Global CEO

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Transcript of Global CEO

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foreword

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“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 OfficerPricewaterhouseCoopers

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

"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. PAGE 7

"More than a third of the CEOs foresee a stronger anti-globalisation move-

ment resulting from the terrorist attacks and their aftermath. PAGE 8

"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. PAGE 11

"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. PAGE 15

"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. PAGE 16

"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. PAGE 19

highlights

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"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. PAGE 20

"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. PAGE 23

"More transparency is coming, but the results are hardly universal. Whereas

roughly 80 percent of Asia-Pacific CEOs expect to provide additional finan-

cial and non-financial information, only about one-third of Central and

South American CEOs envision increased transparency. PAGE 25

"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. PAGE 28

"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. PAGE 29

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-GeneralUnited Nations

Featured Interview: Wilfred KiboroGroup CEO The Nation Media Group and Ayo AjayiManaging Director and CEOUAC of Nigeria PLC

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26

30

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introduction

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.

SURVEY PARTICIPATION AND METHODS

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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 Europe1, 220 from North

America2, 269 from Central and South America3, and 356 from Asia-Pacific, including

173 from Japan4. 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.

“WE MUST CREATE CERTAINTY OUT

OF UNCERTAINTY. ”

Australia

“DO NOT PANIC. DO NOTHING

TO ENCOURAGE EXASPERATION.

HAVE A LARGER VISION.”

France

“KEEP THE DIRECTION IN THE STORM.”

Chile1 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

“THERE IS A CHINESE SAYING, ‘BAD

TIMES CAN ALSO BE OPPORTUNITIES

IF WE CAN MAKE THE BEST OF THEM.’”

Hong Kong

IN THE WORDS OF CEOS …

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

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.

THE GLOBAL IMPACT OF SEPTEMBER 11TH

g-impact

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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.

0% 20% 40% 60% 80% 100%

Increased expenditureson company andemployee security

Created or updatedyour company'sdisaster recovery plans

Revised financialforecasts downward

Cut staff

Cut spending

Imposed travel restrictions

Other

33%

48

43

19

42

48

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

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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

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

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

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

witnesses to the social and economic disruptions caused by what we now know to call

“asymmetric acts of war.”

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

0% 20% 40% 60% 80% 100%

Other

Continuing stagnation in the global economy

Reduced emphasis on e-commerce due to fears of cybercrime

Reconsideration ofvulnerabilities of global supply chains

Weakening ofAmerican/Europeanbrands in theglobal marketplace

Growing oppositionto globalisation

Reduced emphasis onoverseas investmentand expansion

57%

14

59

17

36

48

4

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

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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 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

“WE HAVE TO ACCEPT THE IDEA

THAT NOW WE ARE OPERATING

IN A MARKET WITH MORE

ELEMENTS OF RISK.”

Italy

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

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 watch-

word — 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.

THE GLOBAL ECONOMY

g-economy

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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 every-

thing — 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

P w C C E O S u r v e y • 11

0% 20% 40% 60% 80% 100%

24%

18

50

46

17

24

16

16

16

Plant/office closures

Cut back in researchand development

Workforce reductionsor lay-offs

Outsourcing of non-core business functions

Pay cuts

Abandoned orcurtailed internationalexpansion plans

Scaled back Internet-related expenditure

Sought additional capital through stock offering or borrowing

Others

0% 20% 40% 60% 80% 100%

Temporary fix Long-term adjustment

Plant/office closures

Cut back in researchand development

Workforce reductionsor lay-offs

Outsourcing of non-core business functions

Pay cuts

Abandoned orcurtailed internationalexpansion plans

Scaled back Internet-related expenditure

Sought additional capital through stock offering or borrowing

Others

27% 73

74 26

41 59

19 81

80 20

73 27

68 32

3961

3763

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

TEMPORARY FIX OR LONG-TERM RESPONSE?

