Remarks as prepared for delivery
Thank you Mike (Hoffman) for that kind introduction.
And thanks to each of you for that warm reception.
It is a pleasure to be here with you, and an honor to be asked to give Dow's perspective on business ethics.
Business executives aren't often asked for their views on ethics these days – unless it is by a congressional subcommittee.
This is a far friendlier forum than that, I am glad to say. I want to start by thanking Raytheon and my friend Bill Swanson for sponsoring this lectureship. These discussions, as you know, are vital to the health of the corporate community. Thank you for supporting them.
I am extremely impressed by what this university and this center have done to put ethics in the spotlight throughout the business community. Your work here at the Center for Business Ethics is a constant reminder that all of our institutions – including those in the business world – must be built on a culture of trust.
At Dow, we share that belief. Dow's Values are at the core of ethical behavior, and they drive The Dow Chemical Company from the bottom to the very top. The way we treat each other. The way we treat customers and suppliers. The way we treat our investors and our communities.
Now I do not expect you to take that on faith. Intentions are of course important, but we in business – as in any other walk of life – must be judged by our actions.
Ethics, after all, are not supposed to be abstract principles. They are supposed to be doctrines for the way we behave, the way we work, the way we conduct ourselves in life as well as business.
Today, in that spirit, I want to give you a sense of how we at Dow have embedded ethical behavior – the adherence to Dow's Values – into our everyday business strategy.
I want to begin with a brief overview of our Values and our Vision. Every company has those, of course. You can see them pasted on bulletin boards in nearly every break room.
What I want to illustrate for you today is how we have taken those documents down off the wall and integrated them into our business strategy and our everyday work. I want to show you how we have brought them to life and infused them with the power of the Human Element.
For me, this is the most interesting aspect of ethics ... and perhaps the most unexpected for the people who know The Dow Chemical Company the least.
At Dow, we have entered into what I consider to be the third phase of business ethics. Each phase has been important. But our evolution into this third phase has transformed our Company most profoundly. And this new approach, if broadly applied, has the potential to truly transform the way the world does business.
Let me explain.
The Great Awakening
The first phase of business ethics is what I consider to be the Great Awakening, that period which began in the 1970s as businesses, corporations, governments – and even the medical and legal fields – felt increasing pressure from the public to reform.
I think U.S. Attorney General William Saxby captured the mood in 1974 when he spoke out against what he described as the "seamy" side of business.
Saxby said that there was, and I am quoting, "the feeling among too many in the business community that any means are acceptable to achieving profits and that the crime is not in doing but in the getting caught." Keep in mind that Saxby was a pro-business Republican.
That kind of broad and angry sentiment was a great wake-up call for the business community. It led to the first national conference on business ethics – and the founding a few years later of this wonderful institution at Bentley. Importantly, it also led companies en masse to reassess their internal processes and codes of conduct.
Dow's Code of Business Conduct developed out of this period. It remains an extremely important framework of accountability for everyone in the organization. Those guidelines – along with our core values of Integrity, Respect for People, and Protecting the Planet – dictate not only how we treat one another but also how we conduct business around the world.
I am optimistic that most corporations have codes similar to ours, and have disseminated them throughout their workforce and backed them up with internal governance mechanisms.
Dow has very senior people who run our Office of Ethics and Compliance, for example. As a global company, our ethics committees interact with employees around the world. These committees not only run our feedback systems – like our EthicsLine – but they work together to oversee our training programs, communicate Dow's Values, and conduct independent investigations free from corporate influence.
That is a hallmark of the Great Awakening, when businesses began writing down – for ourselves and the outside world – that "this is how we will behave" and "this is how you should hold us accountable." It was an important first step for the business community in general, and helped create more transparency and more awareness throughout every sector of society.
Did it bring about a Golden Age of Corporate Ethical Behavior? No.
Saying you believe in ethical behavior and actually acting ethically are two different things.
You only have to look back at the past decade – at the accounting scandals, the deception, the criminal convictions, the eroded trust – to know that the business community still has a long way to go.
But what's most important is this: Making a clear commitment to better business practices was a good – and necessary – first step. So yes, we are making progress.
Triple Bottom Line
Still, that first step, as I have suggested, was incomplete.
That is because it failed to account for the fact that corporations exist in a broader community and that we are granted – by law and by society – certain rights and privileges. And when you have rights and privileges, you also have obligations. Those obligations extend beyond the financial to all of those who have a stake in our business.
