Following the North Star: navigating companies towards a good reputation
May 19, 2016
Speech given by Donny Ching, Legal Director at Shell, at the Lex Mundi Summit in Amsterdam, the Netherlands, on May 19, 2016.
A good corporate reputation is becoming harder to earn and easier to lose. In this speech, Donny Ching says that General Counsel have a special opportunity to help build and maintain their company’s public standing. As legal advisers they have the independence, insight and influence to help set the right course for their business. But to keep their place at the top table where key business decisions are made, they must always understand what their advice means for the bottom line.
Donny Ching was speaking in response to a speech delivered by Felix Ehrat, Group General Counsel for Novartis, on the “Scope and role of the General Counsel in building and protecting the enterprise’s reputation”.
Ladies and gentlemen,
Thank you. And thank you to Felix for a very thought-provoking keynote speech.
I hope my perspective can add something to the excellent points covered.
I want to tell you a story. It is a true story.
It is about a British doctor called John Walton.
As a young medic Mr Walton was moved by the mother of a patient who suffered from a muscle-wasting disease. She told him: “I watch my son die a little every day.”
Mr Walton dedicated his life to helping people like that patient. He made scientific discoveries that saved tens of thousands of lives all over the world.
Not only that, he also raised many millions of pounds to fund research and to help families cope.
In recognition of his extraordinary work he was knighted. He became Sir John.
And his local newspaper marked the honour with an article. The headline amused Sir John greatly.
It read: “Captain of the local golf club is knighted”.
As Sir John discovered: it is very difficult to control how others see us.
As I am sure you will appreciate, Shell works hard to build and maintain its reputation. As a result, the Shell Pecten is one of the world’s most recognisable brands.
But when you look at how Shell’s reputation has emerged from some of the big challenges over the years, fairly or unfairly, it hasn’t always been great. I’m thinking of Brent Spar in 1995, of 2004 when it emerged we had overstated our reserves and of Nigeria, where operating conditions can be especially difficult. I’m thinking of our efforts to explore for oil and gas in Alaska.
Shell’s high-profile brand means our reputation is always under scrutiny.
In some countries we enjoy a strong reputation. In the Philippines our logo has even appeared on banknotes.
In other countries that reputation is often under attack.
But, for Shell, the work we put in on reputation is worth the effort.
If the company does not strive for a good reputation then we lose trust. Without trust governments don’t want to do business with us, other companies don’t want to partner with us and customers walk away.
It is fair to say that, in a world of car emissions scandals, banking crises and WikiLeaks, public trust in big companies is weak and getting weaker.
Nowadays, reputation is harder to win. And much easier to lose.
In this context it is not enough to simply say: “Trust us.”
These are not simply messages to be broadcast.
They are the outcomes that result from consistently ethical behaviour. They result from strong company performance that is delivered safely and responsibly. They come from the way our operations create shared value in society – the jobs, the development, the essential energy products for progress.
Trust and reputation are what a company can hope for if it always follows good principles.
And, in my view, the unique position of today’s General Counsel means they have a special responsibility to help companies navigate towards a good reputation. That responsibility applies to ethics. And, as Felix highlighted, it applies to business outcomes.
General Counsel are empowered by their independence, their insight and the influence they enjoy. They must use that power well.
A personal perspective
I can trace my perspective back to a personal battle I had over the nature of reputation.
I joined Shell in Australia almost 28 years ago after being called to the Bar in England. I therefore had to requalify, which meant taking some classes at the renowned Melbourne University.
At that time in Australia, and it was the same all over the world, there was a huge wave of protests about apartheid in South Africa.
At a time when many other companies were leaving South Africa, Shell had decided to stay. Each time I went to the university, I had to run the gauntlet of people who were protesting about Shell.
Running that gauntlet wasn’t easy. People were emotional – they were angry at the companies they thought were contributing the problems in South Africa. I have to admit that I had some sympathy for their point of view.
But Shell believed that staying in South Africa was the right thing to do. The company felt it could have more impact, be more of a force for change, if it remained.
There was a conviction in the company that we were not just there to make money. There was a genuine belief that it was worth taking a short-term reputational hit to gain long-term influence towards the right outcome for the country.
Now, I’m not trying to claim that Shell brought down apartheid, but as I watched how things unfolded I came to see that Shell’s long-term perspective on reputation was right. It became my own.
It was one of the very first things that drew me into Shell. It is one of the things that keeps me at the company still.
I truly believe a company must hold on to the long-term view, the good principles that guide it. I think of those guiding principles as our North Star.
They may not be for General Counsel to set: as important as we are, we do not get to throw stars into the sky! But we must certainly help to make sure those principles are followed.
The role of General Counsel
Now I said that General Counsel have a unique position, which means they have a special responsibility when it comes to reputation and managing the paradoxes mentioned by Felix.
Let me explain what I mean.
Three things mark out General Counsel for this role.
The first is independence. As lawyers we are always looking at both sides, always taking into account the other person’s view. This gives us perspective.
The second is insight. Lawyers today are involved in every major business decision. This gives us knowledge.
The third is influence. Today’s General Counsel have a seat at the top table. This is a seat we must earn the right to every day by always keeping in mind business outcomes and the bottom line. This seat at the table gives us the power to use our independence and knowledge to guide the business.
