine.
Together, we can be a formidable combination which has a new level of capabilities. And as Einstein said: "Our present problems cannot be solved at the level of thinking at which they were created."
In other words, we need to bring together the world's collective intelligence to bear on finding sustainable solutions to major global issues.
That's why we need to talk more closely with governments, work more effectively with academics and collaborate more with NGOs, building on what unites us rather than what divides us.
Above all, we need to attract people who want to be agents of change. And many of these may be people who might have once headed for the public or non-profit sectors. But I hope we will increasingly demonstrate that a business can be a good place to be - in every sense. It is sometimes said that you can tell what a person is like by the company they keep. Equally you can tell what a company is like by the people it keeps.
So yes, it is possible to be a good company. That is certainly BP's aspiration. I am sure it is shared here and I wish you well here at INSEAD in helping the business leaders of tomorrow develop their own ideas - not only on how they can make a profit, but also how they can make a difference.
Thank you.