Mary Kay Haben Wm. Wrigley Jr. Company 2008 Leighton Lecture on Leadership and Ethics College of Business, University of Illinois Urbana-Champaign [TITLE] It’s great to be here. I love coming back to Champaign. The University of Illinois is special to me and my family. We bleed orange and blue. As Dean Debrock noted in his kind introduction, my husband and I were here in the mid ‘70s, and I graduated in 1977 with a B.S. in Business Administration. And now my son, Mike, is here. He’s a sophomore studying business. Much to his chagrin, I come to Champaign often to see him and to tend to my duties as chair of the Illinois alumni association. Because I’m a mom and it’s my job to embarrass my children, I had planned to ask Mike to stand up and say hi to everyone. But he’s not here. He claims he has a Finance test tonight. So since he’s not here, I’d like to ask Mike’s buddies from the ATO house to stand up instead. And, as a favor to your mothers, it’s my pleasure to embarrass all of you as well. That was a mom’s version of ethical hazing. [SLIDE 2] I’m honored that you’ve invited me here to deliver the Leighton Lecture in Ethics and Leadership. Special thanks to Gretchen Winter, the executive director of the Center for Professional Responsibility in Business and Society, which is co-sponsoring the Lecture. Thanks, also, to Avijit (Ah-vee-jitt) Ghosh, and Mary Porter for their support. And of course none of this would be possible without the support of Richard and Grace Leighton. They are unable to attend this year. But Dick Leighton's brother, Morris, is here, and I want to extend a special thanks to his family. Let me begin by saying that things have changed a lot since I was a student here in the 1970s. [SLIDE 3] The good news is that football team is a lot better now. Illinois finished 9 and 3 last year. My senior year, we were 3 and 8. Illinois never saw a bowl game in the 70s—let alone a Rose Bowl game! So consider yourself blessed. [SLIDE 4] Fashions are a lot better today, too. Take a look at me in 1977. What was I thinking?! There’s been considerable change in the business world, too. I’ve seen a lot of it. And that’s what I’m going to talk about today. [SLIDE 5a] When I was your age, a consumer’s relationship with corporations was simpler than it is today. When I was 20, corporations mainly did two things: They made stuff and sold stuff. If I wanted a new pair of jeans or something for lunch, [SLIDE 5b] I shopped around and eventually chose a pair Levi’s—or maybe even a pair of Jordache designer jeans. [SLIDE 5c] Or I went to Burger King for a Whopper. That was the social contract between the corporation and the customer back then. Corporations simply made and sold products. And customers either bought or didn’t buy. So when I was in the market for blue jeans or burgers, [SLIDE 6] I didn’t know the name of the CEO at Levi’s or Burger King. I hadn’t seen them on “Squawk Box” … because “Squawk Box” didn’t exist. At that time, many CEOs were not well known to the general public. And that’s the way they liked it. The product was the star of the company—more than the company that made the product, and certainly more than the CEO. [SLIDE 7] Now fast forward to this generation. That same CEO is still making and selling stuff. And they still want you to buy the stuff they make. But today the smart CEOs realize that you are buying a lot more than simply burgers and jeans. You are buying into the company. You’re also buying the CEO and his or her leadership team, too. What do I mean by that? [SLIDE 8] Well, let’s start with a pop quiz. A show of hands, please: How many of you have ever heard the term sweatshop? The dictionary defines a sweatshop as a “manufacturing workplace that treats its workers inhumanely, paying low wages and often having harsh and unsafe working conditions.” [SLIDE 9] It was college students like you that were the first to demand that the companies that sell blue jeans be accountable for the labor conditions under which their clothing is made in the developing world. If the CEO ignored you and told you his or her company didn’t owe you an explanation, you answered back with your wallet—and stopped buying those jeans. [SLIDE 10a] It was also college students like you, along with environmentalists, who in the 1980s started pressuring companies like Burger King and McDonald’s to be more mindful of the environment. McDonalds eventually stopped serving burgers in these packages, [SLIDE 10b] which I am told take about 100 years to decompose in a landfill. When I was a student, most members of the public and most of the analysts on Wall Street rewarded a company for making and selling stuff. [SLIDE 11] Increasingly, how goods are made and sold is becoming as important as what is sold. And who is selling them matters, too. [SLIDE 12a] This is one of the reasons you see CEOs on TV so much these days on TV talk shows and even in commercials. A 2003 Burson-Marsteller study