Building A Sustainable Global Enterprise, April 15, 2004

Warren R. Staley - Chairman and Chief Executive Officer, Cargill, Inc.

At the 20^th Anniversary of the Johnson Graduate School of Management Cornell University

Talking about “sustainable global enterprises” is challenging. Connecting it to “management education” is overwhelming. And doing it in 25 minutes is impossible. What I would like to do is give you a glimpse of how my company, Cargill, Incorporated, approaches this subject. Hopefully, that will tee up some issues for a lively Q and A.

Sustainability as Citizenship
"Sustainability” is a widely used but easily misunderstood term. Some use it to cover the whole field of corporate social responsibility; others apply it primarily to environmental questions. Within the latter group, some equate sustainability with no changes in ecosystems while others accept changes that meet rising demand for goods and services in sustainable ways. It is a word and a concept on which it is hard to get clarity.

At Cargill, we talk about citizenship rather than sustainability. That is what I am going to do today. Citizenship is a concept that has meaning to all of our 100,000 employees in 60 countries, regardless of their stage of economic development. Having that common frame of reference is the necessary first step in changing behaviors.

We define citizenship as “our total impact on society and the environment.” We stress the idea of “total impact.” Citizenship is not a separate function or department. Rather, it is a mindset that must be embedded in our business practices.

If citizenship is our total impact on society and the environment, then what is good citizenship? We define good citizenship as a process of continuous improvement. It is a journey, not a destination. I believe this notion of good citizenship as continuous improvement drives toward the same goals as the term “sustainability” used in its broadest sense. I hope you will come to agree with me.

Measuring Good Citizenship
In business, what gets measured is what gets done. So, we work with a system of metrics for measuring our citizenship. Let me try to take you quickly through those metrics, and then I promise I’ll get down to some specifics.

Cargill’s underlying purpose – what drives our business over time – is “to be the global leader in nourishing people.” The word “nourishing” is difficult to translate from English into other languages. Most other languages capture the idea of feeding people, which is central to our business. But they often miss an important nuance in nourishing, which is that it covers all that “is necessary for life, health and growth.” It clearly goes beyond food to a broader set of activities that sustain life. That broader meaning is vital to our future growth.

We build corporate citizenship on four cornerstones:

These four cornerstones cover what we believe society is looking to business for, beyond good products and services at attractive prices.

If those four cornerstones can cover the full demands of corporate citizenship, then how do you measure progress towards good citizenship? We see this as a four-stage process:

In other words, we see good citizenship – or sustainability – as a journey that can propel companies from mere compliance to social change agents.

These two ideas – the four cornerstones of citizenship and the four stages of good citizenship – can be put together in a simple graphic. Then, we can measure a particular issue – like worker safety – as a vector of performance reaching out from compliance toward leadership.

Worker safety is a core obligation within the People Practices category, the quadrant on the lower left. To perform at the Compliance level is to meet our legal and regulatory obligations. To perform at the Responsible Action level is to go beyond requirements to what is proper and right. To perform at the Best Practices level is to transfer the best systems you can find across your whole company.

We decided that we wanted to be at least at this level back in 1978, when we established our Corporate Safety department, reporting directly to Cargill’s president. Its mission was to develop a global safety system and to drive a system built on training, auditing and goal setting across the whole organization. Subsequently, formal recognition programs were added.

While we have refined our approach over the years, its basic purpose has remained the same -- to create a uniform safety mentality everywhere in Cargill. People do not have to change their practices as they transfer from Europe to South America to Asia. I think the best multinational companies do the same. Far from engaging in a “race to the bottom,” they are often bringing new standards and practices along with their investments and products.

The final performance stage is Leadership, finding practices that transform how things are done. I think Cargill is knocking on this door in worker safety. Here’s our Safety Index for the past fifteen years.

It measures lost time accidents across all of our businesses in all 60 countries. While total hours worked has marched steadily upward, the Safety Index has marched steadily down toward our goal of zero accidents. We already have many specific locations that have rung up a million or more hours worked without a lost-time accident. Indeed, one of our best safety records is at our Sun Valley chicken processing plant in Thailand, where 2500 workers per shift wield sharp knives to cut up chicken into small parts.

We have drawn three important lessons for citizenship from our efforts to improve worker safety. First, it is a long journey of continuous improvement. It requires: making the goals clear; aligning incentives to reinforce their importance; measuring performance, and steadily lifting the bar to spur improvement.

Second, progress comes through engaged employees. Safety is not something management does to or for workers. Management support and reinforcement are important, but workers must embody the safety mentality. Success is about both good processes and passion in their implementation.

