Building CEO Capital Through Stakeholder Engagement Presented by

Building CEO Capital Through Stakeholder Engagement Presented by Dr. Leslie Gaines-Ross Chief Knowledge & Research Officer Burson-Marsteller September 30, 2004 Santiago, Chile

Defining CEO Capital

The New Corporate Valuation Tangible Assets Real Estate Equipment Inventories Manufacturing Intangible Assets Human Capital • Skills • Training • Knowledge Information Capital • Systems • Databases • Networks Organizational Capital • Culture • Leadership • Teamwork

Count Your Intangibles “In today’s world, where ideas are increasingly displacing the physical in the production of economic value, competition for reputation becomes a significant driving force, propelling our economy forward. Manufactured goods often can be evaluated before the completion of a transaction. Service providers, on the other hand, usually can offer only their reputations. ” Alan Greenspan Federal Reserve Chairman – Fifty years ago, tangible assets = 78% of assets of U. S. corporations. Today = 53%. – Business invested approximately $1 trillion per year in intangibles (Baruch Lev, New York University) – 35% of the buy-side analysts’ investment decision is based on non-financial data (Ernst & Young Center for Business Innovation)

CEO Capital Defined – Main Entry: CEO capital Function: noun Etymology: French or Italian; French, from Italian capitale, from capitale, adjective, chief, principal, from Latin capitalis 1 a (1) : refers to the wealth or equity created by a CEO’s reputation that, if harnessed properly, can benefit a company’s overall reputation and bottom line (2) : accumulated goods devoted to the production of other goods (3) : accumulated possessions calculated to bring in income

CEO Capital Matters – Leveraging a CEO’s reputation is a powerful tool with clear payoffs. The CEO’s reputation accounts for 50% of a company’s reputation Financial Capital Relationship Capital 93% Buy stock in a company 90 Maintain confidence if share price lags 89 Recommend company stock 93% Believe if under media pressure 91 Recommend as good merger partner 61 Prefer products/services over others Human Capital Attention Capital 88% Recommend as good place to work 75% Pay attention to company in media 33 Visit company Web site

CEO “Soft” Measures Matter Most Demand high ethical conduct Being credible Communicate a clear vision INSIDE company Attract & keep quality management team Motivate & inspire employees Care about customers Manage crises & downturns effectively Fosters corporate governance Communicate a clear vision OUTSIDE company Executes well on strategic vision . . . Increases shareholder wealth Has a proven record of delivering results

Engaging Your Stakeholders “What we have found is that there is a different group of stakeholders today that are important. . . ” H. Lee Scott Jr. CEO, Wal-Mart

Know Thy Stakeholders e-fluentials Retirees Peers Academics/ Gurus Media Financial Community Board Government/ Regulators Suppliers/ Partners Prospective Employees Associations Reputation Customers Senior Team Employees (the enterprise) Business Influencers Communities Society Industry Analysts NGOs/Special Interest Groups

Balancing Your Stakeholders – Determine precisely who your stakeholders are – Note that stakeholders may have different, even diametrically opposed interests – Recognize that companies can’t please everyone all of the time – Beware of sending competing signals Engage with external stakeholders – Know that positive stakeholder relationships can protect reputation during turbulent times – Communicate!

Importance of CEO Communications CEO Time Spent Communicating 53% Internal 51% 47% External Source: Burson-Marsteller Executive Survey, 2001

Touch Base With Your Internal Stakeholders Employees More than 7, 000 issues of Mi Papel are distributed quarterly to all the company's employees throughout Chile, Argentina, Peru and Uruguay.

Touch Base With Your Internal Stakeholders Board / Senior Team Software AG’s Karl-Heinz Streibich explained how he has been spending his time as the company’s new CEO, “I’ve been spending my time talking to people, consulting with the board, managers and staff about the future direction of the company. My top priority will be maintaining a strong customer focus. ” New CEO E. Neville Isdell said that he would devote the first 120 days visiting and speaking with Coca-Cola employees and managers “finding out what the state of the business really is. ”

Touch Base with Your External Stakeholders Wall Street / Lawmakers / Regulators Thirty days into his job as new CEO of KPMG L. L. P. (US) in May 2002, Eugene D. O’Kelly met with lawmakers, including Senator Paul S. Sarbanes, to discuss legislation, which ultimately became Sarbanes-Oxley changed corporate governance in the US as well as oversight of the accounting profession.

