foreword

“No man is an island” wrote John Donne, the English poet and preacher, nearly 400
years ago. Our experience today as individuals, as business leaders, and as citizens of many nations bears out the truth of his words. In conjunction with the World Economic Forum, PricewaterhouseCoopers began research toward this survey report in the weeks following the September 11th attacks on the United States. We concluded our research as a new government took office in Afghanistan and as a new year, 2002, arrived. In that interval, the 1,161 CEOs from 33 countries who participated in the survey have confronted circumstances in the world, and often within their own companies, for which there is no familiar response, no evident finish line beyond which all returns to normal. We are grateful that so many CEOs stepped away from their immediate concerns to share with us their experiences and outlook. We want and need to know many things from them. The most urgent issues relate to leadership in a time of menace and outright war. What are their concerns, their expectations, their strategies and tactics? However, that is not all. We knew that it would be important to weave together in this survey both the longer-term concerns of CEOs and their response to crisis. Other issues of real weight include their views on economic conditions, their approach to corporate social responsibility, the question of information transparency, and the future of the Internet as a business channel — all matters that have been on the minds of CEOs for some time. At the end of our examination, what we found is that, even in these uncertain times, CEOs and their companies have gone about the business of business. And within that context they have discovered abundant opportunities — to improve their organisations, their communities, and our world. We trust that this survey report provides fresh and useful insight. At this moment in time, this is how we, as business leaders, are thinking, what we are doing. Samuel A. DiPiazza, Jr. Chief Executive Officer PricewaterhouseCoopers

" CEOs worldwide responded to September 11th with action. In the short
term, nearly half created or revised corporate disaster recovery plans or imposed travel restrictions, and 43 percent revised downward their financial forecasts. Looking ahead, nearly 60 percent focus on two probabilities: continuing stagnation in the global economy and the vulnerability of global supply chains. PAG E 7

" More than a third of the CEOs foresee a stronger anti-globalisation movement resulting from the terrorist attacks and their aftermath. PAG E 8

highlights

"The global economic downturn has precipitated strong action from CEOs,
including workforce reductions and the outsourcing of non-core business functions — both considered long-term solutions. On the other hand, 74 percent regard cutbacks in research and development as temporary. PAG E 1 1

" CEOs express deep concerns about the growing gap between rich and poor
countries, the digital divide, the environmental responsibilities of industry, the social impact of corporate strategies and investments, and the crafting of a more stable global economic system. PAG E 1 5

" Corporate social responsibility (“social reputation”) is an important agenda item
for today’s CEOs worldwide. North American CEOs are most confident of their companies’ social reputations and Asia-Pacific CEOs least confident. PAG E 1 6

" Nearly 70 percent of CEOs say that corporate social responsibility is “vital”
to profitability. Even in the current economic climate, it will remain a high priority for 60 percent of CEOs globally. PAG E 1 9
2 • PricewaterhouseCoopers

" One-third of CEOs now say the anti-globalisation movement poses a
genuine threat to doing business in years to come. Still, an overwhelming number of CEOs view globalisation as a positive force for economic (87 percent) and social (79 percent) change. PAG E 2 0
4 6 10 14 22 26

What’s Inside
Survey Participation and Methods G-Impact: The Global Impact of September 11th G-Economy: The Global Economy CSR: Corporate Social Responsibility Value: The Value of the Enterprise I-Promise: Is the Internet Fulfilling Its Commercial Promise? The CEO: The CEO in an Integrating World Featured Interview: Nitin Desai Under-Secretary-General United Nations Featured Interview: Wilfred Kiboro Group CEO The Nation Media Group and Ayo Ajayi Managing Director and CEO UAC of Nigeria PLC

"A significant “value gap” exists between what CEOs and investors say is
important in assessing company value. For example, 83 percent of CEOs focus on workforce quality and retention, but only 51 percent of investors emphasize this measure. PAG E 2 3

" More transparency is coming, but the results are hardly universal. Whereas
roughly 80 percent of Asia-Pacific CEOs expect to provide additional financial and non-financial information, only about one-third of Central and South American CEOs envision increased transparency. PAG E 2 5

30 33

" CEOs continue to have high expectations of the Internet, with nearly half
seeing it as a part of doing business. But reviews are mixed on the impact of Internet-based sales: 54 percent of CEOs cite in-line or above-expectation sales but 46 percent cite below-expectation sales. Among the reasons, say nearly 70 percent of CEOs: continued concerns about Internet security and privacy. PAG E 2 8

38

"The dot.coms may have opened the business world to new technologies and
new thinking before their spectacular demise, but big, established companies are aggressively filling the void, say more than 70 percent of CEOs. PAG E 2 9

PwC CEO Survey • 3

introduction
SURVEY PARTICIPATION AND METHODS
The search for knowledge continues. Confronted with unprecedented challenges, leaders asked questions. They shared perspectives. They analysed and questioned all the data before them. This report is their important contribution to our understanding of these unique times.
4 • PricewaterhouseCoopers

IN THE WORDS OF CEOS …

“WE MUST CREATE CERTAINTY OUT OF UNCERTAINTY. ” Australia

By a wide measure, this has been the most ambitious of five CEO surveys conducted in recent years by PricewaterhouseCoopers in conjunction with the World Economic Forum. The total number of participating CEOs was 1,161: 316 from Europe , 220 from North
1

“THERE IS A CHINESE SAYING, ‘BAD TIMES CAN ALSO BE OPPORTUNITIES IF WE CAN MAKE THE BEST OF THEM.’” Hong Kong

America 2, 269 from Central and South America 3, and 356 from Asia-Pacific, including 173 from Japan 4. Thirty-seven percent of the CEOs lead companies with more than 5,000 employees, and 28 percent are responsible for companies with 1,000 to 5,000 employees. The survey was generally conducted by telephone, with the exceptions of Japan (postal survey) and China (in-person interviews), beginning on October 1, 2001 and concluding in early January 2002. The bulk of the U.S. interviewing took place in December and January, several months after the events of September 11th. The overall effort was co-ordinated by the PricewaterhouseCoopers International Survey Unit, based in Belfast, Northern Ireland, with the assistance of other agencies in several countries.

“DO NOT PANIC. DO NOTHING TO ENCOURAGE EXASPERATION. HAVE A LARGER VISION.” France

“KEEP THE DIRECTION IN THE STORM.” Chile
1 Czech Republic, France, Germany, Italy, Netherlands, Norway, Poland, Sweden, Switzerland, Turkey, U.K. 2 Canada, Mexico, U.S. 3 Argentina, Brazil, Chile, Colombia, El Salvador, Peru, Uruguay, Venezuela 4 Australia, China, Hong Kong, India, Indonesia, Japan, Malaysia, Singapore, South Korea, Taiwan, Thailand

PwC CEO Survey • 5

g-impact
THE GLOBAL IMPACT OF SEPTEMBER 11TH
It is safe to say that no CEO stood by, inactive, after the terror attacks of September 11th and the waves of fearful realisations that followed soon after. The attacks were on the United States, but much of the world felt vulnerable. Leaders and whole peoples responded. Business responded.
6 • PricewaterhouseCoopers

For all of the findings in this report, the survey data can be viewed from three perspectives: the global data as a whole, by region, and by broad industry grouping (financial services; technology, information, communications, and entertainment; and consumer and industrial products and services). Exhibit 1 shows how the world’s CEOs responded to a question about actions they have taken since the terrorist attacks on the United States. [EXHIBIT 1] The distribution is striking: nearly half either created or revised corporate disaster recovery plans, nearly half imposed travel restrictions, and again nearly half revised downward their financial forecasts. In the global data, staff reductions appear to have been considerably less important as a tactic, but the regional data show that 33 percent of North American CEOs laid off workers and 56 percent cut spending. In most of the other categories, the North American response was more acute. In Asia-Pacific, for example, only 12 percent of the CEOs reduced staff and 39 percent cut spending. The key insight offered by the data is that no part of the world acted as if it were remote from danger. Even in Central and South America, which rarely surfaces in the news as a target for international terrorism, 35 percent of CEOs increased expenditures on company and employee security, and 48 percent either took their disaster recovery plans out of the drawer for critical review or took steps to create such a plan. In Europe, 41 percent of the CEOs’ companies revised financial forecasts downward, 32 percent cut spending, and nearly a third increased spending on security. The assertion of U.S. President Bush that the entire world is at risk finds its confirmation in these data: CEOs worldwide responded as if they know this to be so.
Increased expenditures on company and employee security Created or updated your company's disaster recovery plans Revised financial forecasts downward Cut staff

EXHIBIT 1 POST-SEPTEMBER 11TH ACTIONS What actions were taken following the terrorist attacks of September 11th?

33%

48

43

19

Cut spending

42

Imposed travel restrictions Other
0% 6 20% 40%

48

60%

80%

100%

PwC CEO Survey • 7

EXHIBIT 2 SEPTEMBER 11TH: LONG-TERM IMPACTS Which of the following long-term impacts of the events of September 11th do you anticipate?