Finally, our safety performance is an attribute that our best customers and suppliers value in their relationship with Cargill, just as we do with others who have a good safety performance. We can share with and learn from each other. It is amazing how much of this benchmarking goes on. You can’t have a “not-invented-here” barrier to good ideas.

Good Citizenship as a Mindset
I believe that all aspects of good citizenship come down to a shared mindset that the organization agrees should govern behavior. It’s not enough to understand what is meant by citizenship. It’s not enough to believe that good citizenship is important. It only comes about by changing behaviors.

There is much in today’s news about companies that fail to create the right culture for behavior. Some of this failure stems from not understanding what a corporate culture is or why it’s important. A company’s culture includes all of the things it does to create and reinforce a shared mindset about desired behavior.

Clearly this includes rewards and punishments. But it is much more. It is how leaders act; it is the stories that get told and celebrated; it is the foundation on which all else is built.

At Cargill, the foundation of our culture is our Guiding Principles. They define, in simple terms, what is right and wrong behavior:

These Principles are reinforced by training systems, annual statements of affirmation, enforcement processes and constant vigilance.

A strong corporate culture supports not only what is proper performance but also what is high performance. Several years ago, as part of a broader strategic rethinking of our business, we codified a set of behaviors that we wanted to embed in all Cargill people. Those six Strategic Action behaviors are:

We reinforce these behaviors in our education programs, our employee evaluation systems and our incentive compensation programs. Cargill employees understand that good results through bad behaviors don’t cut it. Successful employees, managers and leaders will achieve good results through the right behaviors – treating each other with respect, being candid, collaborating broadly and encouraging and accepting new ideas.

Employee engagement is how we measure our success in creating this shared mindset or corporate culture. Every 12 to 18 months we survey employees on their engagement levels by business unit and function. We look at both absolute levels of engagement and trends in engagement scores. And, we benchmark with other companies. I’m pleased to see a number of Cargill units beginning to push their employee engagement scores into the 80’s, which is a true leadership level.

I have dwelled on these concepts of a shared mindset, corporate culture and employee engagement, even though it has taken us away from our central topic of citizenship, because I believe they are critical to both good business performance and good corporate citizenship. We pay a great deal of attention at Cargill to creating a mindset and a culture that nurtures employee engagement.

Examples of Good Citizenship
But, let’s get back to citizenship. Can we create a good citizenship mindset in all four quadrants from my earlier graphic? Let me illustrate what I think is involved with some additional examples.

In Environmental Stewardship, the minimum threshold is compliance with legal and regulatory requirements. Then, business should strive to move from the responsible action of reducing waste to the best practice of reusing resources and potentially to the leadership role of replacing resources with more benign materials. At Cargill, we have long had goals and plans both to increase energy efficiency and to reduce waste or discharges at our plants. Our current goals are to improve energy efficiency by ten percent and to reduce solid waste by 30 percent by 2005. Since 2001 we have cut waste 27 percent and improved energy efficiency by 15 percent, which I would equate to acting responsibly on the citizenship scale.

An emerging best practice involves going beyond reduction targets to deploying reuse technologies. For example, we’ve installed systems to convert waste streams at our six beef processing plants into biogas, which now replaces about 25 percent of the natural gas these plants use.

A leadership performance might involve replacing an exhaustible or troublesome raw material with a renewable or attractive one. An example would be our Cargill-Dow joint venture, which makes plastic from corn rather than the traditional petroleum feedstock used in the conventional plastics industry. The result is less use of energy, lower greenhouse gas emissions and the potential for shifting to more environmentally benign products, since plant-based plastics are biodegradable in a composting environment into soil and water.

The Cargill-Dow experience, however, underlines a risk of leadership. Solutions that transform or create new possibilities are not just technical challenges; they also are marketing ones. While we can produce products that perform competitively against petroleum-based plastics, they often cost slightly more. Yet many consumers who value the environment in the abstract are not yet prepared to pay price premiums for specific environmental benefits. So, there is a marketing and an educational challenge in bringing transformational products to market.

In the Business Conduct area, a key business challenge is to establish and maintain a reputation for integrity in a highly competitive environment. The performance vector for integrity might run like this. Compliance requires not engaging in corrupt practices or facilitating others to engage in them. The responsible action level might correspond to keeping one’s promises even when market circumstances move against you or some competitors are breaking theirs.

The best practices level creates a corporate culture of right and high performance, like with the Guiding Principles and the six Strategic Action behaviors I described earlier. A leadership level of performance would go past an arm’s length relationship with a customer (or an NGO) to a truly transparent and collaborative one. Choosing a trustworthy partner involves sharing risks and rewards in an alliance designed to achieve what neither could alone. One can’t be naïve and give away intellectual or other assets, but one must accept certain risks in establishing this level of mutual trust.

