Topic: Panel 4 Freedom and Responsibility in Business

Panel 4 Freedom and Responsibility in Business

Mats Karlsson
Ladies and gentlemen, this panel is called Freedom and Responsibility in Business. And I am told that in the eleven years of Forum 2000 this is the first time we are actually devoting a full panel to business challenges.

We have before, of course, been inspired repeatedly by good business participation, but we are now going to address some of the issues that business face: the issue of corporate social responsibility perhaps primordially. Was this a fad or is this here to stay? If it is here to stay, is it an add-on or is it a core? Is it maturing? And if it is core, is it really adding to the profitability of business and of societies or is it a loss? What have we learned, how do we measure? How do we engage in dialogue, decision-making? What about the global issues? Well, we leave it up to our business participants to address the issue from wherever they are coming from. We are very privileged to have here Graham Mackay, who is CEO of SABMiller. We are very happy to have you here and please, lead us on with a keynote.

Graham Mackay
I am a little uncertain as to whether to feel threatened or gratified to learn that I am the first private sector participant to give any kind of address in this Forum. Allow me to hope that I won’t be the last.

Ladies and gentlemen and distinguished participants, in Prague nearly eighteen years ago now, a non-violent revolution started a chain of events that led to the collapse of communism. This was one of the seminal political events of the twentieth century, a handing back of democracy to people starved of it, for a black period of over forty years. It was, of course, a political event with profound economic consequences. Centrally planned economies were replaced by free markets, so I really can think of a no more appropriate place than the Czech Republic to consider the important question of the role of business in modern society.

The fall of communism created new opportunities, in particular, for my company—SAB Miller. The Czech Republic has long been renowned, justly, for the quality of its beers. Indeed, I would not be betraying too many secrets or any secrets at all if I said that Plzeň Urquell is without question my personal favorite beer. We had the opportunity to acquire Plzeňský Prazdroj, regarded by many as the crown jewel of the Czech brewing industry. We have understood from the start that in making this investment, we were assuming responsibility as guardians of an important piece of Czech heritage. We are delighted to have been able to use our global presence to expand the market not only for this great Czech brand but also for Czech talent.

And the theme of this conference, Freedom and Responsibility, is one to which we, SABMiller, can bring a quite distinct perspective. Our own heritage is rich, diverse and rooted in Africa—a continent with 66% of the world's poor and with 315 million people living on less than a dollar a day. So we are very conscious of our responsibilities to the wide communities in which we operate. We also understand the role of business in helping countries to emerge as fully fledged and stable democracies. Our product is beer. Alcohol is popular, but it is also controversial. We do not take lightly the very special corporate responsibilities that this confers upon us. Our growth is global.

Today we are the only African originated consumer company to become a truly global business, operating in five continents. We therefore do business in diverse markets at different stages of development and maturity. This makes it all more important to insure that the core values of our business are disseminated throughout our operations in ways that are sensitive to local conditions. It was the late Milton Freedman who argued that the business of business is business. I know what he meant and have sympathy for the sentiment. Wealth is not conjured up out of thin air nor by the good intentions of governments or campaigners. It is created by the economic activities of millions of businesses across the globe by the jobs we provide and by the investments we make. The simplicity of Freedman’s phrase, however, risks obscuring the subtle complexity of the relationships that business has with all its stake-holders. It also risks being distorted by those who believe that business is an alien force whose interests are at odds with those of society as a whole. I start from a different place. Business is not something separate from society. Business is a society. Business has a comprehensive set of relationships with the very individuals who make up the society in which we all live. Business is, at one and the same time, employer, customer, supplier and tax payer. It is perhaps regrettable, but nonetheless true, that employed people probably spend more of their waking hours among their colleagues than with their families. The interests and affairs of business and the wider community are one and the same. Put simply, business cannot be healthy if society is sick.

It’s easy to forget that business activities have a social purpose which is to provide the goods and services that society wants. And profits, far from being a dirty word, are the means by which society measures business success, provided markets are competitive and free, which is an important caveat. Business success and profits will be achieved only when companies manage relationships effectively, use resources more efficiently, and provide and keep on providing what people want.