Longer-Term Impacts
The first survey question addressed CEOs’ short-term responses to crisis. But what of the longer-term impacts? Exhibit 2 depicts CEOs’ views on the extended business consequences of the terrorist attacks. [EXHIBIT 2] Nearly 60 percent focused on two probabilities: continuing

Continuing stagnation in the global economy Reduced emphasis on e-commerce due to fears of cybercrime Reconsideration of vulnerabilities of global supply chains Weakening of American/European brands in the global marketplace Growing opposition to globalisation Reduced emphasis on overseas investment and expansion Other
0% 4 20% 40%

57%

14

stagnation in the global economy and the vulnerability of global supply chains. The issue of
59

stagnation was strongest in the minds of Asia-Pacific CEOs (78 percent), not unreasonable in light of Japan’s unresolved, long-term economic difficulties. The question of supply chain vulnerability was uppermost in the minds of Central and South American and North

17

36

American CEOs (69 percent and 64 percent, respectively), who have been the most direct
48

witnesses to the social and economic disruptions caused by what we now know to call “asymmetric acts of war.”
60% 80% 100%

The likelihood of stronger opposition to globalisation may interact with the fact that nearly half of the CEOs expect reductions in overseas investment and expansion as a result of the terror attacks and in light of the implications for the peaceful conduct of global business. More than a third of the CEOs, equally across regions and industries, take the view that the anti-globalisation movement will gain influence in the aftermath of September 11th. But how do these two findings relate to each other? CEOs will be understandably more cautious about overseas activities in a time of war and high uncertainty. However, they must be anticipating, to some degree, that the anti-globalisation movement will strengthen; there is no persuasive evidence at present that this is so. On the contrary, the conscience of the world and of many governments has awakened, and the issue of corporate social responsibility has never been more acutely drawn (see pp. 14-21 for survey data on this topic). In this new atmosphere, the anti-globalisation agenda may well move toward the centre, where it can substantively influence corporate ethics

8 • PricewaterhouseCoopers

without asserting that business must somehow undo the remarkably productive global pattern now emerging. If more than a third of the CEOs foresee a stronger anti-globalisation movement, it may mean they are anxious in this regard and perceive the need to resolve this issue soon — before further violent street protests spoil the opportunity to think together and redefine corporate social responsibility in ways that serve all stakeholders. To put it simply, for many CEOs, the end of innocence came abruptly and painfully and left them in uncharted territory. Still, in the post-September 11th world, the message from global CEOs is clear and unmistakable: stay the course. As one CEO told us, “It is important that we understand the changing environment and distinguish between what we are afraid of and what we shouldn’t be afraid of.”

“WE HAVE TO ACCEPT THE IDEA THAT NOW WE ARE OPERATING IN A MARKET WITH MORE ELEMENTS OF RISK.” Italy

“WE HAVE TO ENCOURAGE PEOPLE TO LOOK BEYOND THE SHORT TERM AND TO STRIVE TO BUILD AN ORGANISATION WHICH WILL GROW AND PROSPER FOR THE BENEFIT OF ALL OF THE RELEVANT STAKEHOLDERS OVER THE LONGER TERM.” Australia

PwC CEO Survey • 9

g-economy
THE GLOBAL ECONOMY
Before the events of September 11th, many CEOs were already cutting back in response to a weakened U.S. economy and its ripple effect around the world. Caution had become the watchword — caution and a keen eye to economic and capital markets indicators. While waiting for statisticians to formally declare a recession, most CEOs already knew it had arrived.
10 • P r i c e w a t e r h o u s e C o o p e r s

Global economic conditions are in part the sum of local conditions and in part a new phenomenon of interdependence driven by global capital markets, global brands, and global supply chains. The methods CEOs have enlisted to address the challenges of today’s economic conditions show surprising consistency across regions and industries. Workforce reductions and the outsourcing of non-core business functions, respectively at 50 percent and 46 percent of the CEOs, offered the tools of choice to respond to the global economic downturn. Among European CEOs, 53 percent referenced workforce reductions. Among Central and South American CEOs, still more relied on this approach (58 percent). [EXHIBIT 3] Cost-controlling CEOs in Asia-Pacific were more willing than others to impose pay cuts in order to see their companies through the rough patch — 23 percent did so, whereas only 15 percent in North America took this approach. Given the predominance of Japanese CEOs in the Asia-Pacific sample, this finding must reflect something of the acute Japanese sense of community and willingness to share burdens, shaken but not dissolved by more than a decade of economic distress. From an industry perspective, the technology industry cluster tended to do more of everything — more plant and office closures, more lay-offs, more caution about international expansion plans. This is not really surprising, because the technology industry had sat on top of legendary amounts of excess capacity in relation to demand. Thirty percent of CEOs in this industry have curtailed or abandoned such plans. There are important follow-up questions: are these adjustments strategic or tactical? Are they structural changes or short-term fixes? In response, the CEOs fanned out across a wide spectrum of options. For example, 73 percent regard plant and office closures as permanent, and 74 percent view cutbacks in research and development as temporary. Perhaps a warning signal: 44 percent of European CEOs — significantly more than in other
Plant/office closures Cut back in research and development Workforce reductions or lay-offs Outsourcing of noncore business functions Pay cuts Abandoned or curtailed international expansion plans Scaled back Internetrelated expenditure Sought additional capital through stock offering or borrowing Others Plant/office closures Cut back in research and development Workforce reductions or lay-offs Outsourcing of noncore business functions Pay cuts Abandoned or curtailed international expansion plans Scaled back Internetrelated expenditure Sought additional capital through stock offering or borrowing Others

EXHIBIT 3 GLOBAL ECONOMY Which methods have been used to address the challenges of current global economic conditions?

24% 18 50 46 17 24 16 16 16 0% 20% 40% 60% 80% 100%

TEMPORARY FIX OR LONG-TERM RESPONSE?
27% 73 74 26 41 59 19 81 80 20 73 27 68 32 39 61 37 63 0% 20% Temporary fix 40% 60% 80% 100%

Long-term adjustment

P w C C E O S u r v e y • 11

regions — view cutbacks in R&D as permanent. Among North American CEOs, only 22 percent see those cutbacks as permanent. If proprietary R&D is the seedbed of a company’s future, then the European attitude bears another look and perhaps reconsideration by corporate leadership. Another significant trend: more than ever, CEOs are adopting outsourcing as a key

“I WOULD ADVISE COMPANIES TO CONSOLIDATE — SPEND LESS, REDUCE HEADCOUNT. AS THINGS IMPROVE, YOU CAN REINSTATE THINGS THAT HAVE BEEN ELIMINATED.” United States

corporate strategy. Seventy-six percent of North American CEOs regard their recent outsourcing decisions as permanent, as do 82 percent of Europeans, 92 percent of AsiaPacific CEOs, and 74 percent of Central and South American CEOs. It is not only the economic downturn that propels this strategic change. A trend for some years now, the rise of outsourcing reflects a new view of the core company as a branded marketing and R&D organisation, relying on external alliance partners for manufacture and services. A footnote to all of this strategic and tactical manoeuvring: whereas Asia-Pacific CEOs were more willing than any to impose pay cuts, fully 87 percent regard that sacrifice as a short-term measure that will be reversed once conditions improve. In some ways, recent events have made the world feel, alternately, like both a bigger and

“MAKE SURE YOUR ORGANISATION HAS CONFIDENCE, REASSESSING AND MOVING WITH THE TIMES.” United Kingdom

a smaller place than before. CEOs found themselves connected — perhaps emotionally — as never before, yet less willing to undertake global ventures. Some turned inward: nearly one-quarter abandoned or curtailed international expansion plans. The good news is, only 27 percent regard this as a permanent decision. When times get better, the great majority expect to resume international projects. What factors influence CEO decisions to invest in one country rather than another? PricewaterhouseCoopers holds that five variables are among the most important in this regard: the relative level of corruption in a country, the robustness of its legal system, the prudence of economic policy at the government level, the clarity and enforcement of

12 • P r i c e w a t e r h o u s e C o o p e r s

accounting and reporting rules, and the nature of the regulatory regimen. Greater opacity in any of these respects is likely to deter foreign investment and create hidden costs of doing business, while greater transparency invites investment. Questioned about the relative importance of these variables, the CEOs make clear distinctions: the existence of corruption, the quality of the judicial and legal system, and the stability of economic policies all matter to more than half of the CEOs. [EXHIBIT 4] They are considerably less concerned with accounting standards and regulatory matters, although one-quarter to one-third of the participating CEOs also look carefully at these factors. The findings by region and industry are consistent with the global results reflected in Exhibit 4. How best to summarise the CEOs’ approach to the current global economy, which was already troubled before the stresses and uncertainties imposed by terrorism? In the short term, CEOs are working every lever available to them to steady their companies and stay on course. In the longer term, they expect to retain some of the short-term adjustments they have made but to resume — no doubt, more cautiously — the expansive, global initiatives that have become the hallmark of business life in our time.
Lack of strong regulatory frameworks
-20 32 34 12 -30% -20% -10% 0% 10% 20% 30% 40% 50% 60%

