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In 1992, BAA, the company that manages Britain’s airports (it was known as the British Airports Authority before its privatization in 1987) unveiled its vision for a fifth terminal at London’s Heathrow airport. Community reaction was swift and strong: objections were raised about increased noise, increased air and ground traffic, and possible environmental damage. Public hearings were held, and the company did not receive approvals for its expansion plan until five years and many compromises later.

In July 2000, the same company launched its strategy for expanding London’s other major airport at Gatwick. The strategy, developed in partnership with local councils, residents, and environmental groups, included 150 separate commitments—40 of them legally binding—to protect the local community from the impact of the proposed development. By the summer of 2001—barely a year later—the ten-year, £1 billion development was under way, with no public inquiry.

The middle third of Private Buisness, Public Battleground: The Case for 21st Century Stakeholder Companies is the story of what happened at BAA between 1992 and 2000, told by two of the men most responsible for the company’s transformation: chief executive officer John Egan and director of corporate and public affairs Des Wilson.

(It’s sandwiched between the story of how Egan and Wilson became converts to the stakeholder approach and a final third that provides valuable advice for other corporations interested in following the same path.)

According to Egan and Wilson, the contrast between BAA’s approach at Heathrow and its approach eight years later at Gatwick “is a classic illustration of the benefits to a business of a stakeholder approach. It won the company a license to grow its business; it saved time, money, and corporate stress; it achieved a business result in harmony with its neighbors; and it left almost everybody involved feeling good about the process and its end result.”

It’s very satisfying to see the business case for a stakeholder focus being made so forcefully, with such concrete examples of the payoff, and by a CEO, no less.

Egan’s conversion to a broader view of business—the conventional wisdom is that the interests of the shareholder take precedence over all other interests—began at Jaguar, where he recognized the need for a customer focus at a company that was in terrible decline. To improve customer service, he had to first focus on motivating the automaker’s employees. But he didn’t start to think about the role of the broader community in a company’s success until he arrived at BAA and attended a town meeting to discuss the proposed expansion of Heathrow.

“Two things struck me,” said Egan following his return from that meeting. “First, our opponents have up to now been portrayed to me as environmentalists or citizen activists. But these are ordinary people, our neighbors. They’re not promoting an environmental or political cause; they’re just upset by the noise and traffic. Second, my guess is the rules have changed. We won’t get permission to grow the airport by counting on the legal process, on technical arguments, or even on political influence. We have to carry the majority of the community as well and that means we have to listen to them and try to find an answer to their concerns.”

It was then that Egan decided to recruit Des Wilson as BAA’s director of corporate and public affairs. Wilson had an interesting, non-traditional background, having helped launch Shelter—a charity for the homeless—written a column for The Observer, and conducted a high-profile activist campaign to force the removal of lead from gasoline in the U.K.

Together, the two set out to transform BAA’s culture and its relationship with the outside world.

“It is extraordinary how many highly intelligent businessmen could not see the logic of the stakeholder approach,” say the authors. “After all, by the last 30 or so years of the 20th century most understood that if you treated employees well, motivated them with the proper incentives, involved them, gave them a stake in the company, you would get better performance and this would be reflected in better quality work and greater productivity. All but the incurably stupid understood that if you care about your customers and sought to satisfy them, they would return and buy more, and this was good for business….

“Why then was it so difficult to extend that understanding to other, social stakeholders, notably neighbors, the local community and the countries the company operated in?”

In 1995, Wilson launched what would become known within BAA as its Contract with the Community. In short, the company would ask permission from its neighbors to develop its airports, and would seek practical solutions to their concerns about the negative effects of expansion. If the negative effects could not be entirely balanced, the company would compensate its neighbors by making a positive contribution to community life.

The contract met with some opposition within BAA, even though it had the support of the CEO. Some managers viewed it as a distraction, taking them away from operational priorities to focus on soft issues. Others felt activist groups were either anti-business or anti-capitalist and that working with them would encourage them to be bolder and more unreasonable in their demands.

Egan and Wilson disagreed: “We do not share the view that these groups are undemocratic and by definition enemies of business to be defeated at all costs. The right of citizens to fight for their interests is a fundamental feature of democracy.”

That’s not to say that BAA did not dig its heels in when it felt its opponents were being unfair or acting outside the law.