In this way human welfare is increased. Business success depends, therefore, on building sustainable long term markets. This is entirely compatible with our responsibility to deliver for shareholders. Investors are often accused of having a very short term view. Not true. Most stock market values are determined by a view of corporate cash flows, which extends world beyond the next three years. And consumer businesses such as SABMiller are the engines of broad economic growth. They drive prosperity through a multiplier effect. We estimate that for every one person we employ directly at SABMiller, we create about twenty jobs in our supplier and distribution chains. Seen from this perspective, what is good for well-managed and responsible multinationals is good for wider economic development—more jobs, more taxes paid, and greater investment in local economies and communities. As a chief executive of a global company, the biggest contribution, by far, that I can make to economic development and poverty reduction is simply to run a successful and profitable company. The biggest contribution governments can make is to promote the stable conditions in which free and competitive markets can flourish.

Against this background does business need to be forced by ever more regulation to behave responsibly? My answer is unequivocally no. Public scrutiny of companies like mine has never been greater. Nor have our activities been more transparent than they are today. Operating responsibly is not just right in principle, it is in our commercial self-interest as well. So behaving responsibly towards all our stakeholders is part of our DNA and at the core of building sustainable markets. We want to have employees and to work with suppliers who are prepared to share these values.

As I have already made clear, the health and prosperity of the communities in which we operate is intimately connected to our ability to grow profitably. Profits are a driving force. But how profits are made is also important. Profits are only sustainable if companies are seen to be operating in a responsible and accountable way. Remember that our beer is made from locally sourced materials, is brewed locally and is then distributed for local consumption. While we pride ourselves on being able to turn some local brands into international best-sellers, we do not lose sight of the fact that all consumers are local. Their tastes, allegiances and opinions are local.

We express the responsibility we owe to our communities in two ways: we do have corporate social investment programs, investment that is not directly linked to a specific benefit for the business. This is what used to be known as good old-fashioned philanthropy. But in the long run, the building of sustainable markets is a much more potent force for good and a more effective agent of change than politically driven C.S.R. Development is perhaps only sustainable and certainly will be more sustainable if it’s founded on a hard business case and delivered by the best business practices. We will always be more effective where we are capitalizing on what we know best. Using our core skills on initiatives that relate to our own business.

This is at the very crux of how I believe the modern 21st century corporation should behave. This is not a zero sum game in which the welfare of society is traded off against our commercial self-interest. It's about working together in partnership to identify and exploit the opportunities for achieving shared value. I talked earlier about how business is woven into the fabric of society by the comprehensive network of relationships it has and maintains. This provides opportunities to share value at every level and we do. Let me illustrate that by reference to our own business value chain. First our employees: a healthy, motivated and productive work force is a pre requisite for a successful business. Now 28 million people in Africa are infected with HIV/AIDS. We don't just work with our own employees. We've taken our awareness, testing, and treatment program out into local communities. As I've said a healthy business can’t thrive in a sick society. Then our suppliers: in Africa many people cannot afford the pleasures of commercial mainstream alcohol. They drink illicit and unhealthy home brews instead. We’ve worked—with local farmers and governments, initially in Uganda, but now across Africa—to develop. Eagle lager, an affordable and accessible product based on locally grown sorghum rather than expensive imported barley. We have a market for our beer, farmers have a reliable market for their produce and a regular income and the governments receive more tax than would otherwise be the case, despite the lower excise rate on the small affordable product. A win-win all around. Then our distributors: we cannot sell our beer if we cannot distribute it. This poses particular challenges in Africa where the infrastructure is often poor. Over the last twenty years in South Africa we've invested over 300 million dollars to create distribution chains of owner/drivers, providing training, finance and business support. We’ve created 250 independent businesses. As a result we are one of the few companies that can deliver its products anywhere in South Africa within 24 hours of an order being placed. Indeed, at times our reach has proved greater even than that of the South African government.

Our distribution chain was used to help distribute election papers for the first South African election because it was more reliable than anything else—an example of shared value and practice. And our consumers: we want to sell more beer, but our view is that alcohol is not for everyone, every time or every place. Widespread abuse of alcohol is as much a threat to the health of our markets as it is to the health of individuals who drink to excess. Ultimately it is for individuals to take responsibility for their own actions. They should be free to take their own decisions about whether to drink and if so how much, given their own personal circumstances at the time. Our role as a company is to insure that their decisions are fully informed. That is why we are at the forefront of work to develop responsible drinking messages for display on packages and labels. Socially responsible but also commercially sound. Our communities: climate change will have a long-term impact on our business with rainfall in Africa predicted to reduce by thirty per cent while still increasing by the same amount in India. This will bring the additional problem of water scarcity, particularly meaningful to us given the fact that one of the main ingredients of our product is water. We recognize our responsibility to take action to use less water and have reduced water consumption across our businesses by about twenty-five percent in aggregate over the last twenty-five years.

