An Interview with Michelle Carinci, Chief Executive Officer of Atlantic Lottery Corporation (ALC)

Michelle Carinci is the founding chairperson and co-chair (with Dianne Thompson) of the World Lottery Association (WLA) Committee that built the Responsible Gaming Framework and Certification program.   ALC continues to be a leader in Responsible Gaming (RG) and Corporate Social Responsibility (CSR).  Following is a discussion which explores how and why CSR and RG continue to play such an important role in the gaming industry.

The gaming industry is in the midst of massive, transformational change.  At stake are questions about who is to benefit financially from this multi-billion dollar industry, and how are the social costs of gaming expansion to be minimized.  Operators are now expected to align with an increasingly complex set of public interest objectives, to meet the needs of a broad spectrum of ‘stakeholders’.  Our political leaders are formulating public and regulatory policy and assessing the ability of operators to fulfill these increased expectations.  They are also assessing the efficacy of different operating models.  Should the state apply the monopoly model to other sectors of the industry?  Or should competition be allowed in a ‘license and regulate’ model?  How much should the industry expand, how best to optimize the benefits to society and minimize the social costs?  The amount of money involved and the complexity of the factors affecting the public interests make gambling quite unlike any other industry.  The stakes are huge and the public policy decisions being made now will have long-term ramifications. 

One of the results of these changes is that gaming operators of the future will need to excel at Corporate Social Responsibility (CSR) and Responsible Gaming (RG).  That’s why the membership of the World Lottery Association is raising the bar on itself.  Being proactive, integrating CSR and RG into their company culture and every aspect of operations, anticipating the need to meet an ever higher standard, is one of the hallmarks of our industry leaders.

Atlantic Lottery Corporation has received numerous awards for the manner in which it has dealt with the challenges of communicating with stakeholders in a time of crisis.  The crisis involved intense media and government scrutiny over security procedures at the retail transaction level.  Ms. Carinci delivered an important presentation on this topic at the WLA global, bi-annual conference in October.  You can read this presentation at www.PublicGaming.com.  The main theme of the presentation is that you can’t wait for a crisis to happen to improve your focus on CSR and RG.  And even without a crisis, the fact is that CSR and RG are quickly becoming critically important competitive differentiators. 

Paul Jason, Public Gaming:  The regulatory environment continues to be in quite a state of flux all around the world.  What are some of the most critical issues that you are addressing with key stakeholders and shapers of public policy today?

Michelle Carinci:  The gaming market continues to grow and regulated lotteries continue to lose market share. Why?  Because today’s players have multiple choices beyond regulated gaming and those choices are becoming more relevant to them.  The problem is that it is not an even competitive playing field.  Unregulated operators are expanding market share and enriching their shareholders at the expense of the public and the good causes which are funded by the regulated operators.  They are able to do this because they are operating under a different set of rules and regulations than regulated operators.  If Governments wish to sustain profits from gaming for good causes, they will need to allow lottery operators to compete on a level playing field.  Among other things (like equitable tax burden between all gaming operators), that level playing field must include a serious execution of Corporate Social Responsibility (CSR) measures which includes Responsible Gaming (RG).  This involves the creation of standards, the means to measure and monitor performance against those standards, the political will to hold all operators accountable to those standards, and the mechanisms to enforce compliance to the standards.  The goal here is not to protect the regulated operators.  The goal is to protect the interests of the public and the long-term health of the gaming industry.   CSR is absolutely integral to sustainability in the long run.  But too, when integrated into the day-to-day methods of operation, CSR does have a positive impact to the bottom line and positive ROI for the operators.  Gaming operators need to recognize that.

Public Gaming:  The World Lottery Association (WLA) recognized the importance of CSR and RG some years ago.  You were among the handful of directors who got the ball rolling.

