Aim Toward A Higher Calling For Business: Building Purpose – And Value-Driven Enterprises

Edward J. Ludwig, Chairman and CEO of Becton, Dickinson and Company (BD), delivered the following address at the Atlantic Legal Foundation's Annual Award Dinner on November 2, 2011 as the recipient of the Atlantic Legal Foundation's Annual Award. With the exception of brief introductory remarks, the Editor presents Mr. Ludwig's speech in its entirety.

I’d like to begin by commending the Atlantic Legal Foundation for the good work that it does defending fundamental rights and individual liberties, promoting sound science and good corporate governance and providing legal representation in support of the same. I’d also like to congratulate Kathy Wylde on her Lifetime Achievement Award.

I have been giving considerable thought to this talk over the past several months. My musings have been taking place within a tumultuous and anxious global environment that is casting an increasingly hostile eye on the very foundations of the capitalist system. As I discuss this situation with other CEOs and corporate board members, we express a mix of curiosity and bewilderment at being so misunderstood by so many, from the streets of New York to the corridors of Capitol Hill.

What is the source of this outrage? What are people not understanding about our roles as business leaders? Don’t they see the value we create? Don’t they understand that the source of jobs, prosperity and innovation is, in fact, the very business community that they so vehemently disparage?

On the other hand, even a casual reading of business headlines over the past decade leaves one with a better appreciation for the roots of outrage and frustration:

• The Enron and WorldCom scandals
• Failed CEOs get huge exit packages
• Toxic mortgages
• Bank bailouts
• Windfall bonuses
• Insider trading scandals
• Tens of millions unemployed
• Broken promises

What is the true calling of capitalism? What is the true purpose of business enterprise? Do businesses only serve investors with a goal of maximizing shareholder wealth, or is there a broader calling for them to focus on broader societal value creation?

I am suggesting that there is indeed a very real opportunity (or dare I say obligation!) for businesses to put societal shared value creation – identifying and expanding the connections between societal and economic progress – at the heart of corporate purpose. More and more leaders are embracing the reality that societal needs – not just conventional economic needs – define markets, and that societal harms and costs can create internal costs and inefficiencies for firms.[1] This is not to be confused with corporate social responsibility or pure philanthropy. Philanthropy has an important role but is not as sustainable and scalable as creating shared value. Philanthropy is an appropriate sharing of our treasure. Shared value is denominated in time and talent. It is an extension of who we are.

Shared value creation is already being practiced very successfully by a number of businesses, including my own, Becton Dickinson. Below, I will highlight several examples from BD and other companies that are creating shared value. The concept of shared value creation is being studied at the highest levels of business academia. I’d like to acknowledge three important contributors in this arena.

The first is Jim Collins. Many years ago, as a member of the senior BD executive team, I had the privilege of working with Jim, who had just completed his book, Good to Great.[2] In his consulting discussions with our top leaders, Jim asked us one question that I remember most clearly. He was talking about great companies having two distinctive characteristics: achieving great performance and making a great contribution to society. He asked us, “If BD were to disappear in all of its forms tomorrow, would anyone notice?”

That question began a very enriching soul search on the part of the BD leadership team, which culminated in our publishing and committing to an articulated goal of what our company could become in the next few decades – our envisioned future; we also articulated a specified set of our core values and, at the heart of it all, our corporate purpose – helping all people live healthy lives. Fortunately, BD was founded in 1897 as a very purpose-driven organization focusing on quality and providing excellent health solutions for people all over the world. More about this in a moment.

The second contributors are thought leaders Michael Porter and Mark Kramer, who published a January 2011 Harvard Business Review article entitled “Creating Shared Value.”[3] In this landmark study they observed that many very successful companies had fundamentally redefined their corporate purpose, from merely creating shareholder value and wealth to creating societal shared value. In taking a broader view of full value creation, these firms are also creating considerable wealth and shareholder value but in a more robust and sustainable manner.

The third contributors are Mike Beer, Russ Eisenstat, Nathaniel Foote, Tobias Fredberg and Flemming Norrgren from the TruePoint Center for Higher Ambition Leadership. They recently published a book, Higher Ambition: How Great Leaders Create Economic and Social Value,[4] that provides examples of leaders and companies, including BD, who create outstanding societal value while at the same time creating great shareholder value.

This list is expanding. Even as I was finishing this talk, the November 2011 Harvard Business Review was published and it devotes cover-page treatment to this topic with four articles.

On a personal level, throughout my tenure leading BD, what has really excited and motivated me is the ability to make a difference for society and our business by re-conceiving our products and markets and redefining productivity in our value chain. This enables us to

• Create stronger, safer and healthier customers and communities
• Reduce waste and material consumption
• Reduce our environmental impact
• Develop healthier, more engaged and productive associates
• Realize lower costs and higher profits and higher shareholder value

So let’s get back to that question from Jim Collins: If BD were to vanish from the face of the earth tomorrow, would anyone notice?

