Leading toward a better world?

It's a great pleasure to be here and a tremendous privilege to be invited to participate in this lecture series.

As a company, we believe we have a great deal to learn from the academic world, and we very much value the links we have with many faculties here in Harvard, including our executive development programme which was designed for us by the Business School.

I want to take on directly the request set out in your letter of invitation.

I was asked "to talk about leadership in the aftermath of the global war on terrorism about the role of multinational companies particularly as they work in developing countries and to make the case for the positive role of multinational companies as they work in troubled parts of the globe."

That case certainly needs to be made.

There is a climate of distrust surrounding international trade and investment in general and the role of big business in particular.

According to one recent poll if you ask Americans whether they trust what big companies tell them - only 16 % say yes.

There's a strongly argued view that in the poorer countries of the world the role of multinationals is exploitative, environmentally damaging, hostile to human rights and democracy, and divisive, destroying established communities.

That view is argued, of course, by those rioting in the streets of Seattle or Genoa or Barcelona but it is also argued by more serious people, including a number of international NGOs.

There is a belief that international investment is a bad thing. That it distorts the process of development against the interests of local communities.

75 % of American believe the US is already unduly dependent on imports of oil from the Middle East and would like to see that dependence reduced.

I believe all those views are mistaken, and indeed dangerous and I'm delighted to have the opportunity to argue the positive case today.

I believe the argument can be won, that trust can be restored and that doing so is the very best contribution companies can make in the aftermath of the events of September 11th.

This is a moment when disciplined, calm but not complacent leadership is critical if public confidence in open markets and trade is to be restored.

Now, of course, you'd expect the Chief Executive of one of the largest companies in the world to be in favour of international trade and to believe that corporate activity is a good thing.

But this isn't just a matter of narrow self interest. There are wider issues at stake.

Let me start by quoting some figures.

In the first fifty years of the 20th century the living standards of the world, measured by GDP per head rose by just one % a year, with population growing by around one bn.

In the second half of the century, GDP per head rose more than twice as fast, despite a population growth of 3.5 billion people.

And the reason for the difference between those two periods?

One of the principal reasons was that in the fifty years from 1950 to 2000 world trade grew by a remarkable 1,700 %.

The years since then have been a period of remarkable openness in the international economy, of unprecedented growth in both trade and international investment leading directly to a remarkable growth in living standards, not just in the developed, industrialised world but also in many developing countries.

Of course, the process isn't complete, and there are still far too many people living in desperate poverty but that shouldn't disguise the fact that over the last half century more people have been brought out of poverty than at any other time in history.

The development of trust and interdependence between nations has allowed resources to be allocated more efficiently. And we are all beneficiaries, including institutions such as this which thrive, as Neil Rudinstine argued so eloquently in his last book, in a world where there are no boundaries to the flow of knowledge.

I believe that sort of trust and interdependence is precious - and the key to the future of global society.

There is a powerful case for the view that it is through cooperation and interdependence that any society advances from one level of development to the next. Trust is the basis for globalisation which gives us the chance to take the next step, and that is an opportunity we mustn't waste.

International companies, of course, see the benefits of trust and interdependence.

Companies couldn't operate across the globe, managing complex operations through delegated authority, without the flexibility that comes from trust.

They couldn't benefit from the growing markets that are developing as prosperity spreads.

The benefits are obvious to us but we have to understand that they aren't so obvious to everyone else.

One of the consequences of globalisation has been a restructuring of the corporate sector to create firms which can compete in a global marketplace. That's true in our sector, of course, and in many others. Over the last three years alone the value of mergers and acquisitions worldwide has amounted to more than $3 trillion.

The reality is that in almost all sectors restructuring has increased competition. That is certainly true in the oil industry.

But we have to understand that the restructuring, however logical, can look like a concentration of power in the hands of a limited number of gigantic companies.

Ten years ago the largest company in the world had a market capitalisation of just $ 60 bn. Now the largest 20, ourselves included, are all valued at more than $ 120 bn and the largest at almost $ 400 bn

With size comes a fear that such concentrated power is unconstrained - accountable to no-one, able to move at will and able to play off one group against another; even one government against another.

Of course that isn't true - companies work within a framework of law and most companies have assets which are very firmly fixed in particular places.

We do have the power to invest, to direct resources and technology and skills but in reality that is the limit of our power.

Indeed that power is limited further by competition, because there's likely to be great competition for the best opportunities that come up.

