Public relations, as originally con­ceived in the early years of this century by Edward L. Bernays and practiced by such early pio­neers of the industry as Ivy Lee, Arthur W. Page, Carl Byoir and John Hill, was a management discipline, with its roots in behavioral science and its emphasis on coun­seling organizations on the likely impacts of their behavior upon the public's acceptance and support of their objectives.

It is only since the end of the Second World War that the words "public relations person" have come to be synonymous in the minds of most lay people—and far too many practitioners—with the words "publicist" and "press agent" and PR has thus been relegated within most organizations to a technical func­tion, concerned more with presenting man­agement's decisions in the most favorable light than with shaping those actions.

The public relations industry has been diminished, but it is not the only loser from this shift. Business itself has lost, because the failure to take into consideration the public relations implications of its decisions has led to flawed decision-making.

Many recent business failures can be traced to failures of public relations: the demise of Eastern Airlines, the collapse of Drexel Burnham Lambert, the death of the entire nuclear industry. It also possible to construct an argument that effective integration of public relations thinking into decision making would have averted recent crises at companies such as General Motors, Sears, Exxon and Salomon Brothers.

Conversely, it can be argued that the com­panies such as Johnson & Johnson weath­ered crises successfully because they inte­grated public relations considerations into management and the decision-making processes, while other companies—Dayton­Hudson is perhaps the best example—have been able to survive life-threatening circum­stances because of their long-term commit­ment to effective public relations.

There is also plenty of evidence in current societal trends to suggest that the effective management of public relationships will be even more crucial to the success of business in the future.

Information about corporations and other institutions—both positive and negative—is disseminated far more rapidly and more broadly today than ever before: by the organi­zations themselves, by the media, by activist groups. And as more and more products become essentially commodities, with few intrinsic qualities to distinguish them, con­sumers are increasingly likely to base pur­chasing decisions on what they know about the corporation that produces those products: is it environmentally benign, does it treat its employees fairly, does it make a contribution to society beyond the wealth it generates for its shareholders?

The good news is that smart corporations are beginning to realize that the public rela­tions implications of their decisions can be as important in terms of their impact on success or failure as the financial implications, the operational implications, the legal implica­tions. Within such corporations, the public relations function is being elevated to the senior management level, and public rela­tions professionals are being consulted before decisions are made.

The bad news is that such instances are still in the minority, and even where corpora­tions do appreciate the value of public rela­tions as a philosophy or mindset, they do not believe that public relations people are up to the challenge. Thus that counseling role is often assigned to individuals whose back­ground is in other, more or less related, disci­plines such as law, marketing or human resources, or narrow subsets of public rela­tions such as investor relations or govern­ment affairs.

To understand where the industry is going, it is important to understand where it has been, and it is probably fair to say that many within the industry do not.

That is one reason many practitioners fail to understand that public relations is not merely publicity, while so many of those who do practice public relations as a management discipline apparently regard themselves as redefining the industry rather than returning it to its roots. 

Clearly, public relations has been around as long as there has been a public. Throughout history, and in every society, institutions both governmental and com­mercial have had relationships with their publics: employees, communities, investors, customers, competitors, lawmakers, et al.

One cannot choose whether or not to have public relations, one can only choose the degree to which those relations will be managed, and it is only over the past 100 years or so that the management of public relations has been formalized, and that the task of public relations management has come to be seen as a separate and distinct function within an organization.

Perhaps the first, and undoubtedly the most prominent, of those who helped for­malize the practice of public relations was Edward L. Bernays, who offered this defini­tion of public relations during a debate with journalist/philosopher H.L. Mencken: "The public relations practitioner is an applied social scientist who advises his or her client or employer on the attitudes and actions to take to win over the support of the publics upon whom the viability of the client or employer depends."

Bernays, a nephew of Sigmund Freud, believed that the foundation of public rela­tions was behavioral science, that an under­standing of the public and its likely reaction to corporate behavior was the most impor­tant qualification for anyone in the field, and that every public relations decision should be underpinned by research.

Bernays' contemporary Ivy Lee, who worked for the nation's mine owners during the violent strikes of the 1906, concurred. He stated at that time that public relations people must become "involved in interpret­ing the public for the business" and that PR must be about becom­ing "an adviser on policy that concerned the public" rather than about publicity. He defined public rela­tions as "the actual relationship of a com­pany to the people" and added "that relationship involves far more than saying, it involves doing."