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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

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 Asia-

Pacific 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

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

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“I WOULD ADVISE COMPANIES TO

CONSOLIDATE — SPEND LESS, REDUCE

HEADCOUNT. AS THINGS IMPROVE,

YOU CAN REINSTATE THINGS THAT

HAVE BEEN ELIMINATED.”

United States

“MAKE SURE YOUR ORGANISATION

HAS CONFIDENCE, REASSESSING

AND MOVING WITH THE TIMES.”

United Kingdom

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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.-30% -20% -10% 0% 10% 20% 30% 40% 50% 60%

The existenceof corrupt businesspractices

14

18

26

31

34

Lack of aneffective legal andjudicial system

Unstableeconomic policies

Lack of effectiveaccounting standards

Lack of strongregulatory frameworks

Little or no impact Considerable impact

UNSURE

12

10

10

14

12

NOT RELEVANT

-20% 51

-15 54

-9 53

-27 26

-20 32

EXHIBIT 4 INTERNATIONAL INVESTMENTSWhich issues affect the decision to invest in other countries?

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

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?

CORPORATE SOCIAL RESPONSIBILITY

csr

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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 coun-

tries, 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

“THE PROBLEM WITH GLOBALISATION

IS THAT THE POOR PEOPLE GET

POORER. WE NEED TO THINK ABOUT

THAT AND DO SOMETHING.”

Germany

“DEFEND GLOBALISATION AS A SOURCE

OF GROWTH IN THE WORLD.”

Chile

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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

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.

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.”

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,

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

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

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, environ-

mental performance, and support for community projects, while the last tier includes

charitable contributions and external endorsements or stamps of approval.

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

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

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0% 20% 40% 60% 80% 100%

Good environmentalperformance

Charitable contributions

Support forcommunity projects

Creating value for thecompany's shareholders

Provision of a healthy andsafe working environment

Acting responsibly towardsall company stakeholders,regardless of whetherthis is legally required

External endorsement/stamp of approval

71%

54

71

74

86

84

51

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

0% 20% 40% 60% 80% 100%

To a great extent

To some extent

Not really

Not at all

Unsure

47%

41

4

1

7

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

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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.

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 stake-

holders (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

P w C C E O S u r v e y • 17

Board members

Shareholders

Customers or clients

Suppliers

Employees

Management

Non-GovernmentalOrganisations (NGOs)

Government

Refused

0% 20% 40% 60% 80% 100%

22%

20

26

1

13

11

1

4

2

EXHIBIT 7 KEY STAKEHOLDERSWhat stakeholders influence corporate social responsibility strategy?

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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 influ-

ence on corporate social responsibility. In Europe, where boards typically include varied

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

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

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

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

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

-80% -60% -40% -20% 0% 20% 40% 60% 80%

Corporate socialresponsibility is largelya public relations issue

Corporate socialresponsibility is vitalto the profitabilityof any company

In the currenteconomic climate,corporate socialresponsibilityactivites will assumea lower priority

Strongly disagree Somewhat disagree Somewhat agree Strongly agree

-26% -25 20 8

-20

-29 -31 18 7

-5 -9 38 30

21

19

15

UNSURE

EXHIBIT 8 IMPORTANCE OF CORPORATE SOCIAL RESPONSIBILITY

To what extent do you agree or disagree with thefollowing statements?

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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

P w C C E O S u r v e y • 19

“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

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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]

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

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

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

media reports and other means, than elsewhere.

Is the anti-globalisation movement a genuine threat to doing business in years to come?

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

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

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

-100% -50% 0% 50% 100%

In light of theviolence at the recentGenoa meeting, theG8 governmentsshould abandon theirannual summit

The anti-globalisationprotest movement is a genuine threat to doing business inthe 21st century

Globalisation will be a positive forcefor social change

Globalisation will be a positive forcefor economic change

The globalisation trendwill exclude developingcountries and lead to an increased gapbetween “have” and “have-not” nations

-55% -20 5 5

-24 -20 22 11

-21 -26 21 12

-3 -6 36 43

-2-2 35 52

Strongly disagree Somewhat disagree Somewhat agree Strongly agree

EXHIBIT 9 THE FUTURE OF GLOBALISATIONTo what extent do you agree or disagree with the following statements?