Once the business world accepted that broader notion into its culture, we moved into the second phase of business ethics. Starting in the late 1980s, we began thinking in terms of the "triple bottom line" ... of the economic, environmental and social impact of our actions.
We began talking not only of shareholders, but of stakeholders – a much wider category.
Remember that by the 1980s, the world was shrinking ... corporations were growing ... and their influence was expanding so massively that in some respects, it exceeded that of governments.
Here is a remarkable fact that explains why companies – like mine – felt a real need to get this part right. Depending on how you count, there are about 195 countries in the world today. The bottom 100 of those last year had a combined GDP of about $900 billion.
Now here is the remarkable part: That number is smaller than the combined revenues of the three largest companies in the world – Wal-Mart, Exxon Mobil and Royal Dutch Shell.
I think the first President Bush put into words what those of us promoting free enterprise were coming to grips with in the 1980s and 1990s, as our influence on people's lives grew so dramatically.
Standing on the floor of the New York Stock Exchange, President Bush reminded us that, "In the long run, there is no capitalism without conscience. There is no wealth without character." To which I would simply add: there are no privileges without obligations.
The implications were clear: if we operated without a conscience ... if we failed the character test ... if we failed to look beyond the economics of our enterprise, we would compromise our license to operate.
"License to operate" was a particularly strong idea in the chemical industry, which I represent. In the late 1980s, our industry came together and began promoting the concept of Responsible Care, a global initiative that encourages chemical companies – and I am quoting – to "work together to continuously improve their health, safety and environmental performance, and to communicate with stakeholders about their products and processes."
At the same time, our companies became more actively involved in the communities where we operate: promoting volunteerism, for example, and recycling programs, and diversity initiatives. Our efforts to improve our social performance were especially strong in education, where we began reaching out to classrooms and chemistry labs in real, tangible ways. We donated equipment, donated people, donated money – a lot of money – and dedicated our expertise to improve education in science, technology, engineering, and math.
In 1996 Dow formalized our intentions in these areas and gathered them under one umbrella called the 2005 Environmental, Health and Safety Goals. This was a set of groundbreaking, aggressive, and transparent goals to improve our performance across a wide range of health and safety initiatives. The goals spanned 10 years and called for quantum changes in our EH&S performance.
Embracing the triple bottom line allowed us to make an even greater difference on a global scale. That was especially clear when it comes to the environment and, in particular, energy and climate change.
The chemical industry is among the world's largest users of fossil fuels. In fact, Dow's global operations use the energy equivalent of 850,000 barrels of oil every day for energy and feedstocks. So it was important to us – and important to the environment and the world – that we find a way to reduce that demand.
Now, this was not a cheap endeavor. We have invested well over $1 billion to reduce our energy intensity and our emissions over the past several years.
The payback? Since 1990, Dow has reduced our energy intensity by 38% and since we announced our first goal to reduce our intensity by 20% in 1994, we have saved 1,700 trillion BTUs of energy … and prevented 86 million metric tons of carbon dioxide from entering our atmosphere. This energy savings is equivalent to all the residential electricity needs of California for 20 months.
During that same time, we reduced our absolute greenhouse gas emissions by 22 percent – well beyond targets set at Kyoto – and we have driven more than $9 billion in savings and efficiency straight to our bottom line.
So it was good for the environment, good for Dow's economics and good for our fellow citizens. A triple win for the triple bottom line.
And that is just one of many great success stories that became possible when we expanded our concept of ethics beyond codes, guidelines and simple compliance.
Still, the triple bottom line – as it is practiced most commonly today – has one great limitation.
Most corporations treat their triple-bottom-line programs as an add-on ... a necessary – but separate – piece of their business.
Foundations give out money. The Environmental, Health and Safety teams work to improve community and employee wellbeing. Public affairs teams make sure there is a dialogue with communities and there is a strong effort to be a good neighbor.
All of these are good and worthy actions. And I would not minimize the positive impact they have had on the business world and its many stakeholders. Just as I would not discount the importance of the Great Awakening. Both phases were important stepping stones to where we are today.
But Dow realized several years ago that, given the company we aspired to be, there was more we could do. There was more we had to do.
If we wanted to continue growing our company, while being true to our values, we realized we would have to actually integrate the triple bottom line sense of ethics to our business strategy. We would have to, in other words, make the Human Element a central part of our day-to-day business activities.
That's the next phase. As I said earlier, it is not only the most exciting phase, but I am convinced it will be – by far – the most transformative.