We are also taking measures to reduce the amount of energy we use across the world. In the Czech Republic an upgrade of the waste-water treatment at Velké Popovice has reduced energy use by 70%, making us more competitive whilst addressing both the causes and the consequences of climate change. In each of these cases there is no division between society and business. Certainly, governments must be responsive to social attitudes and trends. But business must be even more so: anticipating our consumer needs and the demands and sensitivities. We need to be ahead of the curve.

Climate change may be a business threat, but it is also a commercial opportunity. Toyota, for instance, has gained a competitive advantage by being the first motorcar company to market successfully a hybrid vehicle with significantly lower emissions. It should be clear to you by now that I believe one of the primary roles of government is to promote a stable environment in which business is free to operate while adhering to core values. I do not believe it is to try to micromanage business and society with ever more regulation and intervention. Upholding property rights, developing robust competition policies, reducing the barriers to trade, respecting the rule of law, these are the critical ingredients for creating the favourable business climate that is the key to prosperity.

In many parts of the developing world, these conditions simply don’t exist. They are the biggest challenge in the fight to eradicate poverty. If there is no respect for property, what incentive does business have to invest to create wealth? If business success is achieved through corruption rather than fair competition what reward is there in trying to use resources as efficiently as possible? If protective tariffs persist, how can capital allocation be efficient over the long term? And if lawmaking and enforcement is fickle and arbitrary, how can companies plan ahead with confidence? I’m not suggesting for one minute that the market will solve every problem. There will always be a role for regulation. Regulation is justified when the market can be seen to have failed and when it delivers a net social benefit. There is no conflict here. After all, if my company upholds the highest standards of health and safety for example, it is not in my interest to be undercut by corporate carbways who do not.

But nowadays the real need is not usually for more regulation. The need is for appropriate regulation, effectively enforced. An example would be some government’s considering additional regulation on alcohol producers, which is restrictive, broad-based and expensive, when the existing regulations of under-age drinking and drunk driving, for example, are not properly enforced. On this issue I believe that the United States, contrary to popular opinion, has a better approach. In Europe the precautionary principle applies. As a principle who could object? It all sounds prudent and benign. But the practical implications are somewhat different. In effect, business is considered guilty until proven innocent. And pre-emptive legislative action is taken forward on blind faith without evidence—in short, an inversion of the most fundamental principles of justice. In the U.S., although it’s far from perfect, there is less blind faith in regulation. And the regulation that there is, is applied through strong enforcement and a court system that is clear, predictable and evidence -based. Business knows that it is free to innovate and do what it does best—generate wealth and jobs. But business also knows that should it transgress, managers will face the full force of the law. Corporate scandals such as Enron and Tyco are often cited as examples of the U.S. corporate culture that is flawed. I see them as examples of a U.S. judicial system that works. I understand, of course, the pressure that politicians are under. Multinational companies have long been a target for professional lobbyists and campaigners who charge that we are unaccountable and must be brought to heel. I don’t decry campaigners, although I think we should always ask to whom they are accountable. They’re an important part of a thriving and healthy civil society.

Global businesses know that if they do not step up to the plate, governments could well feel the need to respond to calls to increase the regulation of business to compel them to behave responsibly. But there is a price to pay for heavy-handed regulation. And it’s business and ultimately the consumer who pays. Governments, I'm afraid, do not always understand the way business works. And sometimes their interventions have unintended and negative effects. Taking the small Ugandan example I mentioned earlier: given the success of our Eagle Beer, the Ugandan government increased the excise duty. The price of Eagle Beer went up and consumption went down. We then found ourselves with too much of the locally grown sorghum, almost two years worth, in fact. We therefore did not require the following year's harvest. So the ultimate point of impact was the smallest scale farmer and that small example is played out many times every year on a much larger scale around the world. In the 1980s, the then Norwegian Prime Minister, Gro Harlem Brundtland, defined sustainable development as “meeting the needs of the present without compromising the ability of future generations to meet their needs”. This statement recognizes the fundamental interdependence of business and society. And just as community needs healthy businesses so business needs healthy communities.