EXHIBIT 4 INTERNATIONAL INVESTMENTS Which issues affect the decision to invest in other countries?
NOT UNSURE RELEVANT

The existence of corrupt business practices Lack of an effective legal and judicial system Unstable economic policies Lack of effective accounting standards

-20%

51

14

12

-15

54

18

10

-9

53

26

10

-27

26

31

14

Little or no impact

Considerable impact

P w C C E O S u r v e y • 13

csr
CORPORATE SOCIAL RESPONSIBILITY
The events of September 11th cast a long shadow. Every CEO and every company were affected in ways — large and small — heretofore experienced in some regions but never on a global scale. Every CEO and every company were now clearly citizens of the world. But how do CEOs understand that role?
14 • P r i c e w a t e r h o u s e C o o p e r s

When it comes to corporate social responsibility, one size definitely does not fit all. While corporate social responsibility has become a near universal value, it manifests itself quite differently from region to region, country to country. In Africa (see the interviews with Wilfred Kiboro and Ayo Ajayi on p. 38), for example, corporate social responsibility is perceived as a strong connection between corporate profitability and societal improvements, including infrastructure, education, and addressing the ravages of AIDS. Elsewhere, corporate social responsibility may be shorthand for, say, environmental responsibility, ethical economics, or charitable giving. Few would deny that corporate social responsibility is about “doing the right thing.” But who defines and determines what is right and what is not? The worldwide debate about corporate social responsibility has acquired urgency in recent years within the business community — in international financial institutions (IFIs) such as the International Monetary Fund and the World Bank and in non-governmental organisations (NGOs) such as the World Economic Forum. The growing gap between rich and poor countries, the digital divide, the environmental responsibilities of industry, the social impact of corporate strategies and investments, and the crafting of a more stable global economic system are all matters of urgent concern for leaders of business and major multilateral organisations. CEOs must dictate and proactively manage the corporate social responsibility agenda in a world that increasingly asks this of them. The question of corporate social responsibility has also moved toward the top of the agenda for an informal confederation of NGOs, which marshal both alternative policy proposals and a capacity to field street demonstrations and protests. In several instances, demonstrations timed to coincide with high-level meetings have resulted in civic disorder, extensive property damage, injury, and death. The intellectual agenda of the so-called anti-globalisation movement (some within the movement now prefer the term “alternative globalisation”) is not focused entirely on the conduct of corporations. There is intense
P w C C E O S u r v e y • 15

“DEFEND GLOBALISATION AS A SOURCE OF GROWTH IN THE WORLD.” Chile

“THE PROBLEM WITH GLOBALISATION IS THAT THE POOR PEOPLE GET POORER. WE NEED TO THINK ABOUT THAT AND DO SOMETHING.” Germany

EXHIBIT 5 CORPORATE SOCIAL RESPONSIBILITY To what extent is your company perceived as having a positive social reputation?

concern, for example, with the nature and impact of IFI lending policies and with the regulation of global financial markets. But the issue of corporate social responsibility is nonetheless a key concern. NGO demands that companies and their leadership do the right

To a great extent

47%

thing will certainly increase in volume in the near term. CEOs bear a responsibility to their organisations — and all the varied stakeholders — to carefully audit their practices and proactively address and resolve potentially troublesome issues.

To some extent

41

Not really

4

On the global basis visible in Exhibit 5, many CEOs seem to view their companies’ social reputations as a work in progress. [EXHIBIT 5] While 47 percent are resolutely proud of their companies in this regard, another 41 percent offer a qualified view —“to some extent.”

Not at all

1

Unsure
0%

7 20% 40% 60% 80% 100%

By region, North American CEOs are more confident of their companies’ reputations (64 percent “to a great extent,” 30 percent “to some extent”), while Asia-Pacific CEOs are least confident (28 percent “to a great extent,” 54 percent “to some extent”). By industry,

EXHIBIT 6 DEFINING SOCIAL REPUTATION What factors influence your company’s social reputation?

the split is consistently equal — in financial services, for example, 46 percent of CEOs are satisfied, while 43 percent claim only “to some extent.” But what do the CEOs really mean by corporate social responsibility/social reputation? What are its actual components? Exhibit 6 reflects and weights what must be the main

Good environmental performance

71%

Charitable contributions

54

components, amongst which an internal concern (a healthy and safe working environment)
71

Support for community projects Creating value for the company's shareholders Provision of a healthy and safe working environment Acting responsibly towards all company stakeholders, regardless of whether this is legally required External endorsement/ stamp of approval
0% 20% 40% 51 60%

and a broad external concern (acting responsibly toward all stakeholders) are clearly the most important. [EXHIBIT 6] The second tier of concerns includes shareholder value, environmental performance, and support for community projects, while the last tier includes
86

74

charitable contributions and external endorsements or stamps of approval.
84

The regional and industry views of the same data are revealing. North American CEOs are at the high end of the scale in every category — for example, 93 percent regard responsible

80%

100%

actions toward all stakeholders as a key influence on their companies’ social reputation, and 91 percent cite the importance of supporting community projects. External endorsements

16 • P r i c e w a t e r h o u s e C o o p e r s

matter to 61 percent of North American CEOs — unsurprising in an environment where public opinion has focused on corporate social responsibility as a fresh and urgent issue. For North America, the somewhat secondary importance attributed to creating shareholder value — at 76 percent — cannot help but call attention to itself. The CEOs recognise that corporate social reputation has less to do with earnings and more to do with reputation across a broad array of stakeholders. In Europe, the foremost issue is provision of a sound working environment (93 percent), followed at a slight distance by responsibility to all stakeholders (82 percent) and ensuring shareholder value (67 percent). By a small margin, European CEOs prove to be most sensitive to external endorsements (62 percent). For Asia-Pacific CEOs, external endorsements are relatively unimportant (35 percent), reflecting societies in which public opinion is unlikely to be as consistently focused around issues of corporate reputation as elsewhere in the world.
Employees
13 11 1 4 2 0% 20% 40% 60% 80% 100%

EXHIBIT 7 KEY STAKEHOLDERS What stakeholders influence corporate social responsibility strategy?

Board members Shareholders Customers or clients Suppliers
1

22% 20 26

Central and South American CEOs agree on first things first: a safe and healthy working environment is their dominant concern (90 percent), followed by responsibility to all stakeholders (86 percent). Central and South America is the centre of a burgeoning movement to promote corporate social responsibility. Chiquita Brands, a banana producer with extensive operations in Central and South America, issues a global corporate social responsibility report (www.chiquita.com/corpres/decide.asp) that is considered the global gold standard. The term “stakeholders” has appeared prominently in this exploration of corporate social responsibility. Who are they? Which stakeholders dominantly influence strategy in the area of corporate social responsibility? Exhibit 7, where the CEOs’ responses to this question will be found, indicates the percentage of CEOs identifying one or another stakeholder as the most influential in this regard. [EXHIBIT 7] Board members and customers, followed after a slight gap by shareholders, prove to be most influential. Where one might expect greater influence — for example, NGOs at 1 percent, fellow executives at 11 percent — there are

Management Non-Governmental Organisations (NGOs) Government Refused

P w C C E O S u r v e y • 17

relatively few CEOs who listen first to these sources. It is worth remembering that boards around the world differ considerably in their composition, a difference reflected in the regional data. In Asia-Pacific, where boards tend to be large and to have an influential core membership, 33 percent of CEOs from that region identify the board as the primary influence on corporate social responsibility. In Europe, where boards typically include varied
EXHIBIT 8 IMPORTANCE OF CORPORATE SOCIAL RESPONSIBILITY To what extent do you agree or disagree with the following statements?
UNSURE

stakeholders, 22 percent of CEOs listen first to their boards. In North America, where the character of boards varies from influential activist to inactive bystander, only 12 percent of the region’s CEOs listen first to the board. Across all regions, including Central and South America, shareholders and customers come first — a particularly significant finding in

Corporate social responsibility is largely a public relations issue

-26%

-25

20

8

21

Central and South America, incidentally, since boards in this region have traditionally been paramount, owing to the fact that many of the companies are family-owned, managed, or

-20

Corporate social responsibility is vital to the profitability of any company

-5 -9

38

30

19

dominated. Remember, too, that while boards may differ in size, composition and influence, they all have legal responsibilities to uphold. The issue of corporate social responsibility involves attitudes as much as or more than

In the current economic climate, corporate social responsibility activites will assume a lower priority

-29

-31

18

7

15

metrics. It has to do, in part, with intangibles that ultimately shape policies that influence the quality of life. A survey question explored attitudes by asking CEOs to grade their level of agreement or disagreement with fairly provocative statements. You will find the questions

-80% -60% -40% -20%

0%

20%

40%

60%

80%

Strongly disagree

Somewhat disagree

Somewhat agree

Strongly agree

and their responses in Exhibits 8 and 9. Is corporate social responsibility largely a public relations issue? [EXHIBIT 8] The subtext of this provocative question is that well-managed “spin” is all that is required, with only enough substance to justify putting a good face on matters. Fifty-one percent of the CEOs disagreed vigorously or to some degree with this position. On the other side of the issue, 28 percent found some merit in this view of things (and another 21 percent, quite unusually, simply didn’t know). By region, 24 percent of Central and South American CEOs and 35 percent of European CEOs agreed or tended to agree that public relations has a great