Lee, who was later vilified for his work on behalf of Hitler's Germany, actually offered the Nazi govern­ment real public relations advice—to change course, to abandon its expansionist plans—rather than merely assisting its propaganda efforts as its mouthpiece in the U.S., a role many public relations practitioners since have been all to willing to adopt. 

Meanwhile, Arthur Page, who became vice-president of public relations at AT&T in the '20s, and is regarded by most historians as the first to hold that title in any company, likewise regarded public relations as a two-way communication process, the emphasis on information flowing intothe company from its external audience rather than flowing out, writing that “business has to have a top management that analyzes its overall relations to the public serves and is constantly on the watch for changes in the desires of the publics."

Page also emphasized the importance of employees as an audience, writing, "business needs a system for informing employees concerning the general policies and practices of the company" and expressing the view that "feedback from employees... is essential to good public relations.

And it was Page who articulated on the guiding tenets of the profession, that business begins with the public's permission and can only proceed with the public approval."

This view of public relations clearly differentiated it from the tradition of press agentry and hucksterism as practiced notoriously by P.T. Barnum and Harry Reichenbach. Indeed, in his 1948 book Two Way Street, Eric Goldman examined progression from publicity to public relations: "For centuries the press agentry operated on the principle of the public be fooled; in the early 1900s a group of publicity men emerged who shifted the emphasis to the public be informed; in the 1920s, American public relations was summoned to the of the public be understood."

However, as Golden goes on to explain, none of these three strands was ever entirely separate from the others, and the nomenclature was such that publicists and press agents could describe themselves as public relations people with impunity, and often did.

In 1959, Ross Irwin's The Image Merchants—an expose of unethical practices in press agentry—presented an unflattering view of the industry and the reality behind the ter­minology. Irwin wrote that "most PR men do a good deal of workaday publicity, yet hate to be known as `press agents.' The term `public relations counsel' is preferred for its air of professional distinction... In fact, and without much distortion, the whole breed may be called the Image Merchants.... `Image' is perhaps the favorite noun of public relations, `project' the most common verb."

The adoption of the term "public rela­tions" by many old-style publicists was the first step towards the corruption of the Bernaysian notion of what the industry was about. Seeking credibility and respectability, those whose job was feeding information (and disinformation) to the media attempted to improve their own image by projecting themselves as "public relations people". Instead, the inevitable result was to drag the image of public relations down to their level.

Professional public relations organiza­tions, including the Public Relations Society of America, were complicit in this corruption. Apparently believing that strength as an organization would derive from greater critical mass, PRSA admitted to its ranks many who were not public rela­tions practitioners in the strictest sense, but functional communicators.

It is also clear that the attitude of many corporations towards public relations con­tributed to its decline.

Of course some enlightened executives recognized the power of the public relations philosophy. In the '60s, Monroe J. Rathbone, then CEO of Standard Oil of New Jersey (later to be renamed Exxon) echoed the Bernaysian view that: "A wise firm makes PR a function not simply of a staff department but of top management, so that every business decision is considered from the standpoint of its public impact."

But most organizations preferred the quick fix offered by slick communications experts—the early forerunners of today's "spin doctors"—who did not try to influ­ence the company's behavior but rather promised to present that behavior in the best possible light, over the challenging notion offered up by true public relations professionals: that an organization's reputa­tion and its relationships with the public would depend primarily upon its behavior, not upon its words.

It is conceivable that in the past, even the relatively recent past, organizations could get away with an approach to the management of public relationships which relied on slick presentation and manipula­tion to obscure the facts and persuade the public to their point of view. That is rarely true today, and will be fatal in the future. Today, business operates under greater scrutiny that at any time in the past: scrutiny from the media, from public interest groups, from government, even from competitors.

There was a time when the media’s interest in business was restricted to whether the share price was going up or down and whether employees were on strike. Similarly, there was a time when the only publications that wrote about business issues were The Wall Street journal and other pub­lications targeted at a business audience.

Today, media's coverage of business ranges across a gamut of issues: environmen­tal performance, employee relations prac­tices, executive compensation, behavior towards ethnic minorities, the way it con­ducts itself in overseas markets. And these stories appear in mass market publications such as USA Today, Time and Newsweek. Even Sports Illustrated recently ran an exten­sive and not entirely flattering portrait of athletic shoe giant Nike.

And, needless to say, the prevailing atti­tude at many of these publications is one of distrust towards business. There is an ingrained skepticism—not at all surprising in light of the way corporate America has tradi­tionally handled the media—about the kind of manipulative, self-serving communication that has become synonymous with corporate public relations.