Size, though, does create concern, particularly when there are failures of corporate responsibility.

Those failures are the exception, but they cast a long shadow.

The benefits of the globalised economy aren't obvious to everyone in the developed world. Nor are they are always obvious to some people in the developing world.

Globalisation is a very beneficial process, but it is also an agent of what Joseph Schumpeter called creative destruction.

Globalisation challenges protected niches, and established patterns of activity. It is disruptive and in places where the adjustment mechanisms are imperfect or non existent it produces casualties.

The benefits - having choices, being efficient, being able to grow, and able to improve the quality of life - sometimes seem to take longer to arrive than the costs.

Given the speed of change over the last five to ten years it is no surprise that there is resistance and scepticism as to whether the benefits have in some way been stolen by others, and particularly by big business.

All those doubts are real, even if they are not justified - and we have to start from that reality.

To go back to the autarkic world of the first half of the last century would be a grim prospect.

If we went back fifty years or more to a world of protectionism and rigid regulation trade and investment would be reduced and we would all be poorer as a result.

The numbers living in poverty would be rising not falling.

And the risk of autarky turning to political extremism and conflict would be greater.

I say that not only as a businessman, but also as someone whose family were victims of that dark time.

To avoid going down that path we have to restore confidence - in the open, competitive market system of economic development - not because just because it delivers wealth and prosperity but also because if offers the best chance of protecting and extending human freedom.

And the corporate sector has a crucial role to play.

Of course companies can't do everything but we have an interest and a responsibility and we can't sit back and wait for others to take a lead.

So what should we do?

It is clear that to restore trust companies have to demonstrate that our presence, particularly in the poorer countries and the emerging market economies, is a source of human progress.

We have to demonstrate to people that globalisation is a good thing - for them as well as for us. If we don't, then in one way or another our ability to do business will be constrained.

We have to demonstrate that what we do contributes in a limited but crucial way to the cause of human rights.

I'll talk about BP - because that's the only company I'm really qualified to talk about - but that shouldn't imply that we think we're unique. We're not - and there many other companies who are working on these same issues.

Nor do I want to imply that we have full and complete answers. We don't and one of the reasons for coming here today is to listen - to open a dialogue.

But we're gathering experience of working in a very diverse set of areas and some strands of thinking are emerging from that experience.

The first strand is about behaviour.

We have to be transparent in reporting on our activities and finances, because where there is a dark corner there will be doubt.

That transparency is part of the process of sound governance - with clear accountabilities, proper and effective controls, checks and balances and an explicit analysis and management of risks.

Strong corporate governance is necessary but, of course it isn't sufficient. Having rules in place doesn't necessarily mean that the rules will be followed.

The standards have to be set by example from the top - from the Board, from the Chief Executive from senior management, reaching down through the executive teams. They have to give life to the rules and the values of a company. They have to lead.

They have to demonstrate that substance is more important than form. They have to take personal responsibility and to demonstrate through their personal judgements the sort of standard they expect from everyone working for the company. That is what leadership means.

Of course, most companies are made up of human beings - and human beings make mistakes. Leadership also means ensuring that those mistakes are handled properly - openly, effectively and fairly - and absolutely in line with the values of the company.

For us this begins with universal standards of behaviour and care. Doing no damage, managing every risk with care and professionalism, and managing every relationship on the basis of genuine, enduring mutual advantage.

To explain what that means in practice let me tell you a story.

We've been for many years a major investor in South Africa.

In the 1970s and 80s we came under great pressure from anti apartheid campaigners to withdraw from South Africa.

We debated that question at great length but we decided not to withdraw but rather to engage and to see if it was possible for us to work to our own standards.

We had to test what was possible and so we appointed the first black manager in South Africa. Fred Phaswana - a very brave man, who is now our regional director for the whole of Africa.

We made the appointment - and waited for the storm - but the Government of South Africa did nothing.

We provided equal housing and common facilities for our staff in South Africa - black and white alike. Again the Government did nothing.

And in conjunction with other companies who shared our values and who believed that change was coming, we helped to train members of the ANC in business and management outside the country.

Two years ago Nelson Mandela came to London, and he asked to come to our head office, and to talk to an open meeting of the staff.

It was a very moving occasion because he had come to say thank you, and to thank our people for their support when it was most needed.

Of course, South Africa is an exceptional story - but it isn't the only story of the impact that companies can have simply by working quietly to global standards. If we have something called power it is often simply the power to show what is possible.

That's a real and legitimate challenge.