18 • P r i c e w a t e r h o u s e C o o p e r s

deal to do with it. In reviewing these findings, attention may be drawn to the unexpectedly large group of CEOs who could neither agree nor disagree with this proposition. Would this indicate that their view of corporate social responsibility is still taking shape? A further question sheds light on the relative importance of corporate social responsibility. Is the proper exercise of corporate social responsibility vital to the profitability of any company? In response to this question, the CEOs grouped into a large majority: 68 percent strongly or somewhat agree that it is vital to profitability. However, there is again a large contingent, 19 percent, who simply don’t know. Across regions and industries, the data show the same tendency toward a strong majority recognising the link with profitability. Perhaps it is best to read this finding against the prior one: whether corporate social responsibility is a matter of substance or more a matter of public relations positioning, the company’s reputation in this regard does affect profitability. The third and final question reflected in Exhibit 8 asks whether, in the current difficult economy, corporate social responsibility can be viewed as a lower priority. Sixty percent of CEOs reply that this isn’t so. They expect it to retain its importance. The industry view shows 30 percent of CEOs in the technology industry cluster say that it will not have the same priority. The importance given by the CEOs to the construction of the social reputation of their companies has much to do with the rising importance of their companies’ brands — today an important (and intangible) component of companies’ value. We would expect this connection between social reputation and brand to continue. Based on numerous factors, the globalising strategy of larger businesses has been stripped in the past half-decade of its political and social innocence. What once seemed to many CEOs an obvious verity — that globalisation creates opportunity in developing countries and is, on the whole, beneficial — has been subject to strident protests, reasoned critique, and waves of investigative journalism. In this new time of controversy, when ideas and

“WE BELIEVE THAT CORPORATE SOCIAL RESPONSIBILITY AFFECTS CORPORATE PROFITS. THE CORPORATION NEEDS TO BUILD A GOOD REPUTATION.” Thailand

“THE BIGGEST ISSUE TODAY IS TO ESTABLISH GROWTH — LONG-TERM GROWTH FOR INVESTORS AND SHAREHOLDERS … AND, AT THE SAME TIME, TO ACHIEVE A BALANCE FOR SOCIAL ISSUES.” Switzerland

P w C C E O S u r v e y • 19

EXHIBIT 9 THE FUTURE OF GLOBALISATION To what extent do you agree or disagree with the following statements?
In light of the violence at the recent Genoa meeting, the G8 governments should abandon their annual summit The anti-globalisation protest movement is a genuine threat to doing business in the 21st century Globalisation will be a positive force for social change

strategies are being challenged and must be effectively defended, how are CEOs seeing the situation? Exhibit 9 reflects their views on some of the most important elements of this new terrain. [EXHIBIT 9]

-55%

-20 5 5

Moving from theory to practice in the area of globalisation, CEOs were asked whether the G8 governments should abandon their annual summit so as to avoid the possibility of

-24

-20

22

11

street violence. Seventy-five percent of CEOs do not counsel this — the meetings must not retreat in the face of threats to their peaceful conduct. However, 16 percent of the European

-3 -6

36

43

CEOs agree somewhat or fully that G8 meetings should be abandoned, perhaps because the violence at Genoa occurred in their own neighbourhood and had more impact, through

Globalisation will be a positive force for economic change The globalisation trend will exclude developing countries and lead to an increased gap between “have” and “have-not” nations
-100%

-2 -2

35

52

media reports and other means, than elsewhere. Is the anti-globalisation movement a genuine threat to doing business in years to come?

-21

-26

21

12

Forty-five percent of the CEOs do not think so — but 33 percent do think so. Asia-Pacific CEOs are more edgy over this issue than others: 44 percent agree somewhat or fully that
50% 100%

-50%

0%

trouble lies ahead. Clearly, CEOs as a whole are believers in the social and economic
Strongly disagree Somewhat disagree Somewhat agree Strongly agree

benefits of globalisation, not only in their own narrow patches of the world but for all participants who contribute to globalised enterprise. Just under 80 percent agree that globalisation will be a positive force for social change, and 87 percent say that it will be a positive force for economic change. This series of questions concluded with another provocation. The survey asserted, for argument’s sake, that globalisation will exclude developing countries and increase the gap between rich and poor nations. Looking at the issue in this light, CEOs as a whole were more evenly divided: 48 percent say globalisation will have these negative effects, but 32 percent agree somewhat or fully that this will occur. North American CEOs and those in the technology industry cluster are most optimistic about the inclusiveness of globalisation and its capacity to lift countries struggling with widespread poverty. Central and South American

20 • P r i c e w a t e r h o u s e C o o p e r s

CEOs are more divided about the potential of globalisation to achieve these benefits (45 percent look to a good future, 41 percent worry that some nations will be excluded and fall still further behind). What occurs in one’s own backyard clearly matters: just as the Europeans who witnessed from nearby the violence at Genoa have more doubts about the good sense of continuing G8 summits, the Central and South Americans who are struggling with widespread urban poverty and, in some areas, the transformation of marginal agricultural economies have more doubts about wealth distribution through globalisation. Inter-regional relationships are similarly important — and they present key challenges and opportunities for CEOs. For instance, Central and South American countries are sensing a new scenario in their relationship with the United States, as America shifts its attention to the Middle East, Central Asia and elsewhere. In the short term, the implications for Central and South American companies are significant: additional trade restrictions, the disappearance of subsidies, and the emergence of a new, more globalised world environment. The three questions on the impact of globalisation seem to frame a continuum of possibilities from what could and should occur to what may, in reality, occur. Like every business strategy, globalisation creates risks as well as opportunities. And today some of those risks lie outside the realm of strictly business risks in the domain of “civil society,” in which what businesses do is measured not by financial statements but by the effects on social welfare and cultural identity. The issue of corporate social responsibility became new again, and urgent, in the late 20th century. It is certain to remain a key point of reference in business thinking and strategy in the first decades of the new century. It is up to progressive CEOs to use their influence to effect socially and fiscally responsible change.

“A BIG ISSUE TODAY IS THE REDISTRIBUTION OF INCOME/ WEALTH BETWEEN COUNTRIES. THE PROTECTIONIST POLITICS OF THE RICH COUNTRIES ARE FOSTERING A NEGATIVE OPINION OF GLOBALISATION IN THE ‘HAVE-NOT’ COUNTRIES.” Argentina

“I THINK MOST BUSINESS LEADERS SHOULD RETHINK THEIR STRATEGY AND CONCENTRATE ON THE LOCAL MARKET AT THIS MOMENT.” Indonesia

P w C C E O S u r v e y • 21

value
THE VALUE OF THE ENTERPRISE
The rise of the Internet, the sheer power of new information technologies to crunch data, the growth of global capital markets in which investors large and small are avid participants — all of those, and more, have focused attention on the value of enterprises and the types of information that companies issue to report and promote their value.
22 • P r i c e w a t e r h o u s e C o o p e r s

CEOs are the ultimate insiders where their companies are concerned: in principle, there is no number, no operating issue, no problem or opportunity hidden from them across their companies. They assess the value of their companies and chart their courses toward future value by means of vast information and key relationships. This raises a few critical quesEarnings

EXHIBIT 10 THE VALUE GAP Which of the following do you take into account/ do investors take into account when assessing company value?
CEOS
94 % 74 82 84 85 83 87 74 69 85 0% 20% 40% 60% 80% 100%

tions: Can outsiders reach a comparably well-founded valuation of a company and its prospects? Does the information disclosed by a company offer a sufficiently comprehensive and transparent view to permit knowledgeable investment decisions? These questions are hotter than they sound. The framework for corporate reporting in many countries is under pressure: regulators want more information and more types of information, and investors are doing whatever it takes to fill in information gaps. Recent and large-scale business failures, though few in number, have dramatised the need for greater transparency. Further, the market valuation of companies, in both good and bad times, is a direct determinant of their ability to access capital at reasonable cost and to “wheel and deal” freely when opportunities arise. And market valuation depends ultimately on information. In Exhibits 10 through 12, you will find the CEOs’ views on key information and valuation issues. Exhibit 10 explores the differences between CEOs’ key indicators as they assess the value of their own companies and the key indicators they say they believe investors use. [EXHIBIT 10] Clearly, everyone agrees on the importance of certain measures: earnings, cash flow. But after duly noting these points, the CEOs seem to feel that investors aren’t paying enough attention. The CEOs say they believe that nearly every measure is less used by investors. There is what we might call a “value gap.” For example, 74 percent of CEOs look at the level and quality of innovation and R&D, but only 57 percent say investors pay attention to this measure. Similarly, 85 percent of the CEOs examine client acquisition and retention, but only 66 percent say investors do the same.