Media coverage is also influenced by the extensive and growing network of consumer and public advocacy groups. These groups are more plentiful than in the past, more professionally organized, more savvy in their use of public relations techniques, and unlike the media capable of expending thousands of man hours investigating those organizations

they suspect of abusing the public trust. Thus, one sees a remarkably swift back­lash against corporate communications that distort the truth or gloss over certain facts. When DuPont began running a television ad featuring applauding seals and penguins apparently overjoyed at the decision of the company's Sunoco subsidiary to invest in an environmentally-friendly, double-hulled tanker shortly after the Valdez spill, Friends of the Earth was quick to respond.

In a 110-page booklet called Hold the Applause, FoE suggested that the ad "artfully disguises the fact that DuPont, far from being a paragon of corporate environmen­talism, is in fact a company with global environmental problems. In reality, DuPont is a heavy-duty, industrial-strength, round­-the-clock polluter."

The organization also ominously promised "a series of investigative case stud­ies which will critically assess the evolving environmental and energy policies of major corporations and trade associations."

Meanwhile, government regulation of industry continues to become more restrictive, and prosecution of offenders more rig­orous. Even under 12 years of Republican rule, and despite the anti-government rhetoric of Presidents Reagan and Bush, the governmental scrutiny under which busi­ness operates increased.

While many corporations continue to see regulation as an imposition on the free market, the fact is that in a democracy, reg­ulations are a reflection of free market forces. The public, concerned about the activities of business and the impact of those activities on its quality of life, supports poli­cies that restrict those activities.

Finally, even other corporations are more willing to be critical of their competitors. Once considered ungentlemanly, compara­tive advertising is now the norm in some industries. And the ads do not focus exclu­sively on product: American Express rece­ntly ran ads accusing Visa of anti-compet­itive practices in connection with its support of the U.S. Open Tennis Championship; several competitors have attacked Microsoft in print for monopolistic practices.

In other instances, companies are much more subtly promoting their own good works and implying that consumers should examine and compare the policies of com­petitors. The Body Shop built a $156 mil­lion company that way, while H.J. Heinz snatched a market advantage from competi­tors when it became the first tuna marketer to guarantee not to harm dolphins.

The overload of information about corpo­rate behavior is compounded by technologi­cal changes which mean that once a corpora­tion's activities become news, that news can instantly be disseminated to millions of people around the world.

There are powerful forces abroad shaping and upon occasion distorting the reputation of organizations. The result is that corporate publics—employees, consumers; local com­munities, shareholders—are infinitely better informed about a wider range of corporate activities than ever before.

And one other trend places the public in a better position to act upon that information. For today, the products that corporations sell are increasingly commodity products. There is little inherent difference between one brand of soap powder and another—most brands are effective in getting clothes clean. Secure in that knowledge, consumers can make purchasing decisions based upon other factors that concern them: is the com­pany that makes this product environmen­tally-friendly; does it do business in South Africa; does it have a record of discriminat­ing against ethnic minorities or homosexu­als; does it treat its employees fairly?

The same applies for other publics. Investors, for example, now have the option to invest through specialized funds only in companies that adhere to strict ethical or environmental standards (and data show that many of these funds outperform the market) or to wreak havoc upon companies that place the interests of senior managers above those of owners.

The media, activist groups, government and competitors arm the public with infor­mation. Increased choice gives them the courage to use that information.

In this environment, reputation must be 'regarded as an asset. Indeed, it may be the most valuable asset an organization possesses. Like any other asset, it must be managed. When decisions are made, they must be considered in the context of whether they will increase or decrease the value of this asset. When external forces threaten this asset, the company must move swiftly to protect it.

Traditionally, reputation has not been regarded as an asset, because no-one has ever been able to put a dollar value on it, and in todays world of rampant MBAism, the conventional wisdom is that if an asset is not visible on the balance sheet, it cannot be measured in any meaningful way; if it cannot be measured in any meaningful way, it cannot be managed; if it cannot be managed, it might as well be ignored.

There have, of course, been attempts to demonstrate that those companies that invest time and energy managing their repu­tations receive a pay off on that investment. Research Strategies Corp., based in New Jersey, has conducted

research that suggests a connection between people's familiarity with an organization and the favorability with which they regard it, and that those who regard a company favorably will be more likely to purchase its products. Harvard Business School's John Kotter, meanwhile, suggested in his 1992 book Corporate Culture and Performance that "firms with cultures that emphasize all the key managerial constituen­cies [defined as customers, stockholders and employees]... outperform firms that do not have these cultural traits by a huge margin.."