One of our standards of behaviour is a prohibition on bribery which extends now to a prohibition on all facilitation payments.

I believe corruption is the real enemy of genuine development - in the poorest countries and everywhere else.

To deliver against that standard we've begun to improve the transparency of what we do across all our operations.

In Angola, for example, with the active support of the Government of President dos Santos, we intend to publish details of all the payments we make as we develop Angola's huge reserves of oil.

Publishing those details is not, as some people have suggested, to interfere with the way in which the funds are spent. It is simply about showing where the money is going.

That step has the active support of many people in the NGO community including Oxfam and the Save the Children Fund, who have said that they believe transparency is the most effective way to ensure that the wealth we and others are generating benefits the whole population of one of the poorest countries in the world, where one child in three dies before reaching the age of five.

Within the next few years Angola will be producing more oil than Kuwait or Nigeria.

It has the potential to be one of the most successful economies in Africa and to be a symbol of renewal in the fortunes of Africa as a whole. I know that renewal and leadership in Africa are issues on which a number of people here at Harvard are already working and I hope we can contribute to that work..

Of course, no one company on its own can bring about change.

Governments in the richer part of the world have the power to assist development not just with direct aid and financial support but also through capacity building - supporting the development of skills and structures which enhance the ability of individual states to combat corruption and to manage their own affairs effectively.

Governments and international institutions have enormous potential leverage.

Corruption isn't inevitable.

If we can combine the leverage of Government with a firm and effective refusal by the private sector to tolerate corruption, including the petty but corrosive corruption of facilitation payments, we can begin to renew trust not just in corporate activity but in the whole development process, which comes from globalisation.

So the first strand of our contribution comes from how we work, and how we apply our values in practice.

The second strand comes from how we apply the skills we have.

As a long term business, investing on a thirty or forty year horizon we have to recognise that as part of society we benefit from its health - so we must contribute to that health.

When society faces challenges we have to provide answers - not excuses and denials.

People expect big companies to lead through taking action, and to use their skills and access to technology to offer better choices - not to dismiss real challenges as problems which will be taken care of by someone else.

Real motivation as Howard Gardner says in his recent book is not just about financial reward - the best people can always get that. Real motivation stems from the sense of having made a difference, having made a particular choice at a difficult moment and having done something of which you can be proud in the best sense.

That point was driven home to me when we first took a lead on the issue of climate change.

The science of course is incomplete and provisional, and some people use that as an excuse for doing nothing. In fact I think Karl Popper was right - all science is always provisional.

But the evidence of climate change is mounting and the risks are such that no serious person can doubt the need for some precautionary action.

That's why we set our own target - to reduce our own emissions of greenhouse gases by 10 % below the 1990 - a target we've now achieved at no net cost.

Its why we're now moving to set a new objective - of stabilising our net emissions at the new lower level over the next decade despite a possible doubling in the volume of products sold by the company, through efficiency and through the development of low carbon products which offset emissions.

When we made our first step we asked our staff worldwide for their views and their ideas. The response was overwhelming - a flood of positive, constructive ideas and an unprompted outpouring of support for the fact that we'd challenged the conventional wisdom of the industry.

Climate change is just one example of constructive engagement. There are many others. The use of technology and skills to ensure communities have clean water; the use of solar powered equipment to such as refrigerators which can store vital medicines in remote areas; help for communities threatened by AIDS; support for the creation of civil society in countries damaged by conflict and violence.

Companies are doing all those things. Quietly and seriously but in many cases with powerful results.

The third step is also about behaviour, and about the need to demonstrate that global companies are actually global.

The success of business depends critically on the development of meritocracy. Business is very competitive and those who win will be those who attract and retain the people with the greatest skills and brains.

Meritocracy, of course, knows no boundaries. As we become major investors in many different countries around the world we want to attract the very best people from each one. If we relied simply on getting good graduates from the UK and the US, we would be limiting our potential.

So everywhere we work - in the Middle East and in the Caspian region as well as in North America or Europe we want to be the employer of choice, and to use that role as a means of raising aspirations - something which I believe is a crucial element in the whole development process.

Last year I had the privilege of going to speak to the students of Tsinghua University in Beijing - one of the great universities of the world.

They asked me whether a Chinese citizen could be a senior manager in BP, not just working for us in China, but working internationally.

I said yes, they could but that that shouldn't be the limit.

I said I hoped that that one day, one of them will be in position to compete to be Chief Executive.

