Presented by Dr. Leslie Gaines-Ross Chief Knowledge & Research Officer Burson-Marsteller Building CEO Capital Through Stakeholder Engagement September.

Presented byDr. Leslie Gaines-Ross

Chief Knowledge & Research OfficerBurson-Marsteller

Building CEO Capital Through Stakeholder Engagement

September 30, 2004Santiago, Chile

Defining CEO Capital

The New Corporate Valuation

Tangible Assets

Real Estate Equipment Inventories Manufacturing

Intangible Assets

Human Capital•Skills•Training•Knowledge

Information Capital•Systems•Databases•Networks

Organizational Capital•Culture•Leadership•Teamwork

Count Your Intangibles

– Fifty years ago, tangible assets = 78% of assets of U.S. corporations. Today = 53%.

– Business invested approximately $1 trillion per year in intangibles (Baruch Lev, New York University)

– 35% of the buy-side analysts’ investment decision is based on non-financial data (Ernst & Young Center for Business Innovation)

“In today’s world, where ideas are increasingly displacing the physical in the production of economic value, competition for reputation becomes a significant driving force, propelling our economy forward. Manufactured goods often can be evaluated before the completion of a transaction. Service providers, on the other hand, usually can offer only their reputations.”

Alan GreenspanFederal Reserve Chairman

CEO Capital Defined

– Main Entry: CEO capitalFunction: nounEtymology: French or Italian; French, from Italian capitale, from capitale, adjective, chief, principal, from Latin capitalis1 a (1) : refers to the wealth or equity created by a CEO’s reputation that, if harnessed properly, can benefit a company’s overall reputation and bottom line (2) : accumulated goods devoted to the production of other goods (3) : accumulated possessions calculated to bring in income

CEO Capital Matters

The CEO’s reputation accounts

for

50%of a

company’s reputation

Financial Capital

93% Buy stock in a company

Relationship Capital

89 Recommend company stock

90 Maintain confidence if share price lags

61 Prefer products/services over others

Attention Capital

Human Capital

91 Recommend as good merger partner

93% Believe if under media pressure

88% Recommend as good place to work

75% Pay attention to company in media

33 Visit company Web site

– Leveraging a CEO’s reputation is a powerful tool with clear payoffs.

Demand high ethical conduct

Being credible

Communicate a clear vision INSIDE company

Attract & keep quality management team

Motivate & inspire employees

Care about customers

Manage crises & downturns effectively

Fosters corporate governance

Communicate a clear vision OUTSIDE company

Executes well on strategic vision...Increases shareholder wealthHas a proven record of delivering results

CEO “Soft” Measures Matter Most

Engaging Your Stakeholders

“What we have found is that there is a different group of stakeholders today that are important...”

H. Lee Scott Jr.

CEO, Wal-Mart

NGOs/Special Interest Groups

FinancialCommunity

Suppliers/Partners

Customers Society

Communities

MediaBoard

Senior Team

Government/ Regulators

Prospective Employees

Associations

e-fluentials

Business Influencers

Industry Analysts

Reputation

Employees (the

enterprise)

Academics/Gurus

Retirees

Know Thy Stakeholders

Peers

Balancing Your Stakeholders

– Determine precisely who your stakeholders are

– Note that stakeholders may have different, even diametrically opposed interests

– Recognize that companies can’t please everyone all of the time

– Beware of sending competing signals Engage with external stakeholders

– Know that positive stakeholder relationships can protect reputation during turbulent times

– Communicate!

51%

Source: Burson-Marsteller Executive Survey, 2001

CEO Time Spent Communicating

53% Internal

47% External

Importance of CEO Communications

Touch Base With Your Internal Stakeholders

More than 7,000 issues of Mi Papel are distributed quarterly to all the company's employees throughout Chile, Argentina, Peru and Uruguay.

Employees

Software AG’s Karl-Heinz Streibich explained how he has been spending his time as the company’s new CEO, “I’ve been spending my time talking to people, consulting with the board, managers and staff about the future direction of the company. My top priority will be maintaining a strong customer focus.”

New CEO E. Neville Isdell said that he would devote the first 120 days visiting and speaking with Coca-Cola employees and managers “finding out what the state of the business really is.”

Touch Base With Your Internal Stakeholders Board / Senior Team

Thirty days into his job as new CEO of KPMG L.L.P. (US) in May 2002, Eugene D. O’Kelly met with lawmakers, including Senator Paul S. Sarbanes, to discuss legislation, which ultimately became Sarbanes-Oxley. Sarbanes-Oxley changed corporate governance in the US as well as oversight of the accounting profession.