Innovation and R&D Brands and reputation Customer/client base Customer/client retention & profitability Workforce quality and retention Cash flow Market conditions Sector performance Corporate strategy

INVESTORS Earnings Innovation and R&D Brands and reputation Customer/client base Customer/client retention & profitability Workforce quality and retention Cash flow Market conditions Sector performance Corporate strategy
0% 20% 40% 60% 71 69 78 80% 100% 51 81 60 66 57 73 90%

P w C C E O S u r v e y • 23

EXHIBIT 11 VALUE JUDGMENTS To what extent do each of the following understand the value of your company?
NOT UNSURE RELEVANT REFUSED

What lurks in this finding is the question, cited earlier, about the comprehensiveness and transparency of information offered to investors. Some indicators most prized by CEOs are either intangible or have an intangible component. Consider, for example, workforce quality and retention: 83 percent of CEOs consider it in their evaluation of their companies, while they say they believe only 51 percent of investors consider it. This dimension of an enter-

Institutional investors

- 4% -10

32

32

15

6

1

Retail investors

-10 -23

25

10

24

7

1

prise is in part measurable (employee retention, higher educational degrees attained, etc.)
Employees
-2 -7 44 31 15 2 0

and in part a matter of judicious opinion. Similarly, in the area of R&D and innovation, one can count patents and advanced degrees, but one can’t count in quite the same way the brilliance of a particular team that may be “onto something.” Exhibit 10 reflects CEOs’ discontent with investors’ views, but it also points up the fact that CEOs could require their companies’ reporting units to be more forthcoming with non-financial information. Exhibit 11 gives a strong CEO vote of confidence to three constituencies: institutional

Suppliers

-5 -10

37

21

20

6

1

Rating agencies

-4 -10

32

25

20

7

2

Analysts

-3 -7 -40% -20% 0%

39

30

15

5

1

20% 40% 60% 80%

Not at all

Not really

To some extent

To a great extent

investors, analysts, and the company’s own employees. [EXHIBIT 11] Sixty-four percent of CEOs say institutional investors are well-informed about their companies; 69 percent say

EXHIBIT 12 INCREASING TRANSPARENCY Do you expect your company to become more transparent in the financial and non-financial information it discloses?
TECHNOLOGY, INFORMATION, COMMUNICATIONS & ENTERTAINMENT CONSUMER & INDUSTRIAL PRODUCTS & SERVICES

that analysts’ views are fully accurate or tend to be so; and 75 percent say employees know the value of the company. From there, the vote of confidence drops off: for example, only 35 percent of CEOs are fully or reasonably confident that retail investors value the company accurately. Where rating agencies are concerned — and they are key players in the valuation process — the CEOs also have doubts. Only 25 percent are fully confident of the judgment

FINANCIAL SERVICES

Financial information

57%

51%

59%

of rating agencies; another 32 percent are somewhat confident. In the data for North America, retail investors meet with little favour: only 20 percent of CEOs in that region

Non-financial information

54

49

59

regard retail investors as making valuations that are fully or somewhat accurate.
91 91 93

CEOs that feel greater transparency will help investors understand company value
0% 50%

100%

0%

50%

100%

0%

50%

100%

24 • P r i c e w a t e r h o u s e C o o p e r s

Responding to the final question in the series on information and value, CEOs looked at whether they expect to become more transparent in the financial and non-financial information their companies disclose. Exhibit 12, conveying the findings by industry, shows that in every instance, majorities responded that they do expect to make more transparent disclosures in financial information. [EXHIBIT 12] Beyond this, more than 90 percent of CEOs across industries are convinced that this will help investors to better understand the value of their companies. The view by regions is strikingly more mixed: while 81 percent of Asia-Pacific CEOs expect to offer more transparent financial information (and 80 percent expect to offer more transparent non-financial information), the same level of enthusiasm is missing in Central and South America, where the findings are only 32 percent and 33 percent, respectively. Consistently, however, a strong majority of CEOs in all regions say that more transparency leads to better investor understanding of the company’s value: they expect their efforts in this regard to generate a handsome return. In the end, there is no substitute for information. CEOs, managers, analysts, and investors — everyone requires sophisticated financial and non-financial information to assess company value. In the case of retail investors, whom CEOs say lack sufficient information, there is a clear challenge: to provide investors with all the information they need — and in a form they can easily digest. The good news is that CEOs are increasingly taking the lead in the growing movement to provide information on intangible assets and non-financial drivers that are so critical to a deep understanding of a company’s current condition and future financial success. It is time to close the value gap.

“THE CORPORATE ENVIRONMENT IS CHANGING QUITE QUICKLY, AND GLOBAL COMPETITION WILL BE INFINITE. A COMPANY HAS TO MANAGE TO BALANCE THE DIFFERENT DEMANDS FROM INTERNAL AND EXTERNAL STAKEHOLDERS. THEREFORE, IN ORDER TO GROW CONSTANTLY, A COMPANY HAS TO CONCENTRATE ON AND SUPPORT ITS CORE BUSINESSES.” South Korea

P w C C E O S u r v e y • 25

i-promise
IS THE INTERNET FULFILLING ITS COMMERCIAL PROMISE?
Several years ago, PricewaterhouseCoopers advocated the view that “e-business is business.” In other words, the Internet would be so quickly integrated into supply chain management, internal and external communications, R&D, marketing, sales, and much else that it would no longer make sense to separate out the “e” in “e-business.” This view was nearly correct.
26 • P r i c e w a t e r h o u s e C o o p e r s

As much as we might like to fully immerse ourselves in the Internet Age, we have not. The survey findings here are unmistakable and powerful: the Internet as a business tool receives mixed reviews from the CEOs. For every CEO who thinks highly of the current contributions of the Internet to business success, another is disappointed or defines e-commerce as a work in progress, incomplete at this time. Yet the Internet is indisputably the master invention of our time, and business — like society itself — has everything to gain from it. Exhibit 13 shows that a strong contingent of CEOs views the Internet as one tool among many for doing business (47 percent) and as part of a multi-channel strategy for reaching customers (40 percent). [EXHIBIT 13] It is the primary sales channel for only 4 percent of the CEOs (however, 7 percent in the technology industry cluster), and 9 percent of the CEOs regard it as unimportant. The same data by region, in Exhibit 14, indicate that very few AsiaPacific CEOs consider the Internet unimportant for their businesses (2 percent on a base of 356 respondents), and a majority of these CEOs (58 percent) regard it as part of the tool kit. [EXHIBIT 14] Among Central and South American CEOs, although 42 percent have the Internet in their tool box, another 20 percent consider it unimportant for business — a finding due, perhaps, to the generally low levels of connectivity available in that region. It is the regional chart that sheds light. Although the level of Internet commerce is still greater in North America than elsewhere5, CEOs worldwide and across industries have just about the same views of the uses and importance of the Internet for business purposes. In some parts of the world, CEOs are out ahead of the available infrastructure and Internet user base. This suggests that CEOs and their businesses will be driving forces for the continued growth of Internet use worldwide.
Not important to business Part of a multichannel strategy for reaching customers The primary sales channel The primary sales channel

EXHIBIT 13 INTERNET USE (all CEOs) Which of the following best describes your company’s use of the Internet?

4%

Part of a multichannel strategy for reaching customers

40

Part of tool kit for doing business

47

Not important to business
0%

9

20%

40%

60%

80%

100%

EXHIBIT 14 INTERNET USE (by region) Which of the following best describes your company’s use of the Internet?
NORTH AMERICA EUROPE ASIA-PACIFIC SOUTH AMERICA

4%

6%

4%

3%

51

40

36

35

Part of tool kit for doing business

38

44

58

42

7

9

2

20

0%

30

60 0%

30

60 0%

30

60 0%

30

60

5 According to IDC’s Internet Commerce Market Model, at year-end 2001 there were nearly 500 million Internet users worldwide, with Western Europe (148 million or 29.8 percent) overtaking the U.S. (145 million or 29.2 percent). The U.S. maintains a commanding lead, though, in Internet commerce, with 43.7 percent of the $615.3 billion, compared with 25.7 percent for Western Europe, which overtakes Japan (15.8 percent) for the second position.

P w C C E O S u r v e y • 27

EXHIBIT 15 INTERNET-BASED SALES Are Internet-based sales tracking in line with, above, or below expectations?

Exhibit 15, inquiring about the robustness of Internet-based sales, is based on slightly less than half the full survey sample; the other half has no Internet-based sales at this time. [EXHIBIT 15] This limited sample reinforces the message of Exhibit 14, to the effect that CEOs

Tracking in line with expectations

40%

in their thinking tend to be out ahead of the actual user base. Exhibit 15 shows that results from Internet-based sales are, on a worldwide basis, quite mixed. Fifty-four percent of CEOs report results as expected or above expectation, but another 46 percent are disappointed.