reported that [SLIDE 12b] nearly 50% of a company’s reputation—good or bad—can be attributed to the CEO’s reputation. It used to be that reputation was based solely on product. Now it’s the product, the company and the CEO. [SLIDE 13] When I was a student at Illinois—you took core classes in accounting, finance, marketing, econ, and statistics. Then you put those skills to work—at IBM, Kraft, McDonalds, etc. Today if you want to lead a corporation, you still have to be really good at these core fundamentals. You still have to make and sell great products. [SLIDE 14] But today you also have to understand the soft side of business—the social side—in a way that wasn’t really talked about as much when I was in school. What used to be dismissed as “soft stuff”—the social and environmental issues that surround a company—is increasingly becoming harder stuff. And the people leading the world’s best corporations get this. Notice I didn’t say the people running corporations or managing corporations, but the people leading corporations. [SLIDE 15a] Because, increasingly, there is a new equation for success in business. And it’s this: [SLIDE 15b] When you add strong leadership skills to high ethical standards, you get stellar reputation. And these days, reputations are worth money. A lot of money. [SLIDE 16a] So for the rest of my time here today, I want to talk about how you can get a great return if you invest in your reputation. How a good reputation will not only make parents and professors proud—[SLIDE 16b] but add more money to your pocket or purse. (Pause) Leadership and ethics are more valuable than ever in the marketplace because[SLIDE 17] —I’m sad to report—public trust in corporations, politicians and even our sports heroes isn’t what it used to be. I love sports. And I love competition. I love watching the best athlete or team win based on merit. [SLIDE 18] That’s why, if you’re a sports fan, the Kelvin Sampson-Indiana controversy or the Roger Clemens steroid accusations make you angry… and they have a profound impact on the reputation of the players, the school and the sport. And eventually it will cost them money. (Pause) [SLIDE 19a] In a 2004 poll, 71% of adult Americans felt that only “some” of the top 1,000 companies in America operate in a fair and honest manner. [SLIDE 19b] But in comparison, 79% of Business executives said that “almost all” or “most” of the top 1,000 corporations in the U.S. are operating in a fair and honest manner. Now that's a big disconnect. I happen to agree with the business executives. I have worked with many people of incredible integrity over my career. People I have placed a great deal of confidence in. And people I know the public can trust. And I’m working with them now at the Wrigley Company as well. [SLIDE 20] Increasingly, experts are proving that good reputations translate into increased sales, shareholder returns, and employee retention. [SLIDE 21] When the choices you make—which is leadership—are added to the behavior you model—also known as ethics—the result is reputation. And good reputations generate strong returns. [SLIDE 22] A new paradigm is emerging in business. Some call it the “ROI of Reputation.” In short, positive reputation translates into increased sales. [SLIDE 23a] Let me give you example: Dr. Paul Argenti of Dartmouth and his colleagues at Communications Consulting Worldwide have devised a formula that “monetizes” reputation. [SLIDE 23b] According to their research, a company's reputation for being able to deliver growth, attract top talent, and avoid ethical mishaps can account for much of the 30%-to-70% gap between the book value of most companies and their market cap. [SLIDE 24a] Other experts are studying reputation, too. According to researchers at Wirthlin, a polling firm, [SLIDE 24b] eight in ten Americans say their view of a company’s ethical behavior and practices has a direct influence on their willingness to buy that firm’s products. [SLIDE 24c] And three out of every four of us say that the perception of a company’s honesty would affect accepting a job or influence their decision to buy that companies stock. [SLIDE 25a] We’ve been talking about all the benefits you accrue—as an individual or a corporation—when you’re reputation is strong. Communications Consulting Worldwide—the consulting firm that “monetizes” reputation has conducted additional research. [SLIDE 25b] Through an elaborate statistical regression model, CCW analyses everything from stock movement data to financial disclosures and economic conditions to more intangible data such as media coverage, opinion surveys, investor interviews, the company's public statements, reputation rankings in magazines. [SLIDE 25c] The result? CCW concluded that if Coca-Cola enjoyed the same reputation as Pepsi, its stock would rise 3.3%, boosting their market cap by $4 billion. [SLIDE 25d] Similarly, if Colgate enjoyed the same reputation as P&G, its stock would rise 