Most of this research, however, is vague and inconclusive, and struggles to quantify a factor that is inherently qualitative and per­ceptual: human behavior. 

While economic theorists have always assumed that a corpo­ration's publics will respond rationally—that customers will buy the least expensive prod­ucts available or that employees will work for whoever pays the best wages—in the real world human emotions and personal prefer­ences have a disquieting habit of screwing up that rational model

The first, and perhaps most important, role of the reputation manager or public relations counselor, therefore, is to under­stand this human dimension. That is why Bernays believed that public relations must have its foundation in behavioral science, and why the early public relations pioneers placed such heavy emphasis on research.

This ability to predict the reactions of internal and external audiences to corporate actions—and to understand the impact of those reactions upon an organizations ability to do business—is what the public relations counselor brings to the table when decisions are made. This perspective is the reason he or she must sit at the proverbial top table.

Every time a decision is made, it has four broad sets of implications. It has financial, operational and legal implications, all of which are routinely and formally taken into consideration, with the officers in charge of those areas helping to shape the decision, and it has reputational implications, which are traditionally an afterthought. However, ignoring or failing to properly consider this dimension of a decision's consequences will upon occasion lead to flawed decision making.

The way in which the pharmaceutical industry has tradition­ally made decisions regarding pricing poli­cies is a perfect case in point. Financially, it made perfect sense for companies to charge whatever the market would bear. Legally and operationally,  there was no reason to charge less than the market would bear.  Reputationally, how­ever, the implications of this approach to pricing were devastating.

In the case of Burroughs-Wellcome, which started out charging $10,000 for a year's treatment with the AIDS drug AZT, and was estimated by some sources to have made $200 million in profits off the drug in its first year, failure to consider the reputa­tional implications of its pricing decision resulted in AIDS activists storming Wall Street and chaining themselves to the gates of the company's headquarters, and a series of government hearings in which the com­pany was vilified for price gouging.

"I guess we assumed that the drug... would be paid for in some manner by the patient himself out of his own pocket, or by third-party payers," said then-president Theodore Haigler. "We really didn't get into a lot of that"

Similarly, Sears clearly did not consult public relations counsel (or if it did, it clearly got poor counsel) when formulating the compensation policy that resulted in charges that the company was routinely charging customers at its auto repair centers for repairs they did not need.

That policy rewarded mechanics almost exclusively on the basis of how many repairs they carried out It would not have taken a behavioral science genius to foresee that such a policy would motivate employees to carry out as many repairs as possible, and some employees to carry out unnecessary repairs. And it would not have taken any particularly profound understanding of the regulatory and media environment to pre­dict that any pattern of unnecessary repairs would eventually become public, and that the result would be devastating in terms of public confidence in the company.

It is crises like these that focus the atten­tion of senior management on the impor­tance of reputation. Unfortunately, when crisis strikes, it is generally too late for repu­tation management to do any good: for one thing, an organization that has not invested heavily in its reputation will find that it has little insurance against reputational damage; for another, it will find that the cultural shift that effective public relations requires—sud­denly acting as if you care what people think of you—is not easily accomplished.

In the wake of the Valdez spill, for exam­ple, Exxon was criticized for its slow response; for tactical decisions such as the choice not to send CEO Lawrence Rawl to the site of the accident, and for an overall atti­tude that made it clear the company was more concerned about admitting legal liabil­ity than it was about doing the, right thing.

Yet the response was merely a symptom of something very wrong in Exxon's culture, an arrogance that assumed public opinion did not matter. It was this same arrogance that helped create the crisis in the first place, an assumption that Exxon was so big and powerful that no event—no matter how cat­astrophic—could bring it down.

Exxon did not do the right thing in the wake of the Valdez spill—the right thing being to take responsibility, to admit its mis­takes, to clean up—because it was culturally incapable of doing the right thing. It was culturally incapable of doing the right thing because it did not know what the right thing was, and it did not know what the right thing was because it had never devoted a moment's thought to the question. The question was regarded as irrelevant to Exxon's success as an organization.

The reverse is true in the case of Johnson & Johnson and its much-discussed handling of the Tylenol tampering case of the early '80s. Johnson & Johnson was culturally inca­pable of doing the wrong thing when the Tylenol crisis occurred, because reputational thinking had been incorporated into every aspect of the company's decision-making process. Managers were trained to ask "What is the likely impact of this decision of Johnson & Johnson's good name?" every time a decision was made.