The traditional answer would observe that hospitals, laboratories, doctors’ offices and patients need the products we make and would not be able to function without us. For example, in our high-volume device businesses alone, we sell over 26 billion devices each year: syringes, blood collection devices, catheters and diagnostic tests. We touch over 600 patients around the world every second of every day of every year. Is that enough? No. We must do – and are doing – more. Here are some examples:

We partner with PEPFAR and others. BD skilled volunteers are training hundreds of healthcare workers in sixteen African nations to collect lab specimens and run lab tests more safely and effectively, fundamentally strengthening the healthcare systems in these areas. And, our collaboration with the International Council of Nurses on their Wellness Centres program helps ensure access to health and wellness services for more than 20,000 healthcare workers and their families in sub-Saharan Africa. The result is a strengthened healthcare workforce – one that is better able to address the healthcare talent shortage in a region facing the greatest challenges in healthcare worker attrition. They are now better able to deal with their AIDS and TB pandemics. Why are we doing this? Because our purpose is to “help all people live healthy lives,” with a special calling to focus on the professionals who use our products every day.

BD is known for its deep expertise in logistics and supply chain management. We recently applied these skills in Zambia, where BD quality and operations experts conducted a comprehensive mapping of how vaccines get to where they need to be. We did this in partnership with the Gates Foundation. This value stream analysis demonstrated to practitioner partners how they can fundamentally improve the management of vaccination campaigns. The result: more doses can be delivered with higher compliance and lower cost so that far more people benefit from these life-saving medicines. Our value extends beyond products and is amplified when we share our knowledge and skills!

Partnering with Project HOPE, BD has brought essential diabetes care education to rural populations in China and India. Our associate volunteers trained healthcare professionals to train other workers and patients in the proper diagnosis and treatment of diabetes. Why are we doing this? Well, you can’t live a healthy life with diabetes unless you have proper diagnosis and know how to care for yourself. Our patients need value beyond our products; they need the kinds of clinical knowledge and support that we, perhaps uniquely, are able to provide.

BD developed the first “auto-disable” immunization syringe in 1988 in response to the problem of reusing injection equipment in developing and emerging countries. Until then, reuse was a cause of the spread of HIV/AIDS and hepatitis among children being vaccinated against common childhood diseases.

These devices have higher value. They prevent harmful reuse. Yet, over time, we have been able to manufacture and sell these devices to international agencies at around five to six cents each – prices very close to those of the conventional products they replaced. BD was able to achieve this breakthrough by working with key partners and applying its deep expertise in low-cost/high-quality manufacturing. As a result, the WHO and other agencies have instituted policies requiring the use of auto-disabling devices in all immunization campaigns. From 1999 through 2008, over six billion immunizations were administered safely with these devices to children in developing and emerging countries, helping to shut down a source of disease being spread among the world’s children.

On the environmental front, BD applied its deep knowledge of manufacturing and logistics to redefine basic syringe design. This resulted in a syringe design with 30 percent lower material utilization, yielded a substantial cost reduction and reduced waste volumes for the end user, placing less stress on the environment.

In the U.S., we also partner with Waste Management, Inc. to provide hospitals with the most environmentally responsible and effective disposal service for single-use medical supplies. BD has numerous “zero landfill” manufacturing plants in different parts of the world, and the number grows each year, creating great value for the environment and lower costs for BD.

BD began a “Healthy Lives” campaign for our U.S.-based associates three years ago. We provide counseling, free screening, incentives, WeightWatchers® programs and smoking cessation courses. We are providing our associates with the tools and information they need to manage their health better. BD also provides basic healthcare services and support to its associates all around the world, not just in the U.S. Why? Well let’s go back to our purpose: “helping all people live healthy lives,” starting with our own associates. Our total medical cost inflation has gone to near zero, down from eight-plus percent before the “Healthy Lives” initiative . . . a substantial cost savings for BD and our associates.

These are but a few examples of how we are broadening and redefining our approach to products, markets, services, productivity and even associate engagement! The result: higher shared value, higher shareholder value too!

When my colleague, Mike Beer, read a draft of this talk, he said I made running companies this way sound too easy. Well, as I said earlier, BD has a long tradition of behaving this way. We had a proper upbringing from our mentors who preceded us. But it is not automatic. It requires continual renewed commitments on the part of leadership. This is not to suggest it is all top down. Our shared value initiatives are owned and operated by our engaged associates . . . with many of them serving as volunteers.

A skeptic may observe that this is all well and good for a healthcare company like BD, but what does this have to do with other commercial enterprises? Plenty!