Business requires the freedom to succeed. But business recognizes that with freedom comes responsibility to the communities in which we operate. Today multi-nationals are more accountable for their actions than ever before. The globalization of communications and the rise of the 24/7 society has led to increased public awareness and scrutiny of multi- nationals. We live in a world of instant real time communication in which technology enables anyone to be a source of news. And in a world which never sleeps, people-power can often be more effective than government intervention in keeping business honest whilst continuing to promote economic growth. When consumers start voting with their feet or sometimes with their wallets, as it is put, the damage to the reputation of a business brand can be terminal. I am confident that in the 21st century the companies that are successful will be those that take seriously the responsibilities towards their work forces, communities and environmental stewardship. These are the companies that will build sustainable markets. And these are the companies that will thrive in the long term. Thank you.

Mats Karlsson
Thank you, Mr. Mackay, for that very substantive keynote. I hear you say that business is not separate from society but it is woven into the fabric of society, responsibility is part of our DNA, building sustainable markets is more important than politically driven philanthropy. And thank you for making the reference to Mrs. Brundtland’s seminal definition of sustainable development. First to go is Leszek Balcerowicz, who in this group needs no introduction: one of the architects of Poland’s successful transformation.

Leszek Balcerowicz
Let me start with economic freedom. I think that economic freedom is widely underestimated in the world. Why? Because it’s so prosaic and because it¬’s easily demonized and Marxism was a pseudo-scientific way of demonizing economic freedom. So, economic freedom requires defense. We know from experience that without economic freedom there is no economic development. And countries which were deprived of economic freedom, where free entrepreneurship was banned as a crime and there was nationalization suffered an economic catastrophe.

This is the story of communism, including Cuba, so the first lesson is that economic freedom is indispensable for economic development which matters for human lives. Second, that economic freedom is indispensable for democracy, for political rights, because we don¬’t know of a single case of lasting coexistence of democracy and socialism, meaning the lack of free enterprise, and there is no coincidence that such a lasting coexistence cannot exist. It’s impossible. So I would say even somebody who dislikes capitalism should defend it in the interest of democracy. True democrats should be proponents of free enterprise in the interest of democracy and not only in the interest of economic development. But free economy even in democracy, is under constant attack: higher regulation and higher taxation and you may always present a case for more regulation in such ways that are attractive for the media.

I think people as voters should be aware that there are dangers to economic freedom even under democracy and should vote appropriately. I’ll give you one example: everybody is against structural unemployment. Many people blame structured unemployment on free markets. But where do we have the most structured unemployment in the developed world? Germany, France, Italy—are these examples of excesses of free markets? Of course not. And we know, for example, from the studies of OECD, what the reasons of structural unemployment are in these countries and others. There are various combinations of regulation: labor market regulation, product market regulation, difficult entry, and perhaps structured unemployment. And when you have structural unemployment because of excessive state intervention—who suffers the most? The females and the young people. Males in their prime of life do not suffer whenever you have high structural unemployment, so the weaker people suffer. There are many examples of antisocial, social regulation. And I think this is a very important point to defend economic freedom in the name of democracy, economic development and also equity. This is the first part.

The second part, would be about the social responsibility of business. I’m a bit sceptical about this slogan because it is so fashionable. Everybody is for social responsibility of business because we cannot be against it. Now, I have nothing very original to say. I would say that the basic social responsibility of business is to be competitive while respecting human dignity, because it is of enormous importance to provide jobs. You cannot be happy without being employed. And without competition you can’t have efficiency. You have to be competitive. And it is the duty of governments to provide a framework for competition and in democracy, it is the duty of the voters to support those who provide a proper framework for companies to be competitive. And this is a duty, a basic duty, of the leaders of business, to guide and manage the companies in such a way that they can be competitive while respecting human dignity. Now, if you want to do something more, and certainly there are many, many ways, do it but in agreement and not in conflict with the basic social duty to be competitive. What comes to my mind is, for example, some U.S. car companies which became sort of welfare states and they now have to re-structure. So, being in socially responsible in a way which allows you to be competitive in a competitive world while respecting human dignity is the essence of the social responsibility of business.