6.2%, boosting its market value by $2 billion. Companies will always have to compete on quality and price. [SLIDE 26] But, in the digital age—where consumer blogging can impact a companies’ image overnight, the next competitive frontier is reputation. [SLIDE 27] Consider Unilever and P&G. Both are in a competition to see which company can be the most socially responsible. They are each spending millions in the developing world on corporate social responsibility programs. [SLIDE 28] Unilever’s Pantene shampoo has a program called “Beautiful Lengths” that collects locks of hair to make wigs for cancer patients. [SLIDE 29] And P&G is donating water purification equipment across the developing world where water quality is an enormous problem. [SLIDE 30a] Social programs like Unilever’s and P&G’s deeply resonate with about 10-15% of the population. And since all of us brush our teeth and wash our hair… that suggests that 10-15% of the people in this room will be converted into evangelists for these companies and brands. And in the weeks and months ahead, the same 10-15% of folks here will [SLIDE 30b] further influence about 24% of the hard-core health and sustainability segment who make purchasing decisions based on a company’s commitment to social responsibility. [SLIDE 31] And that will add up to more sales and profits for these companies. (Pause) [SLIDE 32a] So today, a company that wants to get a high return on its reputation investment has to do three things. [SLIDE 32b] First, think beyond profit. I know you're thinking, what did she say? That's what it is all about, profits, right? Last week, Steve Demos, the creator of Silk Soy milk and CEO of White Wave foods said in the Wall Street Journal interview that "the first and foremost priority of any company is to make a profit, so it will be here tomorrow.” If you don’t make money, you can't sustain a business. So what do I mean by go beyond profits? [SLIDE 33] A consultant named Andy Savitz recently wrote a book in 2006 called the Triple Bottom Line. In his book, he says that the best companies now and in the future are those that go beyond profit to also take into consideration Planet and People, hence the triple bottom line. Yes, shareholders still matter. They matter a lot. But so do stakeholders. Select stakeholders can be as passionate about People and Planet as Wall Street is about profits. [SLIDE 34a] So who are “stakeholders”? They are the people between the company and the customer. And these people have enormous power to influence the success of brands. [SLIDE 34b] These influencers include a news media that runs 24 hours a day, watchdog groups, government regulators, and consumer advocate groups as well. This is why we’re seeing a shift in how companies are led today. If you leverage your reputation successfully, you can influence and win over stakeholders as well as shareholders—and increase the value of the triple bottom line. [SLIDE 35] Let me give you an example of how one company is doing this...GE. GE has a legacy of returning dividends to shareholders and is consistently ranked as one of America’s most admired companies. But because of that success, GE is also one of the most scrutinized. Not because it’s bad … but precisely because it’s good. One of the things you’ll learn about leadership companies is that they are constantly doing more than the law requires—and often more than popular opinion dictates—for no other reason than because it’s the right thing to do. [SLIDE 36a] In 2005 GE launched a bold new campaign called Ecomagination. Ecomagination is based on the premise that financial and environmental performance can work together to drive company growth. In other words, doing good for the planet helps you do well on the bottom line. Or, as GE even more succinctly puts it, [SLIDE 36b] “Green = Green.” So GE is building everything from low-emissions locomotives to wind turbines to environmentally-friendly jet engines.... [SLIDE 37] and is further committed to reducing its greenhouse gas emissions. And GE is constantly keeping the public informed about the progress its making—and is including stakeholder perspective in their decision making process. The triple bottom line appears to be working for GE. The company is making huge strides to make an equal commitment to people, profit and planet. [SLIDE 38a] In order for the triple bottom line to succeed, though, senior executives at the highest levels of a company must be on board—as they are at GE. Management stock options and bonuses are pegged to their ability to meet triple bottom line commitments. [SLIDE 38b] That’s leadership. And they must back their good intentions with good behavior. They must deliver products that do what they’re promising— [SLIDE 38c] and that’s ethics. And when you add leadership and ethics, [SLIDE 38d] you get reputation. And when your reputation is strong, the return on investment can be high. (Pause) [SLIDE 39a] So we just talked about