Tracking above expectations

14

In the data by industry, the level of disappointment is highest in financial services, where 31 percent cite results below expectations — this in an industry that had, and still has, high

Tracking below expectations

46

expectations of Internet-based sales. There is a somewhat overlooked but hugely significant brake on Internet-based sales:

0%

20%

40%

60%

80%

100%

unresolved doubts concerning the security and privacy of transactions. Responding to a question on this aspect of e-commerce, 68 percent of CEOs shared the view that these concerns are inhibiting progress. An effect predicted by many analysts was that the Internet link with customers would

Note: 50% of the overall sample stated that they did not have Internet-based sales

EXHIBIT 16 CUSTOMER LOYALTY Has the Internet had an impact on customer loyalty?

generate loyalty via virtual communities. Has loyalty increased measurably? Exhibit 16 has the answer: while 39 percent of the CEOs report gains in loyalty to their companies’ products and services, a larger percentage — 57 percent — detect no change. [EXHIBIT 16]

Strengthened loyalty

39%

Around half of CEOs in North America (51 percent) and in the technology industry cluster (57 percent) report that the Internet has strengthened customer loyalty. The consumer

Weakened loyalty

4

and industrial sector is less impressed: 35 percent of CEOs perceive greater loyalty, but 62 percent see no change.

Had no impact on loyalty

To some extent, the Internet-driven portions of the global economy are still in convales57

cence from one of the most spectacular collapses in value ever witnessed. The initial
80% 100%

0%

20%

40%

60%

version of how Internet-based commerce would grow was based on the expected commercial success of small, entrepreneurial companies — newly minted IPOs for the most part.

28 • P r i c e w a t e r h o u s e C o o p e r s

Large, established companies were supposed, in this model, to hire the smaller companies to teach them what to do. But with a few notable exceptions larger companies were expected to lag behind in expertise, creativity, and Internet-related revenues. This scenario proved to have inadequate staying power. Hundreds of dot.com start-ups have abruptly vanished from the scene, untold millions of dollars in speculative investment have been lost, and only the best-managed dot.com companies are still standing today. Meanwhile, the larger, established companies that were expected to apprentice with the start-ups have demonstrated their ability to master the skills of Internet use across a wide range of disciplines, from supply chain management to marketing and sales. In essence, they have slipped — often without much fanfare — into the space left by the dot.coms, and there these established companies — with their financial and other resources — have begun to thrive. Not surprisingly, then, Exhibit 17 shows a majority say the valuation of companies is once again based on proven performance rather than growth potential (63 percent). [EXHIBIT 17] A still larger majority say the ability to realise the promise of e-commerce rests now with established companies (73 percent). The views by region and industry track closely with these percentages, although it is worth recording that 82 percent of CEOs in the technology industry cluster say established companies will succeed where many dot.coms did not. In some ironic way, perhaps the Internet is making a noticeable impact, after all. We can find wisdom in the CEOs’ responses to a survey question concerning the impact of chat rooms, unofficial web sites, “virtual boycotts,” and the like on brand reputation and sales. Exhibit 18 shows that CEOs responsible for consumer product and industrial enterprises are almost exactly as concerned about the impact of these initiatives as are CEOs in financial services and the technology industry cluster: approximately 40 percent or more in each case acknowledge either considerable impact or some impact. [EXHIBIT 18] Pardon the unscientific rule of thumb, but where there are CEO concern and focus, there is almost always opportunity.
Not at all To a great extent To some extent
Strongly disagree

EXHIBIT 17 FUTURE OF THE INTERNET What is the impact of the Internet on the global marketplace?
UNSURE REFUSED

Following the end of the dot.com frenzy, companies are now being valued once again on historical performance rather than on potential for growth

-7% -12

36

27

17

1

With their financial stability, market expertise and infrastructure, established companies will succeed in the e-commerce arena where the dot.coms have failed
-100% -50%

-2-5

41

32

19

1

0%

50%

100%

Somewhat disagree

Somewhat agree

Strongly agree

EXHIBIT 18 BRAND AND SALES (by industry) What is the impact of chat rooms, unofficial web sites, “virtual boycotts,” etc. on brand reputation and sales?
TECHNOLOGY, INFORMATION, COMMUNICATIONS & ENTERTAINMENT CONSUMER & INDUSTRIAL PRODUCTS & SERVICES

FINANCIAL SERVICES

6%

6%

6%

37

31

39

Not really

32

36

29

7

8

8

Unsure
0%

18 50% 100% 0%

17 50% 100% 0%

18 50% 100%

P w C C E O S u r v e y • 29

the

ceo
THE CEO IN AN INTEGRATING WORLD
There is an elegant and wise conversation toward the middle of the new film The Lord of the Rings, which has played on screens nearly worldwide. The young hero tells the aged wizard that he wishes he lived in simpler times and did not have to face such impossible challenges. Old Gandalf answers that it is not given us to choose the times we live in, but it is given us to choose how we live them.

30 • P r i c e w a t e r h o u s e C o o p e r s

The survey has explored CEO views in a world that is not yet integrated but that is surely integrating. Global patterns of business, the global reach of the Internet, the global initiatives of multilateral organisations, a new awareness of corporate responsibility in the face of social and environmental needs — these are among the successes. But much more is needed to confront with confidence a troubled global economy, the threat of mass terror, the emergence of strident protests that nonetheless have something to teach us, and the unforgotten reality that the planetary environment is endangered. In the end, after an exhaustive initiative involving 1,161 CEOs worldwide, we need not look very far for themes and messages. The opportunities are right before us:
" RECALL THE PAST, LOOK TO THE FUTURE. The world has changed in some fundamental

“THINK POSITIVE. WE SHOULD TRUST THE MARKET AND OURSELVES. WE ARE CREATING A BETTER WORLD.” Italy

“IT WILL TAKE FLEETNESS OF MIND AND FOOT — TO PROACTIVELY THINK AHEAD AND TAKE THE APPROPRIATE STEPS.” India

ways since September 11th. But as one French CEO reminded us, “Life, business will go on.” Moving organisations forward will require unprecedented leadership by CEOs and their management teams and increased contributions by employees throughout those organisations.
"EMBRACE CORPORATE SOCIAL RESPONSIBILITY. Companies and their CEOs wield remark-

able power; some large multi-nationals dwarf many nation-states in size, economic impact, and influence. In our new, more integrated world, companies must put that influence and power to good, socially-responsible use. A magic wand? Employees are sometimes
P w C C E O S u r v e y • 31

“WE NEED TO FACE THE SPEED OF BIG CHANGES, BE MORE QUICK IN DECISION MAKING, DEVELOP APPROPRIATE STRATEGIES, AND ASSUME RISKS. WE MUST ALSO ALLOW THE FLOW OF NEW IDEAS FROM ALL SECTORS IN THE ORGANISATION.” Mexico

underutilised by their organisations and their company leadership. Give employees a noblesse oblige, a noble obligation, and they will dedicate themselves, as knights of old, to defending corporate truths and values and to fighting the good fight for corporate social responsibility.
"CLOSE THE VALUE GAP. More sophisticated accounting measures are today available that

can provide all stakeholders with the kind of financial and non-financial information they need to make wise investment decisions. There is every good reason that companies should embrace transparency and make broad financial and non-financial information available and understandable to all stakeholders.
"RIDE THE INTERNET. The Internet is the wave of the present and the future. But consumers’

deep-seated concerns about privacy and security won’t just go away. For the Internet to achieve its almost unfathomable promise, leaders must fully grasp the implications and

“EVEN IN TIMES OF UNCERTAINTY, OPPORTUNITIES CAN ABOUND.” Singapore

challenges of a networked world. There is much work to do. In this new reality, the CEO is a highly significant actor. He and she continue to have their traditional roles as leaders and managers of enterprise, serving shareholders and other stakeholders, building value, encouraging innovation — and doing so much else. But there is a new role: call it the CEO as statesman. The scale and promise of business today make clear that the world’s business leaders now figure among the world’s leaders, in the most general meaning of the word. This is interesting; this is an unmistakably great challenge.