So let’s turn to the literature. As documented in the Porter/Kramer articles, the societal benefits of providing appropriate products to lower-income and disadvantaged consumers can be profound, while the profits for companies can be substantial. For example, low-priced cell phones that provide mobile banking services are helping the poor save money securely and transforming the ability of small farmers to produce and market their crops. In Kenya, Vodafone’s M-PESA mobile banking service signed up 10 million customers in three years; the funds it handles now represent 11 percent of that country’s GDP. In India, Thomson Reuters has developed a promising monthly service for farmers who earn an average of $2,000 a year. For a fee of $5 a quarter, it provides weather and crop-pricing information and agricultural advice. The service reaches an estimated two million farmers, and early research indicates that it has helped increase the incomes of more than 60 percent of them – in some cases even tripling incomes. As capitalism begins to work in poorer communities, new opportunities for economic development and social progress increase exponentially.[5]

Coca-Cola has already reduced its worldwide water consumption by 9 percent from a 2004 baseline – with a goal of a 20 percent reduction by 2012. Dow Chemical managed to reduce consumption of fresh water at its largest production site by one billion gallons – enough water to supply nearly 40,000 people in the U.S. for a year – resulting in savings of $4 million.

Let me share a personal encounter with a company focused on better uses of water. The name of the company is Xylem, a recent spin-out of ITT. Their Watermark program began in 2008 as a three-year, $4 million commitment to bring water, sanitation and hygiene education to schools in water-stressed regions of the developing world and to provide safe water in times of emergency.

Through partnerships with leading nonprofits and the participation of employees, Watermark surpassed its initial goal of reaching 500,000 people by improving access to safe water and sanitation to 300 schools across China, India, Guatemala and Honduras, and by responding to numerous emergency situations across the globe. In 2010, the company pledged an additional $10.5 million to expand the program and serve one million more people by 2013. Xylem associates, serving as volunteers, are driving the success of this program.

Another example is found at health insurance company Aetna. Since 1980, Aetna and the Aetna Foundation have awarded more than $394 million in grants and sponsorships that today are focused on efforts to improve health and the healthcare system. Thirty million dollars in grants support research and programs that address racial and ethnic disparities in healthcare, and $8 million helps combat childhood obesity, funding 75 innovative community-based fitness and nutrition programs last year. Aetna’s 3-Point-Play, an innovative school-based program to engage children and their families in nutrition and conditioning, has demonstrated significant reductions in body mass index for students in public schools in Texas and Washington, DC.

Aetna also leverages the strength of its relationships to help people live healthier lives, requiring its qualified suppliers to offer health benefits to their employees – and it has100 percent compliance today. Aetna employees also bring their personal commitment to the cause through volunteer efforts – giving nearly two million hours in the past five years.

Here is a final example noted by the TruePoint team: The example is Standard Charter Bank. Yes, I said bank! SCB is a very successful London-based global bank, which was one of the few to weather the recent financial crisis in excellent form – and with no bail out.

In 2003, SCB created “Seeing is Believing” in partnership with the International Association for the Prevention of Blindness. Its mission is to provide eye-care access to people around the world and, in particular, to alleviate the problems associated with preventable or reversible blindness. By the end of 2009, SCB had restored the sight of over 2.5 million people across its markets. It raised millions of dollars for its partner organizations and applied the skills of SCB’s highly trained bankers. As CEO Peter Sands noted, “Our guys locally have gotten involved in helping with the financial management and providing support to the NGOs, particularly in places like Africa and Bangladesh. The program has unleashed huge amounts of energy.” It has also reinforced the sense of community across the bank. Sands said, “People in Sierra Leone did a sponsored walk that raised, in the scheme of things, not a huge amount of money . . . but it’s the idea that the people in Sierra Leone are raising money for eyesight in Bangladesh.”[6]

Alright already, I think you get the point. Going back to where I started, there’s a great deal of tense, angry invective going on out there about the value of capitalism. It’s getting front-page coverage and a lot of airtime. And yes, business leaders should pay attention to these messages and understand the root cause of these concerns.

There is also another story out there, though it’s not getting enough press. It is our responsibility to make sure that this story does get heard and also to listen to the voices around us. Enterprises must (and do) create shared sustainable value which serves both society and shareholders. BD has been recognized by external organizations as a most admired and most ethical company, as an environmentally responsible company and as one of the top employers in many of our locations.

As far as shareholder value goes, over the past decade BD has been in the top quartile of our peer group in total returns to shareholders. But creating shareholder value alone is not enough. I am honored to have served an organization for the past 33 years that has not only created excellent shareholder value, but also, I believe, created tremendous value for society. By the way, I have been remiss in not telling you what our envisioned future is.

BD’s envisioned future can be summarized as follows: “We are striving to become the organization most known for eliminating unnecessary suffering and death from disease, and in so doing, become one of the best-performing companies in the world. Our vision is for the BD symbol to become as recognized as the Red Cross symbol when people think of improving human health all over the world. People who choose a healthcare career will want to work here.” Seeking to accomplish their life’s work as part of their work life! This is an envisioned future worthy of great commitment!

I joined BD in 1979 because a recruiter found my year-old resume in a file and called me in for an interview. So I really came to BD by accident. But, I stayed for 33 years on purpose . . . to help achieve our purpose.

Thank you.