“The company has every right to argue its case forcefully and, where it has the opportunity and the case to defend itself from lawless action by use of the law, to do so,” say the authors. “Even in such cases, though, the company should fight the unreasonable reasonably. There is no better indicator of where right lies than in the behavior of the advocates in the dispute; those who argue and behave reasonably, especially in the face of lack of reason, are far more likely to be persuasive.”

But over time, the relationship between the company and the activist groups who opposed it grew less confrontational.

Says Janis Kong, the former Gatwick airport manager (Egan and Wilson wanted someone with operational experience) who headed the Contract with the Community board, “Local residents just need to know that they can have some input in decision that affect them. I’ve found that no one’s unreasonable unless they feel they have no control. Most people welcome partnership. You’re treating them with the dignity they deserve.”

Kong was instrumental is helping the company build relationships with the communities around Gatwick, learn of their concerns, and address them before it unveiled its expansion plan. When BAA unveiled its proposal for Gatwick, “the document was not the first salvo in a legal war, but a negotiated settlement.”

The authors are adamant that BAA’s approach to stakeholder management succeeded because the company was sincere in its efforts to build better relationships with its stakeholders, and because it was prepared to make real, substantive cultural changes—going further than many companies who see social responsibility as an image issue.

Wilson warns strongly against seeking cosmetic solutions, an approach he denigrates, after the fashion of our times, as “mere public relations.” (He tells a story about the chairman of a chemical company whose office overlooked a beautiful lake. The chairman commissioned a photograph of the lake, but when it was delivered it showed a red smudge on the water—the image of the company’s chemicals in the water, invisible to the naked eye by picked up the camera. He was horrified, and told his PR person to do something about the problem. The PR person did, returning two days later with another version of the photograph, with the red smudge airbrushed out.)

According to Egan and Wilson, “The charge that corporate citizenship, corporate social responsibility, and stakeholderism are a PR invention is one we have to answer. Because there is some truth in it. There are companies that believe a bit of philanthropy is all that is needed to smooth the path to their objectives. There are others that believe making a few gestures to social responsibility can cover up the real environmental and social impact of their business. There are those who believe that high-minded rhetoric or glossy publications will do the trick.”

The public won’t be fooled by such an approach, and activists are likely to throw a corporation’s broken promises back in its face, the authors warn. Moreover, “there is another group the company has to be particularly sensitive to, namely its employees, who will not be fooled by lies and whose wholehearted support is vital.”

Having said that, Wilson argues forcefully for a lead role for public relations professionals in the stakeholder process. The director of corporate and public affairs can be a key player because “he or she controls the channels of communication, both internally and externally…. If he is properly in tune with the world outside the company (and that is his job), he should know what the stakeholders are thinking and saying and warning.

“Second, he is often able to stand aside from the day-to-day operations and better see how the company is positioned in relation to its stakeholders and how it can be positioned.

“This, he should be a professional communication, in charge pf the company’s communications channels, and thus be able to give the change real impetus by keeping it in the forefront of company thinking and not allowing any initial enthusiasm to die.”

Both Egan and Wilson believe that companies should aggressive community their stakeholder initiatives, without exaggerating their successes, and point to a MORI poll conducted in the U.K. showing 86 percent of the public wanted to know more about corporate activities.

According to the authors, “Accountability is a key factor in corporate social responsibility, so proper reporting of its programs is a company’s obligation. Stakeholders need to know that their concerns are being addressed, their interests protected. Employees need to know what the company is doing and why, and how they can get involved. Shareholders are entitled to have the approach and the program explained to them and to be helped to see the value.”

Egan and Wilson make it clear that the transformation to a stakeholder company is not easy. There are no short cuts.

But ultimately, Private Buisness, Public Battleground makes a compelling case that stakeholder companies will be more successful over the long haul than those that adopt a narrower focus. Stakeholder companies will have better intelligence about the business (and political) environment in which they operate; find it easier to recruit top talent; meet less resistance to their plans; and generate greater customer loyalty. At the end of the day, they will deliver better results to their shareholders than those companies that focus exclusively on their shareholder audience.

In addition to smoothing the approval process for BAA’s Gatwick development, the Contract with the Community and the company’s commitment to the stakeholder approach had other payoffs. In 1999, the British treasury department sought to break up the company. The government’s inability to prove that BAA has abused its monopoly power—by putting the interests of shareholders above the interests of its other stakeholders—ensured the company’s continued license to operate.