I wanted to discuss two examples in the Community Involvement category – one central to the business and one from the philanthropic side. The business-related example involves food safety. Compliance means passing inspections and related regulations. Acting responsibly requires accepting direct responsibility for providing safe foods and ingredients rather than relying on inspectors. A best practices example could be our development several years ago of steam pasteurization to reduce e-coli pathogen risk dramatically and our decision to share the technology with competitors rather than to seek proprietary advantage. We currently are enhancing this system with new carcass washing technologies. A leadership example could be developing food ingredients – like our Corowise plant-based sterols – that can be put into traditional foods to inhibit cholesterol uptake, thereby promoting heart health.

The philanthropy-related example involves support for education. Compliance could be business giving to schools that come to it asking for support. Responsible action would involve a pattern of planned giving to targeted educational institutions. Best practices would involve strategic philanthropy – a structured support to education that measures progress by the recipients toward agreed goals. It involves partnerships that continue as long as success is demonstrated.

A leadership approach could be our Cargill Scholars program. Having learned that success in school often requires support well beyond the classroom, the Cargill Foundation has identified 50 high potential but also high risk 4^th graders. We are supporting them with concentrated mentoring, coordinated social work and substantial enrichment programs. The five year, $5 million program also measures the individual outcomes and documents what works or doesn’t work. The goal is to develop an integrated strategy that is successful, resource-efficient and scalable, and then to share those lessons with others. We are about two years into the effort.

Necessity of Realization Thinking
Well, I’ve talked a lot about Cargill as one potentially sustainable global enterprise. But I haven’t yet said much about the implications of this experience for management education. I need to do that, since it was the second half of my assignment.

The principal implication for management education is the need to learn to solve problems in ways that balance and blend often conflicting forces. By that I mean that corporate citizenship is about both creating economic value and serving important social values. Business people cannot ignore one at the expense of the other; they must solve for both.

What is the “both” that needs to be solved for here? Shareholder thinking is centered on creating wealth, and shareholders don’t want managers diverted from achieving that goal. “Idealization thinking” is a term that might be applied to people who worry about sharing wealth. Anchored in good values, they ask businesses why they can’t achieve more equitable outcomes.

Business schools need to teach what might be called “realization thinking”: how to do good while doing well. This involves creating economic value that can be shared widely. As a process, it requires both getting the facts and weighing values, understanding the tradeoffs and optimizing the best of both.

An example of what I mean by “realization thinking” could be drawn from the current controversy over agricultural biotechnology. On the one hand, biotechnology has the power to lower food costs, increase productivity in ways that preserve biodiversity, reduce harmful chemical use, enrich staple foods by adding missing micronutrients and remediate polluted soils and water. On the other hand, biotechnology also is unpopular with some consumers, rejected by some producers, hard to access or regulate in many developing countries and can concentrate power over basic life forms in the hands of a few technology providers.

This is a difficult and challenging paradox. Cargill’s approach has been to try to optimize the best of both by: supporting the technology, respecting the right of customers to choose and seeking realistic systems that can make products of agricultural biotechnology available for those who want them while keeping them apart from those who don’t want them, at costs acceptable to each. This is a far from settled issue, so stay tuned.

Another way of looking at this kind of realization thinking can be illustrated by the issue of farm policy.

In a 2x2 matrix with value on the vertical axis and productivity on the horizontal axis, society can choose among four farming systems:

Only the last model is truly sustainable; the others elevate one goal at the expense of the other or, in the case of subsistence farming, capture the worst of both.

Good Citizenship in a Globalizing World
There are many other issues I could have talked about – things like valuing diversity from the People Practices category; water conservation under Community Involvement; accounting practices in Business Conduct; or climate change in Environmental Stewardship. Perhaps we can get to these – or others – in the Q&A.

But, you have been very patient. It is time we heard from you. So let me summarize the key points I have tried to make about corporate citizenship.

First, I believe, whether you choose to call it citizenship or sustainability, the focus needs to be on the total impact a business has on society and the environment. For Cargill, citizenship is a shared mindset embedded in our business strategy, our corporate culture and our behavior; it is not just bolted on as an afterthought.

Second, good citizenship is a long journey of continuous improvement. It is not some idyllic destination. Nor is it an instant makeover. It is hard, but rewarding, work.

Finally, good citizenship requires “realization thinking” in the sense of capturing the best rather than the worst or only one side of conflicting forces. It is about both doing good and doing well, of serving social values and creating economic value. The great challenge and joy of business is to achieve that balance.