Mats Karlsson
Thank you, Leszek, for your usual clarity. We turn now to Ronald Gerevas with a distinguished career, corporate career, in the U.S., but I also believe in public service, even guiding the Peace Corps.

Ronald Gerevas
I would like to say that I am very pleased to be here, in fact honoured, and look forward to sharing some thoughts with you. After observing the earlier sessions and watching every moderator request shorter and shorter timelines, I’ve decided that I will put aside my speech and I will share with you the findings of a survey that was just conducted by my firm and that I think would be very interesting and very appropriate for this gathering. I would first say, as it was pointed out, I’ve had the opportunity throughout my career to sit on a number of sides of the table. I’ve been on the corporate side, ran a New York Stock Exchange Company, I’ve been on the government side, ran a Federal Agency and also, in both of those roles, I had a chance to partner with many NGOs.

So I’ve had a pretty good feeling for all three, and I’ve been the CEO of the largest executive search firm in the world, and it is from that experience that I’d like to talk a little bit about a study. I might also point out that of all my experiences I have found that all three—business, government, and NGOs—are necessary for us to be able to move forward with any degree of sustainability. There is no question about that and that all three need to work closely together and need to partner more. My observation would also be to suggest that the engine for CSR (Corporate Social Responsibility) moving forward will have to be the business world. The business community has the resources, it has the talent, it has the global network in order to be able to implement this on a global basis, and quite frankly, it also has the self-interest as has been pointed out earlier in the discussion.

One of the advantages of working with an executive search firm is that you get a sneak preview of trends that are occurring within the corporate world. By that I mean the various corporations and the leaders around the world will come to us and begin to hire certain types of people. We almost act like a barometer. We can tell what’s taking place in various sectors of the economy, in various countries just by the types of people that are being hired by a firm. So it’s very interesting and in that hiring process what we have found out in the last twelve months is that there is a new position that is being developed. It is in process and it comes as no surprise to some of my colleagues who are multi-national. There has been a position titled the EHS Officer, the Environmental Health and Safety Officer. This has been a compliance role—a tactical role—and it is now moving into a strategic role and it is called Chief Sustainability Officer.

We did our interviews, in-depth interviews around the globe in three different continents over a period of two months and this is what surfaced: This new breed of a CSO is going to be a major player in the corporate world. In many cases it already is. But it’s just beginning. CSR is just beginning and, let’s face it, in the US we’ve been saying CSR maybe for seven or eight years. Now, some companies have been practicing that before, but that’s really all it has been. So this new position will report directly to the CEO and will be the person that will be the point person to implement CSR throughout that company on a global basis. And I think that that’s what I wanted to share with you because I’ve heard throughout the day that there will be discussion, there will be debate. We will throw out a lot of good ideas, we will share the best practices. But what happens on Wednesday when we go back to our jobs. Well, I’m suggesting to you that you can go back to your jobs knowing that there is a white knight on the way. In terms of the business world we will have a white knight. It will be the CSO and it will be that individual that will carry forth a lot of the things that we are talking about here today. Thank you very much.

Mats Karlsson
Thank you very much for speaking directly. We now turn to Frank Lampl who is also from the corporate world.

Sir Frank Lampl
Ladies and gentlemen, we are living at the time when scepticism and disbelief is common amongst the population. You will find very few people in the streets of Prague or London or New York who still believe and trust their government. You will find very few people who believe their church and you will even find a few people who believe in their professions because people believe that their lawyers are in it only to make money and even the doctors are in the business only to make money.

This is actually a serious deterioration of the spiritual and moral level of the population compared to what we had maybe some fifty years ago. There was a debate in The Economist about a year ago about social responsibility, and the writer summed it up by saying that he thinks that performing social responsibility is a kiss of death for the CEO. The CEO—what he should do? His task is to increase shareholders’ value. Now let me describe how I see a company. To start with, there is no company unless there is a consumer, unless there is a client, unless there is somebody who buys the product. The owner is irrelevant. There would be no owner if there was nobody who buys the product. So the consumer is actually the one who is in command. The owner only tries, or the management only tries to assist the consumer, to please the consumer.