M. Carinci: It was at the World Lottery Association conference in 2003.  In the Directors’ panel discussion, which was moderated by Guy Simonis, we were discussing the lack of balanced reporting in the media with regard to RG and the fact that the special interest groups were getting a disproportionate amount of attention from both media and stakeholders.  There was rapid growth of the wide area video lottery business and destination gaming and the media was focusing on the negative social impact.  We were basically complaining that all the media attention put on the negative was drowning out the positive things that the WLA gaming operators were doing to protect the players and the public.  We saw what needed to be done and were doing our best to implement effective Responsible Gaming programs.  Even back then we were being proactive in what we now refer to as “harm minimization”.   But it was during this discussion that we realized the importance of integrating a sound RG program into a more comprehensive CSR agenda.  Basically, it was in that discussion that we realized that instead of complaining that the media was being unfair by focusing on the negatives, we needed to do something about it - something other than complain about biased media which never gets us anywhere!  What we needed to do was use our Associations, the WLA and the regionals, to help its members implement the most ambitious CSR program possible.  The scope of this effort could not be accomplished by a lone lottery operator.  We resolved to work together to build the programs and certification processes that would elevate the level of CSR and RG to the point that the media and our stakeholders would recognize the positive role that their state-owned operators performed.   

Public Gaming:  So this discussion back in 2003 sort of galvanized an initiative that turned out to be so vital to the health of the industry.  Too, this somewhat revelatory discussion was held at a WLA Conference, it would not likely have occurred if you had not been convened for this meeting, and is a great example of why it is so import for the leaders of the industry to meet as frequently as possible to share ideas and work on problems together like that.

M. Carinci:  Yes.  To the WLA members’ credit, there was almost unanimous approval for the RG principles put forward to the membership the day after the director’s panel. Collectively we decided to proactively set the bar as high with CSR as we had with the security standards over a decade ago.   That was really the beginning of the WLA’s RG initiative to develop standards that would guide our efforts to remain relevant to our players and at the same time protect those at risk.

This is the real benefit of WLA - the learning and collaboration that has spearheaded initiatives to help its members raise the bar in all different categories of performance.  The educational programs are intense and have attained a sophisticated level of training and educating the WLA members in virtually all areas of operations, management, strategic planning, as well as CSR and RG.  In some areas of particular importance to the public, like Responsible Gaming, the WLA has developed a system of certification that is recognized by regulators and legislators as a credible measure of the operators’ level of performance capability.  Another key area that has a similar certification process is security.  We identified these two areas, security and RG, as being two of the most foundational elements to protecting the public.   The main thing is, we decided to take action, take a leadership role in the business of protecting the interests of the public.

Public Gaming:  In hindsight, your decision to focus on RG seems pretty obvious.  But I would think that at the time it would not have been so obvious to focus public attention and your own resources on an initiative that would not contribute, at least not directly and not in the short-term, to revenues and profits. 

M. Carinci:  Actually what did become quite obvious was that many lottery organizations were doing significant work and making great progress in the area of RG while others did not have it on their radar screen.  That is the benefit again of getting together with the membership annually to discuss the ever changing challenges and opportunities.  But I would like to focus on your point with regard to profits and CSR.  There are many great examples of companies that were early adopters of CSR that have realized stronger customer retention and increased attraction to new customers.  In addition, employee attraction and retention was positively impacted.  David Batstone, author of Saving the Corporate Soul, provided numerous examples in his presentation at the WLA conference in 2004.

 First, one needs to agree  that Responsible Gaming is part of a larger CSR agenda. The resolution that the WLA membership passed calls for a comprehensive approach to aligning our businesses with the interests of the public in absolutely everything we do.  Corporate Social Responsibility in a much broader context should be integrated into everything we do.  That includes the design our games, how we communicate, advertise,  care for the environment, create diversity in the work place, be great employers and give back to community through corporate involvement… all the things that an organization can do to promote an enlightened, progressive approach to serving the interests of society. 

At the time, this idea setting common standards was rather radical, given the cultural, regulatory and structural differences among the 80 different countries that are represented in the WLA.  And even now it goes to the heart of how capitalism works and how it sometimes malfunctions.  The beauty of capitalism is the way in which everyone busily engaged in pursuing a single minded goal that is consistent with their own interest, that of making a profit, results in an economic activity that theoretically benefits everyone in society as a whole.  Well, the recent melt-down of the financial services industry points at how that simple construct may be just that – too simple.  Government regulation and a widespread embrace of CSR principles are needed in every business including the gaming business.  That’s what the CSR initiative is about – being proactive, taking the initiative to invest in the tools, programs, resources and research to be a good corporate citizen on every level.  It is important to point out that many WLA organizations were already doing this on some level.  What WLA has now provided to its members is a sound set of principles, standards and a framework to guide an organization through the four levels, the fourth being the highest level which requires third party audit and finally assessment from an independent panel with representatives from around the globe.  A stellar panel indeed, and the membership was able to benefit from their collective experience at the last WLA conference in Greece.

