I was delighted to discover today that McKinsey & Company agrees with me about the reputation challenges facing companies globally and the new approaches needed to meet those challenges.
Okay, maybe I am not given credit anywhere in the McKinsey Quarterly article called Rebuilding corporate reputations (registration required). Yes, I know others have been saying the same thing for a number of years. And native humility prevents me from claiming anything more about my contribution to these discussions among public affairs specialists. But it was satisfying nonetheless to read that the consultants in McKinsey & Company's strategy practice ALSO agree there are three changes profoundly altering the reputation management landscape:
"Those changes include the growing importance of Web-based participatory media, the increasing significance of non-governmental organizations (NGOs) and other third parties, and declining trust in advertising."
Add to this the recognition in the report that traditional media relations strategies alone are simply inadequate to deal with dispersed opinion shaping never mind stakeholder expectations for participation, dialogue and transparency, and you have the skeleton of most of what many of us who advise companies on reputation management have been clamoring about for a number of years.
Perhaps now that McKinsey & Company has said it senior executives will be more disposed to our strategies.
An interesting set of questions is raised in SRI Notes about the effect of defining a company's shareholders differenly than the traditional hypothesis that they are a company's "owners" and, therefore, entitled to its earnings (usually in the form of a dividend) after expenses and profitable re-investment. The hypothesis is used by those opposed to investment in responsible corporate conduct or philanthopy to argue that a company's earnings rightfully belong to its shareholders and that it is irresponsible of management to "spend" on financial and strategy intangibles like corporate responsibility programs and community investments.
In SRI notes, Lloyd Kurst from the University of California at Berkely's Haas School of Business writes that "Miller & Modigliani's famous theorem opened the doors to a broader view of capital - a view in which shareholders are not owners but suppliers of a commodity known as equity capital."
As suppliers of equity capital shareholders are entitled to reasonable compensation for their investment (the product they 'supply'). But they do not de facto have unrestricted access to all of a company's earnings available for distribution. This means that non-financial stakeholders such as employees and communities which give companies the right to use their resources may have at least some claim on distributable earnings.
Frankly, it puts on another level the discussion in corporate theory of the legitimacy of investment in social intangibles. It raises questions -- even doubts -- about Nestle CEO Peter Brabeck-LetMathe's assertion that in corporate philanthropy "We need to be very careful, because it is not our money we're handing out, but the money of our shareholders."
First a mild mea culpa. . . In the description of my intentions for this blog, I make reference to "transparency" as one of its themes. It's been recently pointed out by an associate -- Doug Walker -- that I haven't defined the concept or explained my interest. In fact, I don't think I have said much at all about it. So, here is transparency '101'as I see it . . . with help from the seminal book on the matter by Tapscott and Ticoll called The Naked Corporation: How the Age of Transparency Will Revolutionize Business and from my own notes from a course I teach for Royal Roads University's M.B.A. program in public relations.
Researcher (and now nascent author with Don Tapscott of a new book possibly to be titled Wikinomics: How Mass Collaboration Changes Everything) Anthony Williams says that transparency is often associated with the global trend toward openness driven by new information and communication technologies, the spread of democratic norms, and the growing influence of civil society. With respect to a company’s relationships with its publics, I think transparency is best understood as:
According to Williams, Tapscott and Ticoll, what people are looking for when they talk about corporate transparency is evidence in corporate behaviour of "openness, candor, commitment to dialogue, willing problem identification, willing problem resolution and a promise of values-driven decision making." Transparency, then, isn't a program, a board function, or a task assigned to the CSR department: It is a method of:
Now that I think about it, blogging -- when used well (like Dell is doing right now with its battery recall crisis) -- is actually an efficient and potent tool for transparency.
What I like about the condition of discussion on the merits of socially responible investing is its movement from the realm of the advocates to the ambit of economists, investment advisors and financial analysts . . . people inside the tent of corporate finance.
Lloyd Kurtz, for example, is senior portfolio manager, Nelson Capital Management and connected to the University of Berkeley's Haas School of Business. He writes clearly and non-dogmatically about socially responsible investing, in his words not a light topic. . . “Social investing isn't an easy subject to study. It involves management science, investment theory, and economic analysis.
Not long ago he reported on his own research into what makes a "responsible" company (in an effort to find a definition of corporate social responsibility). His model group ended up being big companies, usually un-unionized, mostly consumer-facing, with a strong brand as well as historical growth rates, reinvestment rates, and market expectations for future growth (P/E and P/B ratios) above market averages. (Responsibility pays?)
Recently he also posted that Steven Levitt -- he of the blockbuster, and eminently readable, Freakonomics -- has entered the discussion about SRI. To save you going to the full post here is what Levitt had to say in his typically succinct manner:
"What’s totally obvious to anyone except an economist, probably, is that people aren’t good or bad. It depends on the circumstances that you put them in. And people can be very good if they have the right set of incentives in front of them, and they can be very bad when the wrong incentives are put in front of them. As an organization, you can come up with the right incentives, the right circumstances, to make people do the right thing, or to make them do the wrong thing.”
Disciples of Milton Friedman . . . watch out.
Sometimes I wish I lived in Vancouver . . . not for the mountains; although I am an aging mountain biker. Not for the restaurants; Toronto's are better. Not for the hockey; I will be a Leafs' fan until death. I just think it would be agreeable and refeshing to live closer to the heartland of leading ideas for digital community engagement.