The second stake-holder is the staff itself. And more and more in the developing world the quality of staff is important. The companies which have the best executives are the companies which will win. In the future it won’t be the countries which have oil, it will be the countries which will have the highest educated employees. They will be the ones who will win. Now you can’t satisfy your own working population or your own employees unless they can be proud that they work for your company. And they won’t be proud unless you are seen to have done something for their families and done things for their society and for the environment. The global companies have a very special function in this way. We move into foreign countries—I myself moved our company into forty countries including the Czech and Slovak Republics—with a motto that we are a global company, but we want to become a local company, and we would like to contribute to the local country with education, with technology, with safety concern, with sustainability concern. I want to bring something to the country so that we are recognized. And coming back to the question of trust between the consumer, the population and government, religion, politicians or individuals. I think that there are companies that we trust. We trust that a Toyota is a good car, we trust that Marks & Spencer will sell us goods for good value and this shows that companies which retain their standards with responsibility for them and look after their environment and look after their society around them are the ones which are more successful and, therefore, they are the ones that the CEO contributes more to their shareholders’ value.

Mats Karlsson
Let’s turn now to Ján Kubiš, who also needs no introduction in this audience, Slovak Minister of Foreign Affairs with a long and distinguished career in multilateral and European corporations.

Ján Kubiš
Thank you very much. First of all, this area is not necessarily my cup of tea, and I was just wondering why the organizers decided to include me in this panel, but on the other hand why not. Perhaps there is some good logic in that, and when I was listening to the discussions this morning and this afternoon, including in this panel, I believe I see certain logic. First of all there is definitely a dilemma—Freedom and Responsibility in Business. Do we have a response? One part of the response, indeed, is a responsibility to make a profit, but the second part of the response is also what is already included not only in common practice of more and more companies but also in certain regulatory frameworks, be it voluntary or established by the European Union, for example. The Corporate Social Responsibility concept instead of just certain behaviour patterns. Voluntarily taken obligations that have social elements, environmental elements that are addressing the needs of population, the needs of the world. So we have already the second part of the response. Instruments, and here I believe diplomacy is one of the actors, instruments they are there as well, be it different institutions, global initiatives but also specific organizations, WTO, and negotiations that are being undertaken under them. With what kind of success we don’t know yet now but nevertheless the instruments are there. Do we have good examples to confirm this? I believe yes, for example certain standards and approaches that are being promoted by EBRD—this is a financial institution, but nevertheless—are telling me that business can act in a politically responsible way. But there are other initiatives that are worth considering and supporting like the global effort to implement the Millennium goals, or the whole discussion about climate change and what is the way forward. I am very glad as a Member of European Union to state that the European Union is also becoming a key player, and in certain respects perhaps, the key player from a number of perspectives. First, it’s the fact that it promotes social market economy. That means that social responsibility is an inherent part of the approach. Second, it’s through developing and promoting certain standards that are becoming more and more global standards. And I am again very glad that this is the reality and also I am very glad to see that the EU shows certain global leadership. I would like to refer to the recent March EU council that discussed the issues of energy and environment and established certain standards of behaviour but more importantly objectives and benchmarks and obligations. We have now to discuss how to translate them into a concrete action plan, but that’s another story.

One thing that is being mentioned but not as frequently as it deserves to be, is the role of civil society. Civil society is very often behind all sorts of initiatives that we are referring to. And then you see the results. Some of them are of different quality and impact but nevertheless they are signaling certain changes. “Fair price” coffee. Yes, someone is ridiculing this but nevertheless it is an attempt. Or the discussion on generics and the dispute with pharmaceutical companies. What is the legitimate profit when the situation is as it is in combating AIDS and some other diseases? And how to find the way from it?

There is a newly emerging discussion, indeed dispute—on one side the need to get biofuels and on the other side the need to combat hunger and poverty in a good number of countries. And we see a response, sometimes even a backlash, when promoting biofuels. So, all this is, in my opinion, quite an important set of developments not least when there is a discussion about how to work and cooperate with emerging giants like China and making them act appropriately and in a responsible way not only internally but also in the international arena. One element that was also mentioned here—and I would also like to highlight its importance —is the interrelationship between business behaviour and general development of different countries. It was mentioned here how important is the concept of good governance and the rule of law. How important is transparency or predictability or a predictable environment?

