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DIRECTIONSMONTHLY SUPPLEMENT

DECEMBER 07

TRENDS AND ISSUES IN THE WORLDOF CORPORATE REPORTING

BOOTS PRESCRIPTION

FOR A RESPONSIBLE

BUSINESSRemember to complete the course

25mg

Richard EllisHead of Corporate Social Responsibility, Alliance Boots

Directions Monthly December 2007 Issue 18

Following the merger between AllianceUniChem plc and Boots Group plc, AllianceBoots plc was formed on the 31 July 2006.At the time there was doubt, particularlyamong the broader CSR community, as towhether the new Company’s approach toCSR would match that of Boots. In Junethis year the uncertainty grew furtherfollowing the high profile private equityacquisition of Alliance Boots plc by KKRand Stefano Pessina.

The question on most commentators lips was– how would one of the UK’s most trustedcompanies be affected by this ownershipchange and what impact would it have ontheir CSR credentials? Some six months on I can report it’s, “Business as usual”.

Very few, if any, private equity-ownedbusinesses have successfully introduced CSR programmes. They have a reputation for being secretive; very few people outsidethe world of private equity really understandhow these businesses operate. This lack oftransparency was one of the key drivers for the Walker Review. Whilst somerecommendations have been made availablethere is still further work to be done beforefinal publication. How Alliance Boots dealswith these issues could well impact the finalversion of this review.

At the heart of these findings is the need for increased stakeholder dialogue. This hasbeen fundamental to the success of theBoots programmes and is the central plankaround which the new Company is buildingits CSR strategy.

❝For the past five years Boots hasmaintained an on-going two-waycommunications process with all itsstakeholders. They have helped shape thestrategy and decide the priority areas; andexactly the same process continues todayas a private equity-owned company.❞

Boots’ CSR credentials were established by the founders of the Company, the Bootfamily, in the 1850s. In 1914 electricallypowered vehicles were introduced, in 1915 a Combined Heat and Power Plant was firstestablished and in the 1930s glass andcardboard were recycled. This agenda hasnot suddenly been discovered by Boots. It ispart of the DNA of the Company; it’s not anadd on, but something which is embeddedinto the way business is done.

The new owners could see that CSR was nota cost but a vital ingredient in the success ofBoots. The CSR activities gave the brand itspersonality. It was the reason why customers“TRUST Boots”.

But KKR and Stefano Pessina needed morethan just a compelling story – they needed a proper business case. They wanted to seethat this activity delivered economic as wellas environmental and social benefits.

Central to this is the information gatheringsystem, Credit 360. This provides the“numbers” which enable the CSR agenda tobe managed and KPIs to be set. It providesthe data in reports and various surveys suchas the Business In The Community CR Index.Without it CSR would not have been takenseriously at Board level. CSR today is judgedin exactly the same way as any businessdiscipline. It is not given any special“favours” but must deliver value in the same way as any Business Unit does.

Through this process it was possible todescribe the real benefits of pursuing CSRinitiatives. For example, a range of transportactivities reduced the road kilometres drivenon behalf of Boots by 8.5 million. This saved5% in transport carbon dioxide emissionsand £1.4 million in fuel costs. It was becausewe could articulate the business, as well as

Everyone watched anxiously as Boots was taken over by KKR – so how has Boots continued to maintain such a healthyresponsible business strategy?

Pavan AthwalLucie Harrild

Welcome to the December edition of Directions Monthly. In the past year we have seen private equity companies scrutinised over the takeovers of some of the most respected and trusted businesses. So this month wehave invited Richard Ellis of Alliance Boots to provide his take on workingwith KKR, the challenges they faced and reasons why private equity firmsare not really ‘barbarians’. He outlines his prescription for all businessesthat are addressing the responsible business agenda and explains why it is so relevant to private equity-owned businesses.

Directions Monthly December 2007 Issue 18

❝But KKR and Stefano Pessina needed more than just a compelling story they needed a proper business case. They wanted to see that this activity delivered economic as well as environmental and social benefits.

❞the broader social and environmentalbenefits, that the new owners were willing to encourage the “Business as usual”approach.

Talking about CSR in business language to Stefano Pessina was key. He couldunderstand the strategic relevance ofsupporting breast cancer charities when79% of the employees were women and83% of our customers are women! It wasn’tjust about doing good things for their ownsake but embedding these principles into the fabric of the business.

