Summer 2004

Reputation and Brand: The New Danger Zone?

Steve Hilton

Ronald Reagan’s recent death threw the television archivists into overdrive: this was a man who had lived out most of his life on a camera of one sort or another. There he was with Mikhail Gorbachev; in the golf cart with Margaret Thatcher; in the arms of a chimpanzee (or was it the other way round?). And then: up popped a bear. In the woods.

The bear in the woods,” one of the most famous political ads of all time, interrupted the images of Reagan in action to remind us how brilliantly the former President persuaded the American people of the need to boost military spending to counter the Soviet threat. As a piece of political propaganda, it’s hard to beat. And as an allegory for business, it holds some useful lessons too.

For there’s a bear in the woods for corporations today. Like Reagan’s bear, some say it’s dangerous; others say it’s not.” But, in the words of that memorable campaign commercial, doesn’t it make sense to protect ourselves? Just in case?“

So here’s the headline for the boss: the bear is your company’s impact on society. Of course, it’s possible that the bear isn’t dangerous. Maybe the way you make your profits is beyond reproach. Maybe there’s nothing negative about the social or environmental effects of your products or services. Maybe there aren’t any unexploded bombs lying hidden in your company’s wiring. Maybe the bear isn’t dangerous. But it would be a Chief Executive of quite considerable courage who decided to ignore the bear, because the reality of commercial life today is that an increasingly significant component of business risk is social, ethical or environmental in nature. And experience shows us the costs of failing to manage those risks: reputational damage, brand value impairment, regulatory interference, and litigation. Chief Executives could do without such distractions in an ever-more competitive world.

Source: GlobeSpan Incorporated

Where Reagan turned to military spending to bolster his defences, business leaders in search of security today are turning to the much-misunderstood discipline of corporate responsibility. Jeff Randall, the BBC’s Business Editor, recently explained (in connection with the shareholder-inspired sacking of a British national newspaper editor) that the hot new thing in the City of London is corporate and social responsibility” (sic), and that given the world of political correctness” in which business now operates, we’d better get used to it. You might quibble with him over the idea that corporate responsibility is a new” thing, and you might resent the contention that it’s about political correctness — but fundamentally, Randall is right. We had better get used to the idea that non-financial issues and performance will play an ever-greater role in business, as citizens’ and consumers’ social awareness and concern increases.

Too much of the debate surrounding corporate responsibility suggests that it’s a specific, discrete component of a company’s activities, requiring separate communication — much as a company would communicate its annual results or the launch of a new product. But a communications-led approach to corporate responsibility that doesn’t tackle underlying issues of social, ethical and environmental performance can create a dangerous gap between external rhetoric and internal reality.

Companies that see corporate responsibility as essentially a communications exercise rather than a core management and operational issue are actually compounding their risks, not managing them. The way to create a positive reputation is to be a responsible company, and this requires real, painstaking and frequently challenging action. There are two distinct types: action which minimises social, ethical and environmental risks, and action which maximises social, ethical and environmental opportunities. The difference between them is crucial: it’s the difference between what to communicate and what not to.

Minimising social, ethical and environmental risk is the foundation of a good reputation. In plain English, it means trying to stop doing things that are likely to attract criticism. What precisely these things’ are, of course, is a constantly-evolving set of issues, with the benchmark of acceptable standards being raised all the time by a disparate group of inquisitive and troublesome journalists, irritating activists and campaigners, nit-picking socially responsible investment ratings agencies, and meddlesome bureaucrats and legislators; or, if you prefer, stakeholders.‘

Companies that are serious about corporate responsibility tend, rightly, to adopt a collective approach to managing their social, ethical and environmental risks. After all, risk minimisation is another way of saying compliance with society’s expectations,’ and these expectations apply in equal measure to all companies in all sectors. The best approximation of what society’s expectations are is provided by the burgeoning panoply of corporate responsibility standards and codes of practice (our own database of these contains nearly 2,000 indicators that are in common use internationally). There’s no substitute for a rigorous, forensic examination of company performance against these collective benchmarks, and then making any necessary changes internally — changing policies, changing management systems and changing operating processes. Emerging issues include potential conflicts between companies’ public policies and their private lobbying activity (either directly or through trade associations), and an increased focus on the social impacts of core business activities and the way products and services are used by customers (not just business processes).

The mistake that many companies make is to believe that it’s worth communicating what they’re doing to minimise their risks, as if they expect their reputation to be improved by proudly declaiming: we do what you expect us to do.” To gain credit for corporate responsibility, and to build a positive reputation that can insure against unpredictable threats, companies need to build on the foundations established by minimising their risks, and start maximising their opportunities, through real social leadership.

Social leadership means exceeding today’s expectations, finding ways to harness company resources to make a distinct and positive social contribution. Here, a competitive approach is required. There’s no code of practice or corporate responsibility manual to consult: it’s a simple question of creativity. Two key areas are emerging as offering the greatest potential.

First, the use of the innovation process to turn social needs into business opportunities. Unilever has created products and distribution systems specifically designed to improve the lives of the poorest people in developing countries; Vodafone is doing the same in South Africa; O2 has created a product which uses mobile technology to help treat asthma.

Secondly, the use of consumer brands’ cultural power as an engine of social change. With governments increasingly accepting their inability to influence the attitudes and behaviour of their citizens, there’s a powerful new role companies could play, as MTV has been doing for years with its youth campaigns on AIDS awareness, the environment and human rights.

The very fact that these examples of social leadership are delivered through the core business, rather than as add-on extras, removes the need for unconvincing corporate responsibility chest-beating, and consequently tells a more credible and inspiring story.

Richard Lambert, former editor of the Financial Times, has said that corporate responsibility will have succeeded when there are no internal departments, board members or employees dealing with it — when social, ethical and environmental thinking is embedded in the decision making of every department, board member and employee. He’s right — and difficult though it may be, it’s worth it.

After all, there’s a bear in the woods.

Steve Hilton is a founding partner of the consultancy Good Business and a former campaign co-ordinator for the Conservative Party's 1992 election campaign.