Able to compete on one simple overriding criteria - merit.

And I would say exactly the same in Baku, in Cairo, or in Delhi.

Merit must be the guiding factor which influences our approach to people everywhere. A commitment to diversity founded not on quotas but on ability. That is one of the most effective ways to persuade people in every country that they can be beneficiaries of globalisation.

A commitment to diversity which will be proven as people see it delivering through appointments made on merit alone. Because diversity and meritocracy are inseparable.

So those are the things we can and should be doing. Taking a leadership role. Doing what we have agreed to do. Those are the basics.

But we have to go beyond that.

Demonstrating universal standards of behaviour.

Using our skills and technology to make a contribution to the resolution of the challenges that society faces.

And offering individual opportunities which create a new sense of aspiration. A practical hope for the future.

And then there is something we shouldn't be doing - which is to intervene in partisan politics.

We have a very important role in society, but we mustn't confuse our role with the roles of others.

In particular we must be particularly careful about the political process - not because it is unimportant - quite the reverse - but because the legitimacy of that process is crucial both for society and for us as a company working in that society.

That's why we've decided, as a global policy, that from now on we will make no political contributions from corporate funds anywhere in the world.

We'll engage in the policy debate, stating our views and encouraging the development of ideas -but we won't fund any political activity or any political party.

That applies here in the US, but it also applies in the developing world.

Of course, it would be easy and in many places perfectly legal to make contributions and to support particular politicians who were sympathetic.

In some cases we could make short term gains by doing that - but I'm convinced that in the long term we'd lose because we'd be destroying both the proper relationship between a company and a nation and we'd be interfering in the development of the political process which is crucial for the development of full human rights.

I've seen that tried and it didn't work.

I spent part of my childhood in Iran - fifty years ago. My father worked for the Anglo Persian oil company, the predecessor to today's BP.

At that time the company had an extremely close relationship with the Government of the Shah, which of course is well documented.

The relationship was of its time - colonial in spirit, paternalistic in style, predominantly well intentioned but in the end doomed to fail.

And within the line we should work in different ways, responding to the particular needs of different communities with the basic aim of contributing to progress, and being prepared to be judged on that.

We should work on a long-term basis - remembering that progress is rarely instantaneous and can sometimes take a very long time.

Of course, there will be places where progress isn't possible. Where the nature of Governments, or the culture of a particular country, or the absence of proper legal structures means that we can't work to our own standards and we can't contribute to progress.

There are such places - and we don't work in them.

But that is always a reluctant judgment - because we should try, and try and try again to engage and to make progress wherever we can.

To withdraw and to say that progress isn't possible is sometimes necessary but it is a bleak decision and a denial of hope.

Our approach, of course, is dictated by self interest. Companies are not aid agencies or charities -and our purpose is simply to create future wealth on behalf of shareholders.

If we don't do that we will go out of business.

But that self interest must be enlightened.

Our investments in all the places I mentioned are investments for the very long term.

Those investments will thrive if the societies in which they are located are also thriving.

So to do nothing, to look after ourselves and to neglect the world in which we're operating would be to put at risk the interests of our shareholders.

To operate successfully companies need trust, and as the global marketplace changes companies need to show that they can operate in complex areas. That is what the initiative of the global compact proposed by the UN is about.

The development of the global compact is an important step forward. The challenge now is to move from the general to the specific - and that's why we trying to integrate the thinking behind the words of the compact into the way we work.

The world is watching the corporate sector.

This is a moment of great challenge but also of great opportunity because if we can demonstrate that we are agents of progress I believe we can remove the doubts and renew the trust that is essential for both prosperity and security.

I believe that because the track record - the history - is overwhelmingly on our side.

The anti-globalisation forces are wrong. Globalisation is not a zero sum game in which the rich get richer and the poor get poorer.

History demonstrates that is just not true. Those who argue against globalisation now are effectively denying the world's poor the chance to improve their standard of living and to share in the prosperity they themselves enjoy.

They are denying the 1.5 bn people who live in absolute poverty the means of escape. That is morally unacceptable.

Let me end where I began.

The terrorists who attacked this country on September 11th weren't simply attacking buildings and people.

They were attacking a system of values.

At the heart of those values is trust.

Trust in the belief that by human effort and cooperation the world can gradually, sometimes painfully be made a better place.

If they were to succeed in destroying they would have won.

That is an unthinkable outcome and I believe we have a common responsibility to deny them that victory.

Thank you very much.