Future Directions for Sustainability The Leadership Challenge

Future Leaders Forum

Melbourne, Australia
15 February 2007

Noel Purcell
Group General Manager
Stakeholder Communications
Westpac Banking Corporation

It is certainly a pleasure to be able to share views on future directions for sustainability.

And in particular, to reflect on how our leaders are dealing with these issues.

Let me cut straight to the chase. While leadership has played a role in driving
sustainability - its typically not come from where you might expect it.

Lets take climate change as the obvious sustainability starting point. After all, it is the
headline issue of today. It has certainly turbocharged the political landscape here and
elsewhere - albeit with the downside, at least for the time being, of sidelining other
critical sustainability issues: poverty, human rights, and so on.

In fact, the broad acceptance of global warming and climate change was a defining
feature of 2006. The science debate is over and the remaining sceptics have little place
to hide.

To date, however, business has not led but lagged on this No1 sustainability issue.
Business leadership on climate change has remained diffuse at best, shifting.

The definitive leadership on this issue has in fact come from the broader public and the
climate scientists. Its been the shifting public opinion that has been the catalyst for
getting big business and government to finally move beyond the rhetoric and the shorttermism.

And move they must. Currently we are producing greenhouse gases well in excess of
the capacity of our ecosystem to absorb it. Something, as they say, has to give.

However, the future sustainability challenge for business and political leaders is not just
climate change itself albeit that is the big one. Leaders need to also understand and
respond to the immense societal power shift which is well underway.

The reality of Web 2.0, Wikis, YouTube, MySpace, and so on has well and truly arrived.
Weve rapidly shifting from a world of isolated information silos to a vast open,
integrated, user-driven, digital communication and personal publication world. This is

taking participation, democracy, and social network building into previously unthought of
territory.

It is redefining society as we know it. But it is a world that is totally foreign to those in
traditional leadership roles. For the first time our leaders dont know what their children
are doing - who theyre talking to and what information theyre accessing.

What we have now is an increasingly connected, borderless world society where many
of the old controls simply dont work. What we have is a world that on one hand offers
great opportunity, but on the other can be a more dangerous and brutal one.

The sustainability challenge for our leaders is to ensure that the society that evolves has
the appropriate public interest controls and is one where unacceptable disparities are
reined in. In other words, a truly civil society that safeguards liberty and creates
opportunity for all.

What is clear is that politicians and business people urgently need to adapt to this
fundamental shift of power to the people. TRUST is more than ever central to any
sustainable leadership authority. And leadership RESPONSIBILITY has taken on new
meaning under the gaze of the piercing transparency, self-publication and instant
communications that increasingly dominate today. This means that corporations are
finding themselves under ever increasing pressure to respond on their social and
environmental footprints and impacts.

But it is equally important for leaders to recognise that this societal power shift is part of
a more fundamental global transition that is underway - a transition being driven by the
combined impacts of the unprecedented global economic and geopolitical power shifts
underway in addition to this societal power shift. The worrying thing is that we are not
well prepared for any of this.

For business in particular, it means he world is becoming a riskier place; fuelled by:

A growing disconnect between risk and effective mitigation;

Risks previously not specific to business now having an unprecedented impact

on the corporate world; and

Everything being much more interconnected than in the past, which means
individual risks cant be looked at on a stand-alone basis.

So where to for business?

The basic ethos that doing the right thing is inherently good business needs to become
the norm. It needs to become central to the way business is done.

The clear implication of this is that the concept of corporate value needs to be widened
to better align the strategic needs of the owners of the capital with legitimate public
interest.

This means that business leaders and capital markets need to fully open their minds to
the fact that good management of environmental, social, and governance performance together with reputation, stakeholder relationships and other intangibles - is
fundamentally linked to long-term shareholder value.

In fact, corporate leaders have little choice in this - trust and good corporate citizenship
are increasingly critical keys to real competitive advantage. This was one of the key
messages coming out of the World Economic Forum at Davos in January under the
theme The Shifting Power Equation.

And corporations today have little choice but to accept accountability for the externalities
of their business activities that impact public and stakeholder interests. This is part of
the necessary social licence to operate and the public will ultimately hold them to
account.

They can accept accountability either through a compliance mindset, or they can do so
in a way that de-risks the business, enhances their reputational capital - and thereby
adds to shareholder value.