Public Gaming:  But for those tough-minded pragmatists in the crowd, it’s also good business strategy, isn’t it?

M. Carinci:  Absolutely. The Conference Board of Canada states that CSR has emerged as the business issue of the 21^st century.  The two unwavering values of integrity and responsibility are the foundation of any successful business and that is what CSR is really all about.  Anything less than a genuine acceptance and implementation of all the principles of CSR will not put the operator in good stead with the public, the player, or anyone else.   The WLA membership has a history of working closely with government, keeping its objectives and methods of operation in alignment with the directives of the governments.  Combine that with a branded image for integrity that a commitment to CSR has accrued and we become the operator of choice for both the government and the public.  Excelling at CSR and RG is a strategic decision that differentiates us from those operators who fail to meet the high standards being set by the leaders in our industry today.   Excelling at CSR and RG gives the operator a valuable competitive advantage that can result in increased sales and profits.  That’s not a theory or wishful thinking. 

Public Gaming:  Why now?  What is the driver of this new focus on CSR and RG?

M. Carinci: In a word – sustainability.   When you consider the changes in the lottery business over the past decade it should not be any great surprise that the business model on many fronts has to change.  It wasn’t too long ago that if a person wanted to play slot machines or casino games, they had to travel somewhere to do that, we call it “destination gaming,” meaning the person needed to make a deliberate decision to allocate a chunk of time and money to travel to a destination to gamble in a casino.  The fact that it required that investment of time and money was and continues to be perceived by many as a highly effective regulator of behavior.  On the other hand, you have larger number of players spending a smaller amount on the lottery which has mass distribution.   

Today all forms of regulated and unregulated gaming are much more accessible. 

Public Gaming:  Now, casino gambling is as accessible as grocery shopping.

M. Carinci:  Not quite but certainly a lot more accessible.    Let’s take your reference to grocery shopping.  What kinds of public policy issues needed to be dealt with that related to the expansion of grocery stores, or Starbucks coffee shops, or buying books or flowers on the internet?  Not much.  In most industries, changes in distribution patterns or technology can have big impacts, but not usually creating questions of public policy, not usually affecting society in ways that require legislative and regulatory attention.  Distributional changes in almost all economic sectors have historically delivered benefits of efficiency and convenience to society, with little or no controversial public policy implications.  But that’s not the case with gambling.  What we were experiencing five years ago was a major wake-up call to the fact that serious questions of public policy were being raised.  By making it more convenient to go to a gaming venue for just an evening, or even just an hour, we’ve removed the distinction between recreational gaming and destination gambling.   We need to recognize the implications of this and take the appropriate actions to ensure a healthy evolution towards a new industry model.

Public Gaming:  Do our political leaders understand the significance of these issues?

M. Carinci:  I think that awareness is growing.  The reality is that the gaming industry has expanded dramatically over the past five years, but the highly regulated organizations and lotteries have not. In other words the gaming “pie” is growing but the regulated lottery organizations share is shrinking. This is not a trend line that is good for either the public or governments.   Public policy decisions are what determine that trend line.  Therefore, there is a real need for thoughtful decision making and assertive policy making on a timely basis.  In fact, some may even argue that it is too late, but I think not. 

Yes there has been a tremendous growth in gaming over the internet and the virtual world.  The popularity of Texas Hold really speaks to the fact that players have choices now and will go where they can get the desired experience.  Players have choices today they never had before.  And as we all know, the revenue is not going to the benefit of the communities these players live in but into a black hole offshore.

So, to ensure that players are protected and revenues continue to flow to good causes, all operators need to be licensed, regulated and acting in the best interest of the public and as importantly allow the current lottery operators (that have operated responsibly and successfully for decades) to compete on a level playing field. That will mean changes in the business model and in some jurisdictions a change in legislation.  What is also required is an acknowledgement that lottery organizations can continue to offer what the players want and at the same time be socially responsible.  There are so many examples of this in other industries.  We have not done a good enough job of educating the stakeholders on all the good work our organizations do and overcoming the notion that operators can’t genuinely be responsible while in pursuit of revenue generation for good causes.  Automobile manufacturers put airbags and seatbelts in their products, the alcohol industry invests and partners in responsible drinking campaigns.  Gaming is no different – operators understand that how the revenue is made is as important as how much is made, thus over the years we have developed RG initiatives around education and prevention.