32 • P r i c e w a t e r h o u s e C o o p e r s

F E AT U R E D I N T E RV I E W

Looking at Corporate Social Responsibility Through Experienced Eyes
I N T E RV I E W W I T H N I T I N D E S A I U n d e r-S e c r e t a r y- G e n e r a l f o r E c o n o m i c a n d S o c i a l A f f a i r s , U n i t e d N a t i o n s

Nitin Desai has had his present duties at the United Nations since 1992. Before joining the world organisation, he was Secretary and Chief Economic Adviser in India’s Ministry of Finance, and also served as Deputy Secretary-General of the 1992 United Nations Conference on Environment and Development (UNCED), a position to which he was appointed in June 1990. After early years in business and academia, Mr. Desai began his government career in 1973 in the National Planning Commission in India. He served for a time as Secretary of the Economic Advisory Council to the Prime Minister of India. He has been a member of the Commonwealth Secretariat Expert Group on Climate Change and has published several articles and papers on development planning, regional economics, industry, energy, and international economic relations. He received a bachelor’s degree from the University of Bombay in 1962 and in 1965, earned a master’s degree in economics from the London School of Economics and Political Science.
PwC: What definition of sustainability or sustainable development do you use in your work? MR. DESAI: Rather than define sustainable development in terms of an end state, we consider it a

process. Every decision is valued from the point of view of its economic impact, its social impact, and its environmental impact. So it’s not a question of defining sustainable development as a set of parameters that have to be fulfilled, but more as a process of decision making. To us, it is not a matter of having a programme, a project, a policy whose primary goals are economic, and then asking yourself, “How do I take care of unwelcome social or environmental consequences?” And it’s not a matter of having environmental policies that are sound but that have unwelcome social or economic consequences. The real challenge is to find ways to successfully address all three.
P w C C E O S u r v e y • 33

An example I sometimes give is the problem of indoor air pollution. In some countries, people cook on open wood stoves, and this defeats them badly. They have to cut the forests down, the stoves are inefficient, and women who cook on open indoor fires often inhale the equivalent of two packs of cigarettes a day. Now if I had a programme to address this, I would want to address simultaneously the environmental problem of reforestation, the social problem of women’s health, and the economic problem of meeting the energy needs of a population. This is integration, and this is what “sustainable” means. Think of it as a process.
PwC: Can you give a few examples of programmes for which you are

PwC: In such programmes, do the three strands you’ve spoken of tend

to be split apart by interest groups that you necessarily have to engage with? Or is it generally possible to develop the three strands together?
MR. DESAI: People will approach from different perspectives. The engi-

currently responsible that reflect this approach?
MR. DESAI: What we are doing in the area of energy is focused on this

type of integration. For example, we recently completed a major world energy assessment with the World Energy Council. Were you to look at the recommendations in that report, you would not describe them as primarily focused on meeting energy needs, or primarily focused on meeting the environmental consequences of energy use, or primarily focused on worrying about equity and access to energy. It asks questions about all three. We also do practical work at the country level — for instance, biomethanation in China. Basically, what we do there is to create value from waste generated in mostly urban areas. The waste produced in poor countries often has high organic content. You can use it to generate methane gas, which is a source of energy. This programme solves an environmental problem, which is waste disposal, and it solves a developmental problem, which is energy production.

neering company that offers bio-methanation technology sees things primarily from the economic perspective of finding markets for its technology. The municipality that buys the technology looks at the project in terms of better waste management. Citizen groups will probably be concerned about the environmental consequences of not treating the waste, and so on. However, citizen groups may place such high value on safe waste disposal that they may not take full account of the economic circumstances. Similarly, the technology company may focus so much on economics that it may not sufficiently value the environmental benefits. So people will come at it from different perspectives. But the change that I see over the past decade is that the corporate community increasingly realises that it needs to pursue not just the bottom line and shareholder satisfaction. It also has to worry about employees, about the opinions of clients, about the impact on the societies of which it is a part. Corporations today cannot command respect even among their own employees if they do not have a reputation for being environmentally and socially responsible. The tunnel-vision approaches of different parties are becoming easier to reconcile. Now there are differences of emphasis rather than tunnel vision.
PwC: What is driving that change among corporations and

corporate leaders?
MR. DESAI: Corporations realise that their success depends on what hap-

pens in the marketplace — and on much else as well. It depends on the morale, commitment, and loyalty of the workforce. It depends on the

34 • P r i c e w a t e r h o u s e C o o p e r s

loyalty of the customer base, and it depends on the public reputation you command. All of this contributes to the long-term success of a corporation. Corporate leaders recognise this, and they are becoming far more sensitive to the concerns of these other groups. A large corporation is simply a microcosm of society. If environmental awareness is growing in society, if a sense of social responsibility is growing in society, these things will be reflected in the workforce. These new norms will also have to be reflected in the corporation’s thinking processes, and this is actually occurring. A corporation today would never dream of using prison labour because it knows that this is completely unacceptable to its own workforce and completely unacceptable to society. The same is true of child labour. Corporations recognise that their policies, their codes cannot be defined simply in terms of immediate success in the marketplace. Shareholder value is important. But in the longer run, they also have to worry about the workforce and the needs of society.
PwC: You must travel widely and speak with chief executives and

my peers expect me to behave — this is now the standard of behaviour.” And that standard is changing. A decade or more ago, other managers admired the ruthless, entrepreneurial pursuer of profit. Today the admired person is the manager who successfully combines shareholder value with environmental and social responsibility. The standard of behaviour is set really by the managers themselves, not by people outside.
PwC: Are you campaigning for these values when you say this, or is this

what you are actually seeing when you meet business leaders?
MR. DESAI: I am not campaigning. This is really how the dynamic works.

government leaders in many parts of the world. Are there regional differences in the approach of CEOs to corporate social responsibility? Are Asians different from North Americans? From Europeans? From South Americans?
MR. DESAI: Certain differences exist. In my experience, Europeans have

greater sensitivity to emission issues, while the focus in Latin America is on resource impact issues. I would say that social issues — the impact on the population of industrial pollution, questions about the welfare of minority groups, etc. — are probably somewhat stronger in Asia. However, there is a commonality, and one of its most powerful causes is that corporate managers are part of a community of corporate managers around the world. The powerful factor here is a sense that “This is how

It has started. Let me give an example in the environmental area: I would argue that perhaps a little over a decade ago, corporate managers who showed a serious interest in reconciling the pursuit of shareholder value with environmental responsibility were a minority and may even have been considered somewhat eccentric. Even 10 years ago, those attitudes still stood out. What I think has happened since the Rio conference is that a small minority has become a large minority — still a minority, but a large one. Most corporations today show environmental consciousness because of the need to meet regulatory standards. I doubt that there is a major corporation today in any of the large economies that does not have an environmental department. But what has happened in the minority of corporations is that instead of being limited to the environmental department doing audits of waste and so on, the broader issue has entered the boardroom, and it is being written into corporate policy. It commands the attention of not only the environmental and engineering departments but also the marketing department, the finance department, and certainly the CEO. Why is this happening? It is happening partly because of the impact of the environmental conference at Rio, and it is happening because many successful
P w C C E O S u r v e y • 35

corporations have espoused these concerns. Our goal at the next conference, in Johannesburg, is to push it over the top. What a large minority now accepts as a structure for corporate responsibility and accountability may soon be accepted as a global norm not through legislation but simply through peer pressure. I was traveling in India and visited a medium-size company whose CEO said that the company had recently become ISO 14000 compliant (as you may know, this is a demanding international standard for environmental management). I asked him why, because nothing in Indian legislation requires compliance with ISO 14000. His answer was very simple: If I want to be a global player in my business, I have to be there with the other global players in terms of standards. I also have to be compliant with these standards because that is what my clients abroad increasingly demand. So competitive pressure in this case is the key factor — not pressure from a regulatory body or any official source but simply the wish, and need, to ensure his standing with clients and business rivals.
PwC: Our survey asked participating CEOs to rate the influence of

NGOs are proving to be effective, for example, in the area of resource stewardship. There is a Marine Stewardship Council, an NGO, which says that if you are willing to subject your company’s methods to examination, it is ready to certify, where appropriate, that your fishing practices are sustainable. And companies can derive commercial advantage from being able to assert that they are approved by the Marine Stewardship Council. There are similar things in other fields. This is an area where the NGO world and the corporate world are coming together. I expect this to evolve — in the area of corporate reporting, among others.
PwC: Another survey question asked CEOs to evaluate their own com-

panies’ reputations for corporate social responsibility. Nearly half of the CEOs said that their companies “to a great extent” have good reputations in this regard, and another 40 percent replied that their companies “to some extent” fit this category. What do you make of this?
MR. DESAI: CEOs are bound to have a somewhat more rosy perception of

various stakeholders on their companies’ strategies for social responsibility. Shareholders, customers, and board members were reported to be highly influential. However, there was a surprise: NGOs, which one might have thought to be very influential, prove to be key influencers among only 1 percent of the surveyed CEOs.
MR. DESAI: This virtually demonstrates what I’m saying: peer pressure

matters enormously. I would say that the NGO impact is probably more profound on specific decisions rather than on corporate culture as such — and the big change I’m seeing is in corporate culture. It’s not difficult to reconcile your survey finding with my own observation that NGOs are very important and effective when it comes to specific decisions about, say, locating a plant or about technology.
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their own companies than the world outside does. You have to discount this. Their notions of what constitutes social responsibility must also vary. One CEO might think that if the company is making a profit, it is socially responsible because many thousands of people work for the company and benefit from its success. Another CEO might have another view: “Oh yes, profit is important, but I must also make sure that my corporation is able to do something concrete for the community whose resources it uses. I need to put something back into the community.” A third CEO may reason, “My corporation cannot survive if there is continuous strife in my country, so I have a certain responsibility to see how I can contribute to the resolution of that strife.” As you can see, I’m not at all sure that every manager has the same conception of what it means to be socially responsible.