In companies that routinely integrate rep­utation management into the decision­making process, therefore, crisis situations do not require any change in the processes of decision-making. Quantitatively, a crisis situation may differ from other times – 200 telephone calls a day instead of two—but qualitatively the processes by which good decisions are made remain the same.

Such companies will also be able to draw on a significant reservoir of goodwill, as Minneapolis-based retailer Dayton Hudson did when it became the target of a hostile takeover bid in the late '80s.

Dayton Hudson was a company that had always considered the reputational implica­tions of its decisions on all key publics. It treated employees with respect, it was a gen­erous contributor to its communities, it lived by the cliché that the customer is always right. Thus when it found itself under attack, it was able to mobilize all of these publics in its support. Employees, customers and community groups wrote letters to the Governor of Minnesota and the ultimate result was a tough, new anti-takeover law that essentially scared off the bidder.

It is probably fair to say that Dayton­ Hudson would not be around today had it not invested in its reputation over the years.

Since the reputational implications of management decisions (not only pric­ing and compensation decisions, dis­cussed earlier, but decisions that involve the sourcing of materials, the siting of plants, restructurings, marketing programs and international expansion) can be so profound, it should be clear to all organizations that reputational considerations must be inte­grated into the decision-making process.

Some companies do this informally. Perhaps the chief legal counsel will offer up the idea that despite the fact that the com­pany is on firm legal ground, there may be those who object to a plan and will perhaps oppose it publicly. Perhaps the CEO himself—believing that he is the company's chief rep­utation officer—will offer some thoughts, based on intuition or personal experience, on the likely public reaction.

But the ceo should no more make a deci­sion that has reputational implications with­out seeking the advice of an expert than he or she would make a decision that has legal implications without seeking the advice of professional legal counsel.

Reputation counseling—like legal coun­seling and financial management—requires a real expertise. It requires an understanding of the external environment and of human motivation, based in academic study, per­sonal experience and hard research, the latter an element too often missing from public relations planning.

It also requires an understanding of how best to communicate the decisions that senior management reaches so as to impact the way in which those external audiences react to them, to maximize their benefit and minimize any damage to the company's rep­utation and to its ability to operate success­fully. (It is not, however, a communications function: communication is simply one pos­sible end product of the PR process.)

In the best-run companies, someone is going to be doing this job, but there is an alarming body of evidence to suggest that it will not be the PR people.

Quite simply, the fact is that the majority of those who now call themselves public relations people, and hold positions within PR departments at American corporations, are in reality mere communication imple­menters (the designation most commonly used today is corporate communicator, a term which emphasizes the tool over the process). For this reason, management's understanding of PR and expectations of what it can achieve are justifiably low.

Thus the task of reputation management often falls to someone from outside the tra­ditional public relations background. In many corporations, it falls to an attorney, a refugee from the corporate legal depart­ment. Given the choice between a smart, insightful attorney and a mediocre, tacti­cally-focused PR person, it is scarcely sur­prising that a CEO would choose to listen to the attorney, but the decision can have a downside: attorneys are comfortable with confrontation, they are used to an environ­ment in which factual evidence rules the day, they are trained to believe in rules and in the public relations arena rules change on an almost daily basis.

Elsewhere, the marketing function has been elevated over PR and marketers are assuming the role of reputation counselors. The risk is that marketers tend to regard consumers as the most important con­stituency, and tend to be most concerned with short-term sales benefits. Few mar­keters have experience in employee, investor or government relations issues.

Finally, there are corporations that split the reputation management functions, so that the investor relations professional reports to the chief financial officer; the employee communications professional reports to the head of human resources; the public affairs professional reports to the chief legal counsel; and the senior PR pro­fessional is reduced to marketing support.

The difficulty with this structure is that it creates artificial distinctions between audi­ences. More and more, employees are also shareholders, customers are also members of local communities, governments are some­times customers and shareholders may be members of public advocacy groups. A com­pany has only one reputation and that repu­tation must be centrally managed. A com­pany that tries to convince shareholders that it is on track for record profits while pleading poverty to labor negotiators is likely to find itself in considerable difficulties; likewise a company that portrays itself as a friend of the environment to consumers while lobby­ing against environmental protection will eventually be exposed.

Someone needs to manage the corpora­tion's reputation asset from a central and senior position, and if that someone is to be a public relations professional, public rela­tions people must reinvent this business in the image originally intended by Bernays, Page and other public relations pioneers.