Touch Base with Your External Stakeholders Media At a recent conference, CEO H. Lee Scott Jr. acknowledged the importance of paying attention to different stakeholders and not just Wal-Mart customers. “What we have found is that there is a different group of stakeholders today that are important, and that is a person who’s not familiar with what we stand for. So their view of Wal-Mart stores is what they read in the newspaper and what they see on TV. We have decided it is important for us to reach out to that group. ” A company spokesperson added: “For too long, we thought that if we just focused on our customers then everything else would follow… We probably did not realize soon enough how important it was to work with the media… It is an acknowledgement that the media and others offer important venues for telling our story, and we need to continue doing a better job at that. ” Source: The New York Times, 09/09/04.

Touch Base with Your External Stakeholders Communities Codelco Good Neighbor defines interaction with communities. The goal is to strengthen relationships with the communities located near its operations through social responsibility and sustainable development. Some Actions: Voluntary environmental agreement - Goal: Remediation of historical environmental problems derived from mining activity Agricultural program - Goal: To develop projects that enhance the capacities and sustainability of agricultural communities Green areas in the desert - Goal: To forest arid areas at high altitudes Ecological Hacienda Los Cobres de Loncha - Goal: To establish a protected area

Touch Base with Your External Stakeholders Suppliers / Partners / Customers / Shareholders As new CEO of Miller Brewing Company in North America, Norman Adami improved relations with distributors, an important priority for him. A Miller wholesaler explained that since his tenure, Adami had brought “a performance culture to Miller’s dealings with distributors. ” Another stated, “It’s a whole different attitude and environment. ” In his first few months as CEO of Motorola, Ed Zander met with customers, partners and shareholders. He learned that Motorola lacks focus both in serving its customers and in determining what kind of company it is. Zander met with Nextel Communications’ CEO Tim Donahue, an important customer, with whom relations had become strained with previous Motorola management. Donahue stated that “Our relationship had gotten very strained… He [Zander] listened and understood and went back and did it. ” Donahue reports that relations with Motorola management have improved.

Touch Base with Your External Stakeholders NGOs Gap reports on non-compliance “The 40 -page report gives Gap an edge among those U. S. apparel retailers whose use of foreign suppliers has been a chronic source of criticism. ” Source: The Wall Street Journal, 05/12/04.

Touch Base with Your External Stakeholders NGOs A full-page Forestry Stewardship Council (FSC) advertisement in The New York Times (2003) turned a lot of heads in Chile. It read: “Your dream house, in a small clearing in the woods” and showed a modern, suburban house set in the middle of a devastated forest. The ad was meant to let Chile’s timber industry know that environmental activists in the world’s most important market were willing to be tough to get them to stop destroying Chile’s native forests. “The country’s two most important wood and paper products companies - CMPC and Arauco - took the first step to do what they can to protect Chile’s native forests. It will be a long road to go down, and they have agreed to work with us to continue in this endeavor. ” (FSC Chile Project Leader) Source: Santiago Times, 12/11/03.

Touch Base with Your External Stakeholders NGOs “The Corporation, ” a Canadian documentary, critiques big business and includes news clips of globalization protests.

Touch Base with Your External Stakeholders Prospective Employees For the second year in a row, BCI was among the 25 Best Companies to Work For in Chile, according to a survey conducted by the international firm, the Great Place to Work® Institute.

Touch Base with Your Stakeholders – In 2003, Codelco conducted a perception study among internal/external stakeholders. – Goal: To guide Codelco and improve stakeholder perceptions of the Corporation. – A Sustainable Codelco Index was created which summarizes the data and will be used as baseline for improving the image that communities and authorities have of Codelco´s performance in environmental and socioeconomic aspects. – Perception studies will be conducted each year. Source: www. Codelco. com Codelco’s Stakeholders

Thank You! “Despite the size and complexity of modern corporations, the person in charge still sets the tone, defines the style, becomes the company’s public face. ” – Fortune, November 18, 2002 “If you lose dollars for the firm by bad decisions, I will be understanding. If you lose reputation for the firm, I will be ruthless. ” Warren Buffett