the first thing you have to do to get a high return on your reputation investment—and that’s to think beyond profits. The second thing you have to do: [SLIDE 39b] Be Impeccable. I mean a lot more here than motherly advice about pulling up your sagging pants, or tucking your shirt in or combing your hair. I’m talking about impeccable behavior. [SLIDE 40] The dictionary defines the word impeccable as the ability to be “so perfect or flawless as to be beyond criticism.” [SLIDE 41a] In the digital age, everyone is watching, all the time. And behavior that is less than impeccable will be discovered, and can make or break reputation in seconds. So today, if you’re a corporation, your behavior must be impeccable. The government is watching companies very closely following the scandals like Enron and WorldCom —to name a few. [SLIDE 41b] Congress passed Sarbanes Oxley, which requires companies to be significantly more transparent in their financial reporting. Stanford’s Hoover Institution estimates that corporate America incurs more than $35 billion a year in costs just to comply with Sarbanes Oxley. This is very good news for the accounting majors in this room—and the big firms that will soon hire you. [SLIDE 41c] Ordinary citizens can now find out more about a company than ever before from annual reports and SEC filings—all of which are now available online—as well as report cards issued by consumer groups. Conversations about product and brands are happening in chat rooms all across the internet. So leaders have to realize they are always being watched. If a company or leader does something they shouldn’t, the public will learn about it and reputation will be impacted. In fact, the mistakes of a company will be “marketed” across Internet and media by competitors and critics alike. [SLIDE 42] Let me give you an example of what I mean: GAP, a leading clothing retailer, committed not to have its product made in substandard factories. The company has more than 90 full-time employees conducting announced and surprise inspections in more than 2,000 garment factories across the globe. But in a system that big, it’s sometimes virtually impossible to see and know everything that’s happening everywhere at every minute. [SLIDE 43] As a result, last fall, it was discovered that one of the GAP's subcontractors in India was running a factory staffed by children as young as ten. Hours after the factory was raided, these were pictures flashed around the world, thanks to a global media and labor and human rights activists in India. And before you know it, the CEO of GAP spent considerable time explaining how child laborers slipped through the cracks. He had to do this to avoid boycotts, lawsuits or calls for Congressional investigations. [SLIDE 44a] The good news is that GAP took full responsibility and fixed the situation—the company met with its contractors and subcontractors to emphasize its position, and refused to sell the products made by children. [SLIDE 44b] This is one of the reasons GAP was named last year as one of the world’s most ethical companies by a magazine that evaluated 5,000 companies across 30 industries. [SLIDE 45] So the moral of the story is this: All you need today is a laptop, an internet connection and a webcam and you can turn a CEO’s world totally upside down in a matter of minutes. This new transparency –while great for business ethics overall – can be very challenging for corporations. Smart companies understand that with everybody watching all the time their goal should be to “get caught doing good” … so they can accrue positive reputational ROI. [SLIDE 46] That’s what Dunkin Donuts did when they leveraged the new transparency to turn a potential issue into an opportunity. A few years ago a Dunkin Donuts customer, got mad at the company for not offering skim milk to customers at its stores. He also told the world about his unhappy experience. He launched a website called dunkindonuts.org, and he invited other customers to post their complaints against the company on his website. What did Dunkin Donuts do? They decided to go into partnership with the customer. And while allowing him to continue to post complaints, they also convinced him to post positive information about the brand, too. In time, the site became a veritable commercial for the company. [SLIDE 47a] The point is everybody is watching all the time. All of you in the audience are being watched as well. So I encourage you to behave impeccably as well. Everything you do or say as a 20-year-old in 2008 creates a “permanent record” in a way it didn’t when I was in college. When my friends and I were students here 30 years ago, we certainly did our share of embarrassing things like many of you have. And if we were feeling really bold, my girlfriends and I wrote about our indiscretions in our diaries that we kept hidden in our sock drawers. [SLIDE 47b] But today, there are people on this campus who actually publicize their