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P w C C E O S u r v e y • 21

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 disappear-

ance 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 possi-

bilities 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

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

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.

THE VALUE OF THE ENTERPRISE

value

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P w C C E O S u r v e y • 23

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 ques-

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 opportuni-

ties arise. And market valuation depends ultimately on information.

In Exhibits 10 through 12, you will find the CEOs’ views on key information and valua-

tion 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.

Earnings

Innovation and R&D

Brands and reputation

Customer/client base

Customer/clientretention & profitability

Workforce qualityand retention

Cash flow

Market conditions

Sector performance

Corporate strategy

0% 20% 40% 60% 80% 100%

94 %

74

82

84

85

83

87

74

69

85

EXHIBIT 10 THE VALUE GAPWhich of the following do you take into account/do investors take into account when assessingcompany value?

Earnings

Innovation and R&D

Brands and reputation

Customer/client base

Customer/clientretention & profitability

Workforce qualityand retention

Cash flow

Market conditions

Sector performance

Corporate strategy

0% 20% 40% 60% 80% 100%

90%

5 7

73

60

66

51

81

71

69

78

CEOS

INVESTORS

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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-

prise is in part measurable (employee retention, higher educational degrees attained, etc.)

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’ dis-

content 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

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

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

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

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

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

Institutional investors 15

24

15

20

20

15

Retail investors

Employees

Suppliers

Rating agencies

Analysts

UNSURE

1

1

0

1

2

1

REFUSED

6

7

2

6

7

5

NOT RELEVANT

-40% -20% 0% 20% 40% 60% 80%

Not at all Not really To some extent To a great extent

-10 -23 25 10

- 4% -10 32 32

-2 -7 44 31

-5 -10 37 21

-4 -10 32 25

-3 -7 39 30

EXHIBIT 11 VALUE JUDGMENTSTo what extent do each of the following understand the value of your company?

Financialinformation

Non-financialinformation

CEOs that feel greatertransparency will helpinvestors understandcompany value

FINANCIAL SERVICES

TECHNOLOGY, INFORMATION, COMMUNICATIONS & ENTERTAINMENT

CONSUMER & INDUSTRIAL PRODUCTS & SERVICES

57%

54

91

59%

59

93

51%

49

91

0% 50% 100% 0% 50% 100%0% 50% 100%

EXHIBIT 12 INCREASING TRANSPARENCYDo you expect your company to become moretransparent in the financial and non-financialinformation it discloses?

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P w C C E O S u r v e y • 25

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

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

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.

IS THE INTERNET FULFILLING ITS COMMERCIAL PROMISE?

i-promise

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P w C C E O S u r v e y • 27

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 Asia-

Pacific 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.

The primarysales channel

Part of a multi-channel strategy for reaching customers

Part of tool kitfor doing business

Not importantto business

4%

40

47

9

0% 20% 40% 60% 80% 100%

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

0% 30 60 0% 30 60 0% 30 60 0% 30 60

NORTH AMERICA EUROPE ASIA-PACIFIC SOUTH AMERICA

4%

51

38

7

6%

40

44

9

4%

36

58

2

3%

35

42

20

The primarysales channel

Part of a multi-channel strategy for reaching customers

Part of tool kitfor doing business

Not importantto business

EXHIBIT 14 INTERNET USE (by region)Which of the following best describes your company’s use of the Internet?

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.

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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

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.

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

expectations of Internet-based sales.

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

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

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]

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

and industrial sector is less impressed: 35 percent of CEOs perceive greater loyalty, but 62

percent see no change.