I should tell you a bit about how it works at Shell.
It is a company that employs many engineers.
That makes for a very logically-minded organisation which believes a solution exists to any given problem. As a company we tend to believe we can convince people simply using facts and logic.
So Shell really needs a person who can say: “No, that won’t work this time.”
As an example, take this polar bear. [Slide of the polar bear Greenpeace put outside the Shell Centre in London]
Last year Greenpeace put this impressive beast on the road outside our UK headquarters.
The organisation was already the subject of an injunction preventing its supporters from trespassing on Shell property. The injunction dated back two years to when a court had ruled its protesters had acted dangerously. It was intended to prevent them putting themselves and others in harm’s way.
The bear itself was on a public road so was not in breach of the injunction. But some of the protesters harassed our staff as they came to work and had put some posters on our walls and windows. They had therefore deliberately violated the injunction.
You may recall that Greenpeace had been quite a thorn in our side while protesting against our activities in Alaska. There were stunts and they applied pressure on our business partners like Lego.
Some people in Shell therefore saw the polar bear as the last straw… a problem in need of a solution. Some saw the injunction as that solution.
But for me, Shell’s North Star here was not about stopping the protest. It was about safety.
Yes, they were in technical breach of the injunction, but was there a safety or security risk? No, there was not.
So was it appropriate to enforce the injunction? No, it was not.
When I looked at the potential business outcomes the choice was clearer still and, on this point, our communications experts agreed wholeheartedly.
If we took Greenpeace to court, they would generate huge publicity.
They would have won, whatever the result of the case.
Shell decided to leave the protesters alone. Eventually, they went away.
But these decisions rarely feel so clear at the time. It is all too easy for things to go wrong.
We do not have to look hard to find an example.
Take General Motors. It spent years denying there was a problem with the ignition switch on some of its vehicles – a problem that, it was alleged, could cause road accidents.
The claims turned out to be true. The switches were faulty.
GM eventually recalled nearly 30 million cars and paid $900 million to settle criminal charges.
And last year the company admitted some of its employees had known about the issue.
The fault has been linked to numerous deaths.
The coverage of the story in the media has been… unforgiving.
To take a very different example from my experience in Shell.
20 years ago we were faced with a recall decision. There was a fire in Hong Kong involving an LPG cylinder sold by Shell and a woman had been injured. We investigated but could not establish whether the cause was user-error or a fault with the equipment.
We had to decide. Do we immediately recall because of the possibility of a fault with the attendant costs, business disruption, impact on reputation and potentially create panic in the community? Or do we first gather evidence?
I was guided by our North Star: that we do not put people in harm’s way. I advised that we should recall and we recalled.
We faced a reputational challenge and we acted in the right way, in a way that protected, and possibly enhanced, our reputation.
Without that North Star, our guiding principles, we could easily have made another decision. A wrong decision.
The say-do gap
That broader perspective is, I believe, becoming even more important in the face of an emerging trend I have noticed.
In order to actively manage their reputation, some companies are making bold statements about what they are doing.
Maybe it is about their great compliance programme, their focus on human rights, their position on the environment or climate change.
This reputational rhetoric must, however, be backed by actions. Otherwise, you are creating what I term a “say-do” gap.
You fall into that gap when your investors or customers realise that you did not live up to what you promised or, worse still, that you never intended to. You can imagine the myriad of claims that could be made in these scenarios.
As General Counsel, you have to challenge and probe this growing desire to make a bold statement externally.
Is your company matching its claim now? How is the company going to follow through on these commitments? Is senior management aware of the potential limitations that making promises will impose on your business?
You may still end up making the bold statement but you will at least be aware of what it takes to live up to it.
You won’t fall into a “say-do” gap.
Going back to the Socrates quote used by Felix: “The way to gain a good reputation is to endeavour to be what you desire to appear”.
I think Socrates got it absolutely right, especially on the sequence: it is better to first do what you want to be, than to say what you want to be and hope that you can live up to it.
I will say just a few more words.
As General Counsel you have insight and you have independence. And these have to be applied both to ethics and to business outcomes to help foster good company performance.
When leaders come up with proposals they have, by definition, a vested interest.
Human nature is human nature. It is very difficult to be committed to something and also to be truly objective.
My role – our role – is to be the voice that challenges. We can challenge vested interest, we can challenge entrenched ways of thinking.
But insight and independence are nothing without influence and General Counsel should never take that seat at the top table for granted. We continually need to prove that we deserve our place.
For we influence not just legal outcomes, but the future of the business as a whole.
This is reputation
Now, I started this speech by telling you about John Walton.
And I’d like to end by returning to him.
It was 1979 when Mr Walton became Sir John, apparently for his services to putting greens rather than for his medical brilliance.
Ten years after being knighted he was made a Lord.
He died a few weeks ago and he was rightly mourned as a giant of medical science and a wonderful example of human kindness.
This time his local paper's headline read: “Tributes paid… to pioneering neurology expert… Lord Walton.”
Now there was a man who followed his North Star.
That… is what I call… … … a reputation.
That is what I aim for at Shell.
It is what I believe all General Counsel should aim for at their companies.