most embarrassing moments on Face Book and My Space pages. I know you have heard the before, but it bears repeating: Be smart! The reputation you earn here at Illinois can help or haunt you one, two or even ten years from now when you’re applying for a job in Boston or Dallas or wherever. [SLIDE 47c] When your name is typed into a Google search engine, do you really want the HR manager you’re trying to impress to see your name and photo on My Space showcasing your worst drinking experience in college? And this kind of stuff is already happening. [SLIDE 48] Last year in Florida, the manager at an Olive Garden restaurant lost her job over a picture that her daughter posted on her My Space page. The picture showed the restaurant manager, her daughter and other people from the restaurant holding up empty beer bottles in a pretend toast to the daughter, who was celebrating her 18th birthday. The top brass at Olive Garden said the pictures sent a mixed message to their customers about the dangers of underage drinking. As is noted on this web page, the Las Vegas rule—that’s the one that states “What happens in Vegas stays in Vegas”—doesn’t apply here, because what's said and shown on My Space could affect you or in this case your parent's in the work place! So here’s my advice to you not just as a business person, but also as a mom—and if it’s the only lesson you take away from my speech today, then I’ll have been a smashing success: [SLIDE 49] The most important asset you will ever own or manage is your reputation. [SLIDE 50] Billionaire Warren Buffet echoes this sentiment, saying, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” (Pause.) [SLIDE 51a] So let’s review: For a business to earn the maximum ROI on Reputation, you must first Think Beyond Profits. Next, you must Be Impeccable. And finally, in times of crisis, you must [SLIDE 51b] Be Accountable. Let’s face it. No matter how much you strive to be perfect we’re only human. Mistakes happen. Bad decisions get made. And the real measure of leadership skills and ethics is how one performs when trouble comes. [SLIDE 52a] Because leadership is about accepting responsibility—and the presence or absence of visible leadership and ethics will impact a company's reputation. Experts say accountability—the company “taking responsibility” for issues—is the most compelling factor underlying corporate reputation. In other words, when you make a mistake, as we all do – [SLIDE 52b] say you’re sorry, take responsibility, and make it right. Again, this is the same advice moms give kids. Whether you’re 16 and wrecked the car or 56 and the CEO of clothing company, if you make a mess, clean it up. If you break something, don’t try to cover it up, fix it. [SLIDE 53] In the digital age, you can’t hide your head in the sand. Instead, you must be transparent—with the news media, watchdog groups, employees, regulators, customers, and communities. Transparency during a difficult time is a bold expression of leadership and ethics. [SLIDE 54] Betsy Blaisdell, an executive with the Timberland Company, said "it's less risky to be more transparent...transparency is expected from an increasingly skeptical consumer." What that says is that the company is accountable. The company knows it may be confronted—maybe even attacked. But leaders take responsibility and move on. Like my friend Bob Eckert did. [SLIDE 55] Bob was my boss at Kraft. If his name is familiar to you, it’s because he was on TV a lot last summer. He’s the CEO of the Mattel toy company. For those of you who don’t remember, millions of Mattel toys produced in China were recalled last year because of lead paint and design problems. The Bob I saw on TV was the same Bob I used to work for. He has a personal credo that he has held to all is life. He says, 'how you achieve success is just as important as success itself.’ And during Mattel’s toy recalls, he demonstrated the leadership and ethics that made me one of his staunchest admirers. Talk about accountability and accepting responsibility! Bob actually embodies all three of the values I’m talking about: [SLIDE 56a] First, he thought beyond profit. “My focus was always on What’s the right thing to do [for the public good]?” By factoring in public concern at the outset, Eckert predicted—rightly—that Mattel would be a better company in the long run. [SLIDE 56b] Second, he behaved impeccably. No one was under the spotlight as Bob was. And by being transparent with the media, communicating with employees, and cooperating with the press and the government regulators, he engendered goodwill. Bob said friends, colleagues and people he’d known for decades reached out to him and stood by him during the crisis. [SLIDE 56c] And finally, he took responsibility. He worked with regulators and retailers to identify the impacted toys and remove them from retailers’ shelves. Bob apologized to parents all over the world and has committed to improve the company’s