Touch Base with Your External Stakeholders Wall Street /

Lawmakers / Regulators

Touch Base with Your External Stakeholders

At a recent conference, CEO H. Lee Scott Jr. acknowledged the importance of paying attention to different stakeholders and not just Wal-Mart customers.

“What we have found is that there is a different group of stakeholders today that are important, and that is a person who’s not familiar with what we stand for. So their view of Wal-Mart stores is what they read in the newspaper and what they see on TV. We have decided it is important for us to reach out to that group.”

A company spokesperson added:

“For too long, we thought that if we just focused on our customers then everything else would follow… We probably did not realize soon enough how important it was to work with the media… It is an acknowledgement that the media and others offer important venues for telling our story, and we need to continue doing a better job at that.”

Source: The New York Times, 09/09/04.

Media

Touch Base with Your External Stakeholders

Codelco Good Neighbor defines interaction with communities. The goal is to strengthen relationships with the communities located near its operations through social responsibility and sustainable development.

Some Actions:

Voluntary environmental agreement

- Goal: Remediation of historical environmental problems derived from mining activity

Agricultural program

- Goal: To develop projects that enhance the capacities and sustainability of agricultural communities

Green areas in the desert

- Goal: To forest arid areas at high altitudes

Ecological Hacienda Los Cobres de Loncha

- Goal: To establish a protected area

Communities

As new CEO of Miller Brewing Company in North America, Norman Adami improved relations with distributors, an important priority for him. A Miller wholesaler explained that since his tenure, Adami had brought “a performance culture to Miller’s dealings with distributors.” Another stated, “It’s a whole different attitude and environment.”

In his first few months as CEO of Motorola, Ed Zander met with customers, partners and shareholders. He learned that Motorola lacks focus both in serving its customers and in determining what kind of company it is.

Zander met with Nextel Communications’ CEO Tim Donahue, an important customer, with whom relations had become strained with previous Motorola management. Donahue stated that “Our relationship had gotten very strained… He [Zander] listened and understood and went back and did it.” Donahue reports that relations with Motorola management have improved.

Touch Base with Your External Stakeholders

Suppliers / Partners /

Customers / Shareholders

Gap reports on non-compliance

“The 40-page report gives Gap an edge among those U.S. apparel retailers whose use of foreign suppliers has been a chronic source of criticism.”

Source: The Wall Street Journal, 05/12/04.

Touch Base with Your External Stakeholders NGOs

A full-page Forestry Stewardship Council (FSC) advertisement in The New York Times (2003) turned a lot of heads in Chile. It read: “Your dream house, in a small clearing in the woods” and showed a modern, suburban house set in the middle of a devastated forest. 

The ad was meant to let Chile’s timber industry know that environmental activists in the world’s most important market were willing to be tough to get them to stop destroying Chile’s native forests.

“The country’s two most important wood and paper products companies - CMPC and Arauco - took the first step to do what they can to protect Chile’s native forests. It will be a long road to go down, and they have agreed to work with us to continue in this endeavor.” (FSC Chile Project Leader)

Source: Santiago Times, 12/11/03.

Touch Base with Your External Stakeholders NGOs

“The Corporation,” a Canadian documentary, critiques big business and includes news clips of globalization protests.

Touch Base with Your External Stakeholders NGOs

For the second year in a row, BCI was among the 25 Best Companies to Work For in Chile, according to a survey conducted by the international firm, the Great Place to Work® Institute.

Touch Base with Your External Stakeholders

Prospective Employees

Touch Base with Your Stakeholders

– In 2003, Codelco conducted a perception study among internal/external stakeholders.

– Goal: To guide Codelco and improve stakeholder perceptions of the Corporation.

– A Sustainable Codelco Index was created which summarizes the data and will be used as baseline for improving the image that communities and authorities have of Codelco´s performance in environmental and socioeconomic aspects.

– Perception studies will be conducted each year.

Codelco’s Stakeholders

Source: www.Codelco.com

“Despite the size and complexity of modern corporations, the person in charge still sets the tone, defines the style, becomes the company’s public face.”

– Fortune, November 18, 2002

“If you lose dollars for the firm by bad decisions, I will be understanding. If you lose reputation for the firm, I will be ruthless.”

Warren Buffett

Thank You!