The importance of CSR to the new businesswas understood even before the acquisition.In the Prospectus document three very clearmeasurable CSR commitments were givenand have been met…

1. That CSR reports written along GlobalReporting Initiative guidelines wouldcontinue to be produced – the first CSRreport for Alliance Boots was launched on the 9th October this year.

2. That a Board CSR Committee would beestablished to oversee CSR activitiesacross the whole Company – the firstmeeting was in September 2007 and itcomprises Ornella Barra, Marco Pagni and Steve Duncan who are all fullManagement Board Members.

3. That Alliance Boots would complete theBITC CR Index and allow its results to bepublished – Ornella Barra formally signedthe submission in November 2007 andreceipt has been acknowledged by BITC.

There is clear leadership for this agenda.People at the very highest levels acceptresponsibility for the delivery of CSRobjectives. They do this because theyunderstand the real value it delivers for thebusiness. Equally they recognise that theyare members of society and that we allbenefit from such activity. It is a passion that lives on in the new Alliance Boots.

Looking forward, what are the challenges?

Well, CSR is now firmly embedded on themanagement agenda but we must integrateit across the whole business. The former

Boots business understands the importanceof CSR to its brand, but as the new businessoperates internationally some countries areonly just starting their CSR journey. All partsof the business need to be helped to improvetheir performance and achieve their fullpotential. The first step on this journey forsome of our international colleagues beginswhen they attend the CSR Training Course,which equips them to become the“champion” for CSR in their country.

As all parts of Alliance Boots becomefamiliar with this agenda it becomes possibleto integrate Company-wide policies andintroduce worldwide campaigns such as theeradication of counterfeit drugs.

❝Communication of our achievementsand aspirations will be key. I admire theway Marks & Spencer have communicatedtheir “Plan A” CSR strategy; it is a greatexample of where a CSR programme has been aligned to business strategysuccessfully. This is not something Bootshas done previously but the new ownersare giving us the confidence to maximisethe benefits of our CSR programmes.❞Stakeholders want to know more about CSRand in particular climate change issues. I think it’s fair to say the green consumer is on the march. But they personally don’tknow what they can do to solve this problemand they don’t want to change their lifestyletoo much. So they want to buy from brandsthat have done this for them. This meanswhen they buy our products they can takethem home and enjoy them – safe in theknowledge that we have done what can bedone to tackle climate change.

This was why we worked with the CarbonTrust to obtain “Carbon Labels” for ourBotanics and Essentials shampoos. It showsconsumers that we are serious about thisagenda. Similarly we are encouraging ourpeople to bring their personal behaviours towork. At home we are used to recycling andturning off lights. So why don’t we do similarthings at work? We are encouraging suchbehaviours by taking away personal wastebins at Head Office. Now employees have to segregate their own waste and recycle

paper, cans and plastic. Such actions mightnot in themselves save the world, but theysend a very clear message to our people thatCSR is an important part of the businessagenda. It’s the start of our journey to create100,000 ambassadors for CSR across theCompany.

But businesses, even passionate ones, cannottackle the responsible business agendaalone. The government could aid this processby offering more incentives to companies to follow sustainable practices. It needs to develop joined up thinking between central and local government on things like the building of wind turbines – Nationalgovernment wants more but the localgovernment planning process often hindersthis. Legislation can too often be a bluntinstrument because it captures all companiesirrespective of their type or past CSR record.For example: if laws were to be introducedrequiring businesses to reduce their carbonfootprint by a fixed percentage, what wouldthe base point be? For a Company like AllianceBoots that has been doing lots of thingsacross our property portfolio for five years,this would be much more difficult to do thanfor a company that had done nothing.

My prescription for private equity-ownedcompanies, which is equally applicable to all businesses, is to understand where CSRsits within the business agenda and who is responsible at Board level. Explain CSR in terms that the rest of the businessunderstands; don’t get bogged down withsome of the CSR jargon, particularly aroundcarbon management. Make it relevant andmeasure and report on what you do.

The new owners of Alliance Boots are, after all, business people who want theirinvestments to succeed – they will listen and support strategies that deliver value and exceptional returns, as well social and environmental benefits.

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