All that is not possible without political freedom. Without political freedom you cannot have real economic freedom, you cannot have really good governance or rule of law. So simply what we are doing in our areas of responsibility: be it diplomats or institutions, is also a very important contribution to the responsible behaviour of business. Here freedom and responsibility are interlinked. There is often the question: Can we do business with dictatorships? It’s the reality. On the other hand, can we do it in a responsible way? Perhaps yes. I mentioned EBRD as one example of how you can or cannot do business with certain types of countries and leadership of different countries. So, to conclude, yes indeed, it is possible to have a good balance between freedom and responsibility in business. The starting point is to work for political and economically free societies. Then of course you have to establish good institutions that would be able to ensure rule of law and good governance and then establish the right priorities, which, as a global environment, means environmentally and socially acceptable business strategies. And I see also from the experiences and presentations of those who took the floor before me that it is very well possible. Thank you very much.

Mats Karlsson
Last on the list of panelists is Mr. Vartan Gregorian, who has a distinguished career in higher learning and humanities and is currently the president of the Carnegie Corporation in New York.

Vartan Gregorian
I will forgot my prepared remarks in order to be brief because professors usually speak for forty-five minutes on any subject, so I’ll try not to do that. I think I’m the oddball here anyway, because I don’t belong to this category of distinguished business leaders and practitioners. I guess that makes me the olive in the martini in many ways. Hence, speaking from my “outsider” status, let me say that I believe markets have no conscience, no values, and that they are ruthless. Many leaders, however, do have a conscience and deeply held values, as do consumers, shareholders and wonderful CEOs. But not all CEOs are wonderful. We see one example here and another example there, but there are also many CEOs who spend millions of dollars on weddings and parties and other extravagances at the expense of shareholders. We also see companies that do business by distributing bribes—particularly in countries where the rulers are not adverse to taking bribes—while at the same time bemoaning how under-developed countries are corrupt. And yet, they are participating in the corruption of the corrupt, which is very disturbing.

My beliefs about these issues have been influenced by two Scotsmen: Andrew Carnegie, the great industrialist and philanthropist, and Adam Smith, author of The Wealth of Nations, who is considered the father of modern capitalism. Many people forget Smith was not simply an economist, but that he was also a moral philosopher. He believed not only in the private good but also in the social good. And, by the way, so did Alexis de Tocqueville, the French political thinker and historian who, after traveling in the United States, wrote Democracy in America in 1835, in which he coined the term “individualism” to describe the American character. Unlike their European counterparts, Tocqueville believed that the self-reliant nature of Americans stemmed from their conviction that the public good and private good could be reconciled in the long run, and striving to do so would be beneficial both to citizens and to the nation as a whole. To be frank, Andrew Carnegie, whose three-billion-dollar foundation I now head, similarly believed that capitalists are trustees of wealth: that private fortunes don’t belong to individuals or families alone, but should be held in trust for the public good. Wealth is entrusted to those who acquire it. Therefore, they have to reinvest in society, give back to society. How to reinvest, though: that makes all the difference. Specifically, Carnegie believed that investment had to be made in education because well-educated people become well-informed and educated citizens, and through them, democracy will remain strong. Carnegie also believed that children, just by the very fact that they were born into a rich family, did not earn the right to wealth. He compared the aristocracy and an inherited pedigree to potatoes, saying what a shame it was if the most fruitful part of one’s family “lies underground”. He also said that a person who dies rich dies disgraced.

Andrew Carnegie was dedicated to social philanthropy. In other words, he firmly believed that you cannot just make a profit and then complain about problems in the society you’ve benefited from while sitting back and saying, let the government or somebody else fix these problems; it’s not my obligation to do anything about them. In that connection, there are a number of other points I’d like to make. For example, Milton Friedman, a great economist and Noble Laureate, said that the business of business is business. But as has been mentioned here today, the business of business is also society, because business does not take place in a vacuum. Frankly, when you conclude a business agreement with a developing country, or even a developed country, you need your government to be involved in the negotiations around those deals. When you resort to protectionalism, you protect your business by asking government to raise barriers to foreign business. When you want to undercut your competition and embark on creating a monopoly, you rely on government to authorize that monopoly. So therefore, the welfare of society is inextricably intertwined with the progress of business.