The encouraging thing is that this blue-print for corporate value creation - economically,
socially and environmentally through responsible business practices - is now well
established at both the strategic and operational level.

But to fully capture the opportunities, business leaders are going to have to move
beyond the traditional walls of their institutions.

Corporate leaders must accept that their siloed hierarchical world, based on authority, is
being well and truly replaced by new rules, where trust is the denominator.

The world may not be flat, but the traditional boarders of corporate authority and
responsibility have been fundamentally blurred and certainly now extend well beyond the
corporate walls.

Corporate leaders also need to suspend the assumption that the answers lie in the past
and that rationality should always reign supreme. They will need to innovate and they
will need to place values and trust centre-stage. And above all, not just walk the talk but
talk the thought.

And they will also need to acknowledge the complexity in all of this - that we do not yet
have the answers, much less even the right questions.

The fact is that organisations today are as much social systems as economic engines and you cant drive behaviour, or ideas or innovation amongst employees (or customers
for that matter) in the way you drive a car.

This raises the question as to whether our traditional concept of leadership has outlived
its usefulness. And if we are looking for a new type of leadership to bring about a more
just and sustainable society, we may need to look in new places.

What strikes me from my many conversations around climate change and sustainability
is the desire for self-actualisation. People increasingly want to contribute through their
own action; to take charge themselves.

And it seems to me that leadership is increasingly being defined as much by the issues
as by any characteristics of our leaders.

Rather than looking to our leaders, perhaps more of the answers may lay in looking to
ourselves to bring about the required step-changes in our responses to the sustainability
challenges.

We certainly have the collective capabilities and now the means to come together as
individuals to do this.

After all, the worlds recent sustainability journey has been self-learned and largely a
function of networks of free-thinking individuals.

In many ways, the next revolution required in the sustainability journey is in consumer
decision-making and the choices people make in their daily lives.

But we are not just seeing our concept of leadership being questioned and redefined; we
are also seeing the role and structure of the corporation itself under the spotlight.

By this, I also mean the emerging environments for business, which go beyond
enlightened self-interest and seem informed by even more fundamental communitarian
ideals.

Certainly, one of the future sustainability challenges will be to revisit and perhaps
redefine the role of the corporation in the context of todays world.

We take the tenets of corporate governance for granted; ownership, agency

relationships and clear-cut accountabilities. But these are as much a system of beliefs
and principles as defined in law.

The reality is that our modern day form of capitalism is not looking all that sustainable.
The problem is that narrow self-interest and personal advantage has too often been
elevated to the status of core values. As a result public trust in corporations has gone
out the window.

Added to this, the owners of capital today are operating more and more as detached
punters. The prevailing behaviour is to play the market, with less and less focus on longterm holdings or on creating sustainable value.

Not surprisingly, this has impacted the behaviour of corporate executives themselves.
Fuelled by the spate of corporate scandals and excesses, and ever-rising executive
remuneration, theyre being increasingly accused of acting in their own interests rather
than as proprietors of lasting enterprises.

This is not a healthy situation and one certainly should start worrying when the
Economist Magazine itself featured an article entitled Pigs, pay and power, claiming
that executive pay lies at the heart of capitalisms troubles.

But it doesnt have to be this way.

A moral form of capitalism is possible, where the interests of the firm are reconciled with
the public interest.

But if this is to become the norm, business cant simply go on filtering out the signals that
are coming in loud and clear. We have to deal with the realities.

But there are signs of hope.

At this years World Economic Forum, for example, roughly 40% of participants named
climate change as the issue that would have the greatest impact in coming years. And
55% said climate change was the issue the world was least ready for. Something you
would not have seen just a year earlier from business and political leaders.

Perhaps more importantly, there was a broad consensus from participants that the
leading business figures of today are those that understand and are capitalising on the
sweeping sustainability trends influencing society.

And according to McKinsey recently, almost half of the US executives surveyed believed
they and their peers should play a much greater leadership role in publicly shaping
debate and addressing sociopolitical issues.

So there is at least a growing expectation in business that someone should take

responsibility.

How these new forms of leadership play out will be a defining factor, perhaps the
defining factor, in how successfully we confront the worlds sustainability challenges.

Thank you