proceedures to help ensure this doesn’t happen again. Some might say Bob Eckert’s leadership and ethics helped prevent his company from hitting “stock shock” – when stocks plunge after a major business hit and never recover. In Mattel’s case, on the day of the announcement, shares in Mattel dropped 57 cents, to $23. During the height of the recall, Mattel's stock dropped as much as 25 percent from its year-to-date high. [SLIDE 56d] But it bounced back. And now six months later, it’s trading at almost $20 a share, which while down from a few months ago is in line with the overall S&P. And because of Bob’s leadership and ethics, [SLIDE 57] Fortune magazine says he deserves some of the credit for Mattel having been named by the publication as one of the 100 Best Companies to Work For. (Pause) [SLIDE 58] Likewise, when I think about the convergence of thinking beyond profit, impeccability, and accountability, I think about our executive chairman, Bill Wrigley, Jr. [SLIDE 59a] Bill understands reputation better than anybody. Every day he has to live up to the legacy of his name—it’s the name "on the door" so to speak, and it’s on every product and package we sell. Bill cares deeply about what he calls [SLIDE 59b] “Generational Growth.” When he makes decisions, he isn’t thinking about how to make a quick buck. Instead, he thinks about what he needs to do ensure earnings per share growth quarter after quarter, year after year, decade after decade. He listens to our customers, our shareholders and all the other stakeholders who have a vested interest in our company. And like his father, grandfather and great-grandfather before him, Bill Wrigley treats every person inside and outside of the company with Trust, Dignity and Respect. Because the Wrigley Company’s reputation—for great products, for ethical business practices, for strong leadership—is built on these principles. It’s one of the reasons we’re a $5 billion corporation today. [SLIDE 60a] It is one of the things that atrracted to me to the company and why I am proud to be a part of the Wrigley Company today. Wrigley lives its values. Before I close, let me tell you a very quick story that demonstrates what I mean. [SLIDE 60b] Nearly a century ago, the company founder, also William Wrigley Jr., had so successfully negotiated a deal with a supplier that the supplier voiced strong concern that compliance with the contract would put the supplier out of business. So what did William Wrigley Jr. do when he learned of this? He tore up the contract and wrote up a new one — this time one that favored both sides. People with a zero-sum game reputation can make quick advances in business, but the people who have a reputation for win-win partnerships are the ones that go farthest. William Wrigley Jr. understood this, and his values that demanded treating people with trust, dignity and respect are the foundation which has made the Wm. Wrigley Jr. Company successful for over 100 Years. [SLIDE 61] Alan Greenspan, former head of the Federal Reserve, agrees with this and said, “I have found no greater satisfaction than achieving success through honest dealing and strict adherence to the view that, for you to gain, those you deal with should gain as well.” In other words, the ones who do the right thing win. (Pause) I would encourage all of you to do the right thing as well…and win. [SLIDE 62] There are a lot of reasons to feel good about the business environment you’ll soon be entering as young professionals. Companies know you’ve got choices and they want to attract and retain you. The people at the top understand that the world is moving faster than it ever has and they want to keep up. That will make jobs and careers more dynamic and satisfying than they might’ve been a generation ago or even a decade ago. More and more, corporations are doing things that used to be done only by non-profit organizations and government agencies. And often they’re doing it better and on a bigger scale. Today the business world is doing so much more than merely selling us stuff. The world’s best reputation companies are improving our quality of life and bringing basic necessities to people around the world. And you can be a part of that. Believe it or not, all these changes create a win-win for both employers and employees. Today the HR manager may be Googling you, but you can also Google the company as part of your due diligence process. [SLIDE63a] You can find out if the company’s ethics and leadership attributes are in synch with yours. And when you do, you can ask: ? [SLIDE 63b] “Does this employer make a good profit and also think beyond profit? ? [SLIDE 63c] Is its corporate behavior impeccable? ? [SLIDE 63d] And finally, “does it take accountability for its actions—both good and bad?” Because the company you choose is as important to your reputation as your reputation is to the company that hires you. [SLIDE 64] Thank you. (Pause) I am happy to take your questions.