The Great Integration
Already in the six years since I became CEO and started us down this path – Dow has merged vision and values in a way that has transformed our business strategy.
Some of you may have read about the changes we have made in our structure and business strategy to seize the opportunities of this new century.
Much less well known is what I call our "Great Integration" ... how we have infused the values of sustainability and corporate responsibility into the DNA of the New Dow.
Let me explain, beginning with a brief description of Dow's transformation.
When we examined the business environment several years ago, we saw what we call "mega trends" emerging. These are game-changing global societal shifts that will shape the way we live, work and play during the next several decades. They are redefining the critically important market segments of health and nutrition, energy, consumer behavior, and transportation and infrastructure.
Consider this: The world's population is expected to grow from about 6.6 billion today to more than 8 billion over the next 25 years. The impact from this growth is astounding. The implications it has for our environment ... for our food supplies ... for our ability to find affordable housing and clean water ... are immense.
Around the world every year 1.5 million people die because of water-related illnesses. Every day, some 16,000 children die from hunger-related causes.
The fact is that as the world gets smaller – and humankind's problems become more complex and challenging – the stakes are raised for all of us.
We came to see these new global challenges as opportunities for Dow. In a real sense, they represent a vast sweet spot – here the world's most pressing challenges intersect with our ability to make a difference and make a profit.
Over the past six years we have literally rebuilt, reshaped and refocused our portfolio of businesses to meet these challenges. Those changes are well-documented and you can track them in the business press and in news stories.
What is less well known – and much less understood – are the cultural changes that have taken place in that time, most especially the Great Integration of the triple bottom line sense of ethics into our business strategy.
Remember the 2005 Environmental, Health and Safety Goals I mentioned earlier?
Once we made progress on those, we immediately took on more ambitious challenges to get us to this next level of integration. We call these our 2015 Sustainability Goals. They represent our intent to not only continue improving our EH&S performance, but to step up with even more far-ranging, more integrated, more collaborative and more innovative goals. At the core of that integrated strategy is our approach to sustainability.
For example, we know that global energy use is expected to rise 70 percent by 2050. Energy consumption is expected to grow by 14 percent in the U.S. alone and we anticipate the vast majority of that demand to be met with fossil fuels.
At the same time there is growing recognition that we need to slow, stop and ultimately reverse the growth of greenhouse gases that come from the burning of those same fossil fuels. How is Dow responding?
First, we looked internally and recommitted ourselves to making our plants and operations even more efficient and we are continuing to make great progress.
Second, we began searching for real solutions that will help mitigate this crisis for the rest of the world. So today, we are not only developing alternative feedstocks for our facilities, we have also embarked on a huge effort to develop and promote new energy efficiency solutions for customers. Everything from new forms of insulation to new solar shingles for residential homes. Dow has, for the first time in history, made solar power affordable to the masses. It is a fantastic story.
In the transportation field, we are responding to the need for more efficiency and alternative solutions in a variety of ways. We are building a new facility to manufacture 1.2 billion watt hours of large-format affordable lithium-ion batteries – enough to power 60,000 fully electric or hybrid electric vehicles annually. And we have developed a new filter that reduces particulate emissions from diesel engines by up to 99 percent. Other products from Dow make vehicles lighter, safer and more efficient than at any time during history.
Those are just a few examples of how the triple bottom line integration is driving our energy strategy.
But it goes beyond energy. Those same people who will be demanding more and cleaner energy will also need affordable housing ... they will need clean water ... they will need access to affordable, nutritious food. These are the basics of human existence – and yet providing these basics remain some of mankind's greatest hurdles.
For a science company, they also represent a vast opportunity to do good. Again, just a couple of examples. \
In the health and agriculture area, we have developed innovative new corn seeds that are not only more drought tolerant but also boast new levels of performance for weed and pesticide controls. At the same time, we have developed new Omega-9 canola oils that have zero trans fat and the lowest saturated fats among cooking oils. Over the past three years, they have replaced nearly 500 million pounds of so-called "bad" fats – or trans fats – in North America.
In water, we have developed reverse osmosis filters that today affordably treat billions of gallons of water every day in some of the least hospitable environments on earth.
As I hope you can see, our entire business strategy is now guided by triple bottom line thinking. From the businesses we choose to be in, to the products we develop and market, and to the R&D investments we make ... all are integrated with an eye toward solving the mankind's largest challenges.
In this third phase of our commitment to business ethics, we also realized that if we wanted to be part of the community – more than a neighbor – more than an employer – we needed a new approach to things like philanthropy and community engagement.