What is interesting is that very few are ready to say that they are not socially responsible. Now the challenge is to make sure that there is a certain commonality to what people mean by social and environmental responsibility. That commonality can emerge only over time. And I would suspect that it will not be the same everywhere in the world. Take, for instance, what we were saying about the impact of the corporation in situations of strife. This isn’t relevant to every country, but in some parts of the world it couldn’t be more relevant, and it might be relevant somewhere else. I hope that what emerges on a regional basis is a certain shared understanding, a shared framework for what constitutes responsible behaviour.
PwC: Can you tell us about a CEO whom you regard as a person

of strong conviction and action in this realm of corporate social responsibility?
MR. DESAI: There are so many that to name any one would do injustice

to others. But I can say that I’ve encountered three types of motivations for injecting these issues into the mainstream of corporate policy. The first is the conviction that being socially and environmentally responsible does not necessarily mean that you have to sacrifice the bottom line. Such people believe that win/win solutions are available, particularly on the environmental side. Quite a few business leaders have come to the view that their companies can find these solutions when they look sufficiently sensibly and intelligently. For example, when governments insisted that chemicals should be recycled in paper manufacturing plants, the initial corporate reaction was that onerous costs were being forced on manufacturers. But they found in time that it wasn’t such a bad idea at all, because the recovered chemicals often paid for the extra steps they had to take. There are other examples of this kind.

So there is a group of business leaders who become environmentally responsible because they think they have win/win solutions. A second strand is slightly different: these are people whose horizon is much more long-term, people who say, “Look, I know that what I’m doing today is not part of the normal calculation of shareholder value, but I’m pretty sure it’s going to become part of shareholder value 10 years from now, and I’d rather do it now.” I once asked a German CEO why his company was investing in environmental practices that were not at all required — didn’t this hurt his competitive standing? “No harm done,” he replied, “because I know that my competitors will have to come to these standards five years from now, and we’ll be ready with the technologies.” So that is the second strand: people who are looking five to 10 years ahead and doing things now to position for the future they anticipate. Both of the approaches I have so far mentioned can be justified from a standard business management perspective. But there is a third strand emerging: the notion that the health of the corporation depends on the health of the economy and society in which it operates. The reasoning goes roughly as follows: “If a significant part of the problems of society arises from environmental and social stresses, and if I am ready to sacrifice some profit in order to be able to address that environmental and social stress, I can make a great contribution. But the benefit of what I might do accrues to society at large — including my rivals. Therefore I cannot take these steps without a broad consensus that the steps are necessary and binding on all.” To act on this third type of thinking, you need consensus. You cannot expect one corporation to be totally altruistic, because rivals will exploit its actions for their own benefit. You need a broad consensus: all players have to accept that this is their social responsibility. And this will come in time. CEOs and managers are not a breed apart; they are part of society.

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F E AT U R E D I N T E RV I E W

Global Views from the African Continent
I N T E RV I E W W I T H W I L F R E D K I B O RO A N D AYO A J AY I

Nowhere are the implications of the global economy and globalisation more dramatic than in Africa, where companies and their senior leadership are struggling to overcome economic and infrastructure deficiencies, the pall of AIDS on the continent, and widespread poverty, as well as the dramatic, worldwide impact of the events of September 11th. Yet hope springs eternal, and two of Africa’s most hopeful CEOs are Wilfred Kiboro and Ayo Ajayi. Mr. Kiboro is Group Chief Executive Officer of The Nation Media Group, East and Central Africa’s largest publishing and broadcast media group. He is also chairman of the Federation of Kenya Employers, the East African Business Council, and the Media Owners Association. In his eight years at the helm of The Nation Media Group, he has managed to increase its revenue base and profitability in a difficult economic environment. Mr. Ajayi is Managing Director and Chief Executive Officer of UAC of Nigeria PLC, one of the oldest and largest conglomerates in Africa. He joined the firm as a management trainee in 1972 and has risen to lead a company employing 7,000 people. O N R E G I O N A L E CO N OM I C CO N D I T I O N S … MR. KIBORO: Poor economic management in Kenya, growing corruption, and adverse weather conditions, coupled with low commodity prices and a huge debt burden for the region as a whole, have contributed to a bleak economic setting and, for businesses, a marketplace with poor growth prospects. For the region, the effects that those issues have had, and continue to have, on business confidence are profound. But I refuse to succumb to this pervasive mood of disenchantment. What we need are unique and innovative solutions.

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MR. AJAYI: African CEOs are no different from CEOs anywhere else in

the world, but we do have the added pressure and challenge to achieve so much with so few resources. The business issues that keep us awake at night are the same as those anywhere — keeping our businesses running and looking after our stakeholders. However, transplant a good CEO from Africa to the developed world and he will excel. This kind of difficult environment is an excellent training ground for success. ON THE EVENTS OF SEPTEMBER 11TH …
MR. KIBORO: Africa’s economies are inexorably linked to the global

O N G LO BA L I S AT I O N … MR. KIBORO: I am less than bullish about the phenomenon of globalisation itself. The basic assumptions underpinning the purported benefits of globalisation are largely inapplicable to the realities facing most African nations. For instance, the assumed equal access to global trade opportunities seems not to apply to African agricultural producers seeking access to the European or North American markets. What’s more, Africa’s infrastructure disadvantages, poor domestic market capacities, weak institutions of education and training, and poor access to information technology have diminished the continent’s ability to tap potential globalisation benefits.
MR. AJAYI: Our local economies are not sufficiently developed to benefit from globalisation. African countries are still import dependent and have ended up as a dumping ground for Western companies, as the continent cannot offer much to the West with a local content. Also, African countries cannot benefit from globalisation when the cost of production is high, because the required basic infrastructure does not exist. The basics for production, electricity, water, and a distribution infrastructure have to be provided by companies, as government has been unable to deliver or maintain these basic services. The multinationals operating in the region are mere extensions of their home plants — “free trade” and “competitive advantage” are therefore “jargons” in this region.

economy. The current global economic slowdown, induced by the earlier slowdown in the American economy and the terrorist attacks of September 11th, has drastically affected the growth prospects for the continent as a whole. Africa relies heavily on the export of primary products that include not just raw materials and minerals such as oil, gold, and diamonds, but agricultural products such as coffee, tea, cocoa and horticultural products. Here at The Nation Media Group, we have experienced a contraction in newspaper circulation due to the local and regional economic environment, as well as a drop in advertising spending because many of the region’s multinational corporations have cut back following the global slowdown. I expect the same slowdown for aid, which could mean great difficulties for aid-dependent countries.
MR. AJAYI: September 11th will prove to be a disaster for Africa, because

the effect on the world economy will be reflected in African economies. As unemployment rises in the West and people become more afraid to move around the world, developing economies will feel the total reduction in investment.

O N T H E D I G I TA L D I V I D E … MR. KIBORO: Our failure to reap the benefits of globalisation will inevitably widen the gap between the “have” and “have-nots” of the world. The inability of African economies to exploit competitive advantages in the global marketplace can only lead to greater

P w C C E O S u r v e y • 39

aid dependency, higher levels of poverty, greater domestic income disparities, and social pressures. Despite our region’s infrastructural deficiencies, our successful businesses have utilised IT solutions and processes in the running of their businesses. Internet use, for instance, has been increasingly deployed for communications and financial processing. East Africa has seen rapid growth in the number and types of electronic financial transactions conducted.
MR. AJAYI: Africa needs help as the gap between the rich and the poor

MR. AJAYI: Corporate social responsibility [CSR] is important to African

widens — both within Africa and between the developed and developing world. However, this help needs to be properly placed. African countries and representatives from the developed world need to sit down and look at Africa’s strengths and weaknesses and the strategies for dealing with them. O N CO R P O R AT E S O C I A L R E S P O N S I B I L I T Y … MR. KIBORO: Alongside the changing ways in which the region’s successful CEOs and companies manage their businesses, the criteria by which they achieve recognition may be changing. While corporate social responsibility is still a new concept, it has caught the attention of many regional corporations. Public perception is increasingly alert to the possible roles of such corporations as socio-economic structures collapse under failing public investments, mismanagement, and population pressure. The long-term benefit of participation in initiatives that directly affect corporations’ own business activities is increasingly obvious. Large retail chains, for instance, see benefits in improving roads that enable improved access by consumers. Large companies see the benefit in the preventative health care of their staff, most notably with the AIDS scourge.

companies, but there are constraints that make it less of a priority. You just need to look at the figures to know that companies that are fighting for survival can put few resources into CSR. Whereas CSR is part of the culture of developed world companies, African companies cannot just apportion part of their budgets to CSR. Companies that have tried have often seen their money end up in people’s pockets. In developed countries, it is routine for governments to provide the basic needs such as education, health, and law and order. In Africa these are areas where companies are likely to use up their CSR budgets, as governments have failed to provide and maintain these services. In my view, education must be at the top of the CSR list, including building schools, buying schoolbooks, and assisting in teacher training. Other CSR priorities should be health security and the development of the judiciary. In the end, leadership is the key to a prosperous Africa. Leadership permeates right through an organisation, a government, a family, a church; but good leadership is lacking in Africa. In the past 40 years, Nigeria and many other African countries have had leaders who have not put people at the centre of their interest. Africa is a wealthy continent, but its resources have been exploited for personal gain, and billions of dollars have gotten stacked all over the world instead of being reinvested in the countries of origin.

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