For example, I could just drop down to San Francisco on May 25th to take in the Online Community Camp at the Ft. Mason Conference Center and exchange some ideas about social software. I could learn a lot from a planned session on "using online communities to enhance interaction within physical communities like neighborhoods, towns, and cities", (although the camp's model is such that the day's sessions are only determined on the morning of the conference . . . by discussion among participants!)
Many corporate and government agency community consultation programs could benefit from digital alternatives to the traditional town hall/focus group/phone survey models. This might be the place to figure out how.
Then there is the Online Community Summit 2006 in Sonoma, California in October. Oh well . . . only dreaming.
There are two ways to look at one set of numbers from the MORI/Hill & Knowlton's global survey of financial analysts -- Return on Reputation: when asked the question Which of the following non-financial elements contribute to your assessment of a company's value?approximately 93% of respondents identified "transparent disclosure and strong governance", second only after "execution of company strategy".
That's good news for those of us -- Don Tapscott and David Ticoll included -- who argue that transparency has, and will, become a driver of corporate reputation. To the same question, however, only 22.0% of respondents identified "social responsibility and community involvement" as non-financial elements affecting their assessment of a company's value, which is dispiriting news for those of us -- like Lynn Sharp Paine, author of Value Shift: Why Companies Must Merge Social and Financial Imperatives to Achieve Superior Performance -- who believe that corporate behaviour will influence financial performance.
Does that just make financial analysts a tough crowd or are there still strong doubts about the putative causal relationship between poor corporate performance and weak social conduct?
At a recent 1/2 day session called Corporate Social Responsibility and the Corporate Brand, Dr. Jay Handelman, associate professor of marketing at Queen's University School of Business, argued for CSR taking a central strategic role in a company's branding efforts. His point of view is that "In order to survive and thrive, a company must tend to the expectations of societal stakeholders that extend beyond a company's obligations to its owners or shareholders."
To some extent companies have no choice. The corporate social context has changed . . . there are more active anti-corporate social forces able to organize themselves using digital technology in all its populist forms, popular culture is progressively more alert to democratization, company shareholders are multi-dimensional (with values driven by their roles not just as investors, but consumers, citizens, family members, and human beings motivated by emotions and ethical viewpoints), young people are coming into business with different cultural markers. In essence the corporate brand is now actually a "socially-owned" brand.
If you accept these arguments, CSR therefore can't be reduced to a tactic for improving corporate reputation in the interest of hiring the best talent (although evidence exists that talented prospects prefer to work for socially responsible companies), reducing risk, increasing employee productivity or buying goodwill. CSR will have to become a key strategic element in managing the corporate brand. And the corporate brand itself, because it lives in the world and not in a corporate boardroom, will have to be thought of, as Dr. Handelman says, as the product of "brand journalism; that is, a narrative or a chronicle."
The implication is that companies will have to help solve social problems, especially if they have caused those problems. This extends to taking responsiblity for the environmental, social, health and economic impact of its operations, rather than assuming that throwing money at philanthropic projects will buy support. Companies will have to create social value while managing what Dr. Handelman calls "legitimacy" by "blending in with societal values, simultaneous disavowal of commercial motives, and third party confirmation."
As a model, he points to Ray Anderson, CEO of Interface Inc. in the United States, a manufacturer of carpeting and other upholstery. Take a look at the company's vision . . . "To be the first company that by its deeds shows the entire industrial world what sustainability is in all its dimensions: People, process, product, place and profits -- by 2020 -- and in doing so will become restorative by the power of influence."
I have recently added a blog to my blogroll on socially responsible investing. This blog "salon" called SRI Notes features contributions by a number of writers, although the lead blogger appears to be a portfolio manager based in Palo Alto, Calfornia named Lloyd Kurtz. A web page under his names connects to the Center for Responsible Business at the University of Calfornia (Berkeley) Hass School of Business.
Both Mr. Kurtz's blog and the Center for Responsible Business feature useful discussions and links to studies on the impact of responsible behaviour on financial performance. For example a recent study out of Erasmus University by a host of professors/students finds that environmental information, as contained in the Innovest environmental rating system, was related to firm financial performance and mattered for firm valuation during the 1996-2002 period.
Citizen journalism is becoming synonymous with blogs by professional journalists, reformed hackers and political pundits. This is unfortunate because true citizen journalism is something else . . . something more valuable in tracking mood and opinion about issues.
Ordinary people are writing - often very well - about their experiences of political issues in their country, confrontations with unique social challenges, concerns, disatisfactions and criticisms. Some that I track provide a unique counter-balance to mainstream media presentation of societies and cultures, and the political views of people in countries we don't consider friends.
Take a look at a blog by a young Egpytian titled "Rantings of a Sandmonkey" (Apologies to those who this title may offend . . . but it is his alias. And,a strong warning, it includes some explict language that may also offend.) His recent post uncovers local news about the Iranian police removing mannikins from stores because they are too sexually suggestive. An earlier post talks about a candlelight vigil he and other friends organized to express the following .. . "We are a group of Muslim kids who feel awful about what happened in Alexandria. We feel that we are all Egyptians here and that we shouldn't let religion divides us the way it does. So we figured we would start the vigil to express our sadness at what happened and our solidarity."
A different perspective on Egypt, and possibly closer to the "street" truth than network television reports?