Public Gaming:  Is there ambivalence on the part of government and the beneficiaries of the revenues about whether to do things, like increasing RG, that might diminish those revenues?

M. Carinci:  No.  The focus is on protecting the public and that will not be compromised.  Reflect upon  why governments got involved in gaming to begin with.  It wasn’t because they thought they should be in the gaming and entertainment business, or even to raise revenue for good causes; they saw the need to exercise oversight and be directly involved in order to ensure that the public was protected through public policy.  The government’s primary objective was, and I would like to think it continues to be, to satisfy the public’s need to game with  responsible products in a secure environment  through regulated gaming, and of course to keep the money at home for good causes.  The ‘how’ is still more important than the ‘how much’.   

CSR( and RG) are actually the foundation of a profitable long-term business strategy.  That’s because long-term profitability depends on an organizations commitment to operating in an economically, socially and environmentally sustainable manner while protecting the interest of its stakeholders.  People, Planet and Profit.  Organizations clearly demonstrating their commitment to all three will win on all fronts; the war for talent, the share of the players wallet and the trust and respect of the pubic and shareholders.    CSR is an integral part of your brand value, the best approach to optimizing long-term profitability.

 According to Bob Willard, author of “The Sustainability Advantage” and leading expert on the business value of corporate sustainability strategies, the bottom line benefits are: tangible reduced recruiting and attrition costs, increased employee productivity, reduced expenses at commercial sites, increased revenue/market share and lower insurance and borrowing costs.

Public Gaming:  The private operators in the Internet online gaming world do not seem to be embracing CSR in quite the same way as the WLA membership is.  They mount legal battles to prevent governments from exercising their right to control the industry, and when they lose those legal battles, they just pack up and go to another more tax and regulation friendly jurisdiction.

M. Carinci:  It’s not just Internet, it is the whole virtual world that isn’t constrained by geographical boundaries, so that includes cell phones and all sorts media.  I am confident that the policy makers around the world will succeed at getting things under control.  We now know that there are ways to regulate gaming in the virtual world.  It can definitely be done and it is being recognized that it is important that all forms of gaming must be regulated and that all operators must comply with all laws and the highest standards.  But to the point of your question, of course the WLA membership would hope that our commitment to CSR and RG will be recognized as a valuable part of what we bring to the table as operators.  To put it bluntly, nobody would have these regulatory and tax harmonization problems if the governments implemented Internet gaming through their government owned organizations.  Compliance and player protection would be a non-issue in addition to the public benefitting from the revenues.  Even if licenses were given to multiple operators in far-flung locations all around the globe, it can still be regulated to comply with the standards and laws of each country.   Governments can and should compel everyone to play by the same rules, paying taxes and providing the most effective RG tools. 

Public Gaming:  The thing is, as Dr. Wortmann explained in our October issue, it will be very hard to put the toothpaste back in the tube.  Shapers of public policy really need to be moving more quickly to be sure they preserve a regulatory framework that protects the public.

M. Carinci:  It is actually much more complicated than the simple question of who should own and who should operate the games.  Government is asserting its rightful role as regulator.  But the WLA membership is typically held to a completely different standard than private operators.  That applies to lots of different aspects of doing business.  There are the obvious ones of turning over a larger portion of the revenues to government and good causes, along with being held to the highest standards of CSR and security which we are pleased and proud to uphold.  But there are other standards that regulated operators are held to that do not allow for a level playing field.   Again, the unregulated operators are not held to these same standards. Where are the assurances that they are operating in the best interests of the public?

The bottom line is that gaming is growing, regulated lottery organizations’ share is shrinking, and stakeholders are in a great position to once again intervene and regulate that which is not regulated to ensure  sustainability for the players and the public in the future. We have the luxury of a strong World Lottery Association to set the appropriate standards for the future and to continue to provide a forum for learning.