For example, if you’re a manufacturer and have been the main employer in a small town for many years but don’t let people know that in the next few months you are going to pack up and leave, then you are betraying people who have trusted you and your company for a generation or more. You have a moral responsibility to notify your workers and their families and the community and to try to help them overcome the hardship you are causing. And what about those company leaders who raid the pension funds of the workers who have worked for forty years, fifty years, and then squander those funds on bad investments or personal enrichment and try to hide what they’ve done? In this context, Enron has been mentioned today, as has Tyco and Drexel Burnham and others who have helped to imperil the future of probably millions of people. That’s also a necessary function of government: to help protect citizens against the abusers of business through laws and regulations. Sometimes, perhaps, there are bad regulations put in place, sometimes good ones, but they have to exist because business has a poor track record of being able to restrain itself when it comes to corruption and greedy practices, or to control its rank and file. If there was some kind of “better business bureau” focused on big businesses that could deal with the bad apples, then that would be the day that government could get out of the corporate regulation business. Of course, then we’d have to worry about what would happen to all the lawyers who make their living out of business-related litigation! It’s amazing that two-thirds of all the world’s lawyers practice in the U.S.; many of them undoubtedly hoping that they can get in on the litigation work relating to all the bad business deals we’ve heard so much about. Consumers don’t have the same kind of clout: as a group, they have no multi-million dollar budget to create advertising campaigns about their rights and their needs. Instead, they are subject to the social, political, cultural and even health conditions created in large part, by businesses and corporations.

For instance, think about the subliminal psychological effects created when both adults and children see movies where film stars are smoking or using certain products manufactured by big business—many will be persuaded to smoke or buy the products or react in some way instigated by corporate influence. Consumers themselves don’t have similar tools at their disposal so, often, they resort to guess what? To the courts, to find redress for an injustice or the solution to a problem. Much of this litigation is unnecessary, in my opinion, and could be avoided.

A related issue involves pharmaceutical companies and their advertising methods. Have you looked at how much fine print there is in pharmaceutical ads? The name is this big, then there are hundreds of words on the bottom of the ad warning of the possible side effects that this or that drug may have on you—all in such small text that you need a microscope to read it. That’s the kind of business practice that gives business a bad name. As a matter of fact, years ago I said that maybe we should publish big, full-page ads about different medicines and the companies that manufacture them, saying, “This ad is brought to you courtesy of Carnegie Corporation”, praising the company but at the same time making clear what the downside of the medications are as well as their beneficial effects in order for people to read and understand what the consequences might be of taking different drugs and medicines.

Last but not least, I’d like to mention two other points. First, in many of our societies, we are simply not literate: I don’t necessarily mean that we can’t read but that we don’t have the economic literacy, financial literacy and other skills to understand everything we need to in this increasingly complex, globalizing world. As a result it’s too easy for the purveyors of disruptive ideologies and others who may not have a diverse society’s best interests at heart to get the upper hand. We seem to think that high schools and universities will explain everything to the next generation, but that isn’t the way things work, Hence, we end up leaving it to politicians, pundits and other opinion makers to lead the discussions and create the policies that will affect all of us. Second, I believe that Adam Smith was right. He believed in social Darwinism. You rise by your own efforts and inventions, and hence, when you make profit, it belongs to you and your shareholders. But often nowadays, in business, when you fall, you ask the government to bail you out. What happened to observing Adam Smith’s principles regarding labor and profit and fair market practices? We seem to have gone beyond that. So many people are disillusioned with the corporate sector that we are now dealing with a genuine lack of trust that may lead to government interventionism. That is certainly not good for business and does not promote healthy, thriving economies, which is what every nation needs in order to have stability and offer opportunity and hope to its citizens.

Obviously, I’ve got a lot to talk about but I don’t want to go on and on. Let me conclude by saying, thank God we have individuals like those of you assembled here, but unfortunately, idealistic and pragmatic leaders like you are examples of the exceptions, not the rules and you often don’t receive the support you deserve. In my view, therefore, when things go wrong in a corporate context, instead of making the president a scapegoat, the entire board should be fired in order to regain public confidence. After all, it’s only fitting that they who live by the sword should also go down by the sword. But I’d like to be loud and clear about the fact that overall, the business sector has done immeasurable good for democracy, for free markets and for the welfare of people around the world. Yes, businesses need more self-regulation and need to be always aware that whatever they do affects more than just the bottom line—it affects the future of people everywhere—but I believe that leaders like you know this and act on that knowledge every day. Thank you very much.

Mats Karlsson
Thank you very much, Mr. Gregorian. You could hear from the applause that your challenge was much appreciated. We have developed otherwise very strong, solid positions here in this session, but of course we all know, as you put it, that Adam Smith at the core was right.