Instead of protecting our license to operate, in other words, we are now working to create sustainable conditions for our communities – and for us – to be successful.
The days of checkbook philanthropy, for instance, are gone. Today, we are leveraging our corporate citizenship contributions by aligning them to our business strategy, too. We make contributions where we can gain economies of scale and foster innovations that can sustain change.
In practice, that means we are forming many more – and many more innovative – public-private partnerships than ever before.
One great example is what we're doing with a group called WaterHealth International.
Dow is a world leader in developing and providing water solutions across nearly all markets. From filtration to purification and separation technologies, we have unmatched expertise and an unrivaled commitment to use that expertise to solve the world's water crisis.
So one of our projects is providing WaterHealth International with a $30 million loan guarantee and a great deal of functional capability to help finance 2,000 turn-key systems that will eventually supply clean water to more than 10 million people in rural India.
In the old model, we might have provided them with a check and said, "Go do good work." Today, we're working with them, hand-in-hand, to make sure their business model is sustainable and scalable.
This hands-on approach means that this one project has the potential to impact millions of the poorest people on earth. We are working with the local NGO and the village government to ensure ownership of these water systems passes to the villages in such a way that they are economically sustainable.
That kind of effort would not have been possible in a non-integrated model.
Another quick example, again in the water field. Dow supports something I hope you have heard of called the Live Earth Run. One of the participating cities was Marlborough, just a few miles west of where we are today.
By partnering with Live Earth, Dow was able to bring a tremendous amount of focus to the fact that one in eight people around the globe lack access to clean water. At the end of the day, Live Earth was the largest awareness, education and fundraising water initiative in history.
This project is the result of a commitment I made at Clinton Global Initiative in 2009 to use Dow's resources and our expertise to push for real solutions to this crisis. And it is another example of how infusing our concern for our fellow human kind can make a tremendous difference.
The Great Integration, the third phase of business ethics, ensures that each initiative is supported at a level that could not be achieved before. In other words, it is not only the right thing to do, but it is also the economically right thing to do inside and outside the company. We have found that where there is an opportunity to make a sustainable difference, there is also an opportunity to make money.
That is what President Bush meant by "capitalism with a conscience." That is how Dow is innovating – across our entire company – to develop solutions essential to human progress by providing sustainable solutions to our customers and our fellow man.
At the end of the day, I hope we are practicing the belief that Henry Ford – another Michigan entrepreneur – described more than a half a century ago ... that "a business that makes nothing but money is a poor kind of business."
Do not get me wrong: profit is important. It gives us the opportunity to sustain our business, reward our shareholders, support our other stakeholders and reinvest for new solutions and new innovations. But the modern-day corporation cannot exist solely for the intent of maximizing profits.
Modern-day corporations need a modern-day lens. And if you embrace the view – as we do at Dow – that we are part of the world and therefore have an ethical obligation to help humankind move forward – then business, any business, can be so much richer and more rewarding.
I like to think of the first phase of business ethics as an awakening of business to the idea that sustaining business on the planet meant protecting them from within the enterprise, where our values defined our culture but external audiences were ignored.
The second phase – the triple bottom line – introduced sustainability as a concept and created parallel programs where business was a partner – but not a driver – to sustaining life on the planet. Here, profit and planet co-existed.
The third phase introduced the integration of the idea of sustainability with the concept of sustainable life on the planet to create sustainable growth, where business has now become the driver and the enabler to protecting life on the planet.
That's why, at Dow, we have introduced "Protecting our Planet" as a value.
Before I take your questions, let me close with a special message to the young people in the audience. I understand how tempting it is for every generation to think that older generations are out of touch and perhaps even misguided. It is too easy to read the news headlines and conclude that business has no interest in ethics. And there is increasingly – among younger people – a feeling that "common decency" is neither common nor decent.
My message to you is this: do not give in to that view. Do not to succumb to that cynicism.
Push against it. Take your values, your morals, your ethical beliefs, your ideals, and insist that companies live by them. And do not do it from the sidelines. Sign up. Join in. Get involved.
If you do, you will find – as I have – that even the largest corporations are collections of individuals, and that every individual, from the shop floor to the board room, can make a difference.
The key is to remember that there is only one planet – that we are all on it together – and that the solutions to our problems will only come when we work together – collaboratively – toward mutual goals – and with our imaginations unleashed.
At Dow we call that the power of the Human Element – the 119th element on the periodic table but the one that makes the difference ... You.