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

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

version of how Internet-based commerce would grow was based on the expected commer-

cial 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

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

0% 20% 40% 60% 80% 100%

39%

4

57

Strengthenedloyalty

Weakenedloyalty

Had no impacton loyalty

Tracking in line with expectations

Tracking aboveexpectations

Tracking belowexpectations

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

0% 20% 40% 60% 80% 100%

40%

14

46

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

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P w C C E O S u r v e y • 29

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 acknowl-

edge 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.

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

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

17

19

UNSURE

1

1

REFUSED

Strongly disagree Somewhat disagree Somewhat agree Strongly agree

-100% -50% 0% 50% 100%

-7% -12 36 27

-2-5 41 32

EXHIBIT 17 FUTURE OF THE INTERNETWhat is the impact of the Internet on the global marketplace?

FINANCIAL SERVICES

TECHNOLOGY, INFORMATION, COMMUNICATIONS & ENTERTAINMENT

CONSUMER & INDUSTRIAL PRODUCTS & SERVICES

To a great extent

To some extent

Not really

Not at all

Unsure

0% 50% 100% 0% 50% 100% 0% 50% 100%

6% 6% 6%

37

18

32

7

31

17

36

8

39

18

29

8

EXHIBIT 18 BRAND AND SALES (by industry)What is the impact of chat rooms, unofficial websites, “virtual boycotts,” etc. on brand reputationand sales?

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

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.

THE CEO IN AN INTEGRATING WORLD

the ceo

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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 initia-

tives 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

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

“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

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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

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

“EVEN IN TIMES OF UNCERTAINTY,

OPPORTUNITIES CAN ABOUND.”

Singapore

“WE NEED TO FACE THE SPEED OF BIG

CHANGES, BE MORE QUICK IN DECISION

MAKING, DEVELOP APPROPRIATE STRATE-

GIES, AND ASSUME RISKS. WE MUST ALSO

ALLOW THE FLOW OF NEW IDEAS FROM

ALL SECTORS IN THE ORGANISATION.”

Mexico

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P w C C E O S u r v e y • 33

F E A T U R E D I N T E R V I E W

Looking at Corporate Social ResponsibilityThrough Experienced EyesINTERVIEW WITH NITIN DESAIUnder-Secretary-General for Economic and Social Affa irs , United Nat ions

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.

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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

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, bio-

methanation 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 develop-

mental problem, which is energy production.

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-

neering company that offers bio-methanation technology sees things

primarily from the economic perspective of finding markets for its tech-

nology. The municipality that buys the technology looks at the project in

terms of better waste management. Citizen groups will probably be con-

cerned 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 cir-

cumstances. 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 increas-

ingly 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

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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 corpora-

tion. 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 unaccept-

able 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

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

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, entrepre-

neurial 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.

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 environ-

mental conference at Rio, and it is happening because many successful

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corporations have espoused these concerns. Our goal at the next confer-

ence, 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 sim-

ply 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

various stakeholders on their companies’ strategies for social responsi-

bility. 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 deci-

sions about, say, locating a plant or about technology.

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 exami-

nation, 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

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 resolu-

tion 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.

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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 environ-

mental 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 under-

standing, 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 suffi-

ciently 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 stan-

dards 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 environ-

mental 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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Global Views from the African Continent

INTERVIEW WITH WILFRED KIBORO AND AYO AJAYI

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 wide-

spread 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 man-

aged 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 manage-

ment trainee in 1972 and has risen to lead a company employing 7,000 people.

ON REGIONAL ECONOMIC CONDITIONS …

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 market-

place 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.

F E A T U R E D I N T E R V I E W

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P w C C E O S u r v e y • 39

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 diffi-

cult 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

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.

ON GLOBALISATION …

MR. KIBORO: I am less than bullish about the phenomenon of globalisa-

tion 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 opportuni-

ties seems not to apply to African agricultural producers seeking access to

the European or North American markets. What’s more, Africa’s infrastruc-

ture 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.

ON THE DIGITAL DIVIDE …

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

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

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

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.

ON CORPORATE SOCIAL RESPONSIBILITY …

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 pres-

sure. 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.

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

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 coun-

tries, 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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