What's Hot In.... Corporate Reputation
Charting the future of public relations
Holmes Report
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What's Hot In.... Corporate Reputation

Hot: employee engagement, corporate responsibility, the energy sector and financial services. Still not: M&A and other transactions.

Paul Holmes

The Holmes Report's six-part trends forecast looks at how trends in consumer marketingcorporate reputationpublic affairstechnologyhealthcare and digital are shaping the public relations industry.

Traditionally, companies have seen corporate reputation as a “soft” asset: the major benefits of reputation management as intangible, its relationship to the bottom line difficult to establish, its impact long-term rather than immediate. As a result, tough times have often led companies to redirect their communications dollars to campaigns that can make a more measurable impact on quarterly performance.

But just as the rise of digital and social media has led to a shift in marketing dollars away from one-way communications channels such as advertising into disciplines that offer greater engagement and more dialogue, it has also led companies to recognize that they need to protect and leverage corporate reputation even in tough times.

“Great corporate brands weather the worst storms through consistent investment in their reputation,” says Alex Sandberg, chairman of UK-based College Hill. “It’s core to their strategy. It’s a clue why Warren Buffet invests in Amex, P & G, Coca-Cola, J & J and others like them. Difficult times bring tighter budgets but smart corporates don’t lose focus on who their stakeholders are, what they’re thinking and how best to engage with them.

“This is particularly true where the corporate brand and the product are synonymous or the corporate brand has exceptional visibility. So we don’t see any let up in our corporate reputation work this year.”

The new media have not necessarily changed the rules of good communication, but they have created an environment in which miscommunication—or the absence of communication—is discovered much more quickly and punished much more severely than in the past. As a result, effective and ongoing reputation management is now seen by sophisticated companies as a “must have” rather than “nice-to-have” investment.

“Today, more than ever before, reputation and trust are at stake every second,” says Anders Kempe, EMEA chief executive at MSL Group. “Hence, the market for strategic communications advice is growing. Companies need to safeguard their reputation, which is often the key to protecting all other assets, and thus to their future success. The players who can build trust for themselves as advisors will have a bright future.”

Scott Chaikin, chairman and chief executive of Cleveland-based Dix & Eaton, echoes that statement:
“While for some time we've seen a tendency among many in leadership positions to vaguely acknowledge that reputation is important, recent events and the proliferation of social media are helping to rapidly drive home appreciation of just how volatile even the most-respected corporate and institutional reputations can be,” he says.

The view from Europe is slightly less optimistic, however. According to Rafal Szymczak of Polish PR firm Profile: “It seems that corporate reputation will not create growth this year. From one side, the vast majority of Polish consumers are price oriented and global crisis is not a favourable period to change this attitude. From the other, this year companies should not have problem with retaining employees, even the most talented and highly professional.”

And even where reputation management is a growth area, companies are intensely focused on return-on-investment, which means CCOs and their agencies are under pressure to demonstrate effectiveness, and so Chaikin sees considerable potential in his firm’s reputation valuation practice.

“Two years ago, Goldman Sachs broke new ground in its annual report by citing ‘adverse publicity’ as a risk factor,” he points out. “More recently, preliminary research by our Pam Cohen shows that Penn State's sports programs' reputation and bottom line will likely lose $16.5 million over the next two years as a result of the current child sex abuse scandal.”

In fact, according to Cohen, "That's just the beginning. It doesn't include other expenditures, fallout and other non-sports and leadership factors driving Penn State's reputation that will be impacted by the scandal's ripple effect. Already, in fact, we're seeing backlash from alumni who want to see the university do more to celebrate Joe Paterno's career."

Employees on the Front Lines

One major impact of social media is an increased awareness of the role—for good or ill—that rank-and-file employees can play in shaping an organization’s reputation.

“Employees have always been a company's best asset and organizations have always aspired for staff to be their best ambassadors for the corporate brand,” says Stuart Smith, managing director of the global corporate practice at Ogilvy Public Relations Worldwide. “The ability to activate employees as advocates for the brand however changed overnight with the advent of blogging and has accelerated since the emergence of social media.

“Whether companies want it or not, employees now have mature channels with which to communicate directly with customers. It has taken time, but we are now seeing companies move rapidly from experimenting to operationalizing the use of social media at a corporate communications level, using employee-driven social media channels to drive reputation and sales advocacy with customers.”

Adds Daryl McCullough, CEO of Citizen Paine: “Internal communications and employee engagement should also be an area for growth because the employee has a bigger voice than ever, is trusted among its peer groups internally and externally, and is an essential truth-test to external influencers and audiences.”

Nick Howard, who heads Edelman’s change and employee engagement practice in EMEA, and Christopher Hannegan, who holds a similar position in the US, point to Edelman Trust Barometer research showing that over the past 12 months, the credibility of CEOs has plummeted, “while trust in information from regular employees skyrocketed.” In the US, for example, nearly twice the number of people (62 percent) trust information about a company from regular employee than from the CEO (34 percent).

“In 2012 we expect companies to increasingly invest in engaging employees to effect change, drive efficiencies, collaboration, innovation, corporate reputation and growth,” say Howard and Hannegan. “Companies are increasingly deploying broad swaths of employees to engage external stakeholders to advance corporate reputation and richer relations with customers.

“In 2012, we see employee engagement, traditionally the poor cousin in the corporate reputation family, come of age.”

There’s also plenty of activity in the change management arena.

“Already a number of firms have approached CNC regarding startegic counsel and operational support for expected restructuring programmes, including job losses, plant closures, cost cutting, and asset sales,“ says Roland Klein, partner at the international corporate and financial specialist.

The Leadership Imperative

Employees may be more credible than their CEOs, and turning them into corporate ambassadors makes perfect sense, but leaders need to reclaim their own authority and credibility.

“Leadership communications is likely to be a real growth area in 2012, for individual corporate leaders, leadership teams and overall corporations,” predicts Rod Cartwright, global corporate practice director at Ketchum. “Why? Because the waves of protest and unrest we saw across nearly every continent in 2011—wonderfully crystallized in Time Magazine’s nomination of ‘The Protestor’ as its Person of the Year—represented a clear, collective gauntlet thrown down to our leaders.

“The challenge to the ‘one percent’—fair or otherwise—is that in difficult economic times, the expectation of authentic, visionary, open, transparent and accountable leadership that solves people’s real world problems is greater than ever.”

One area on which CEOs and their senior leadership teams are focused is crisis. Mistrust of institutions in the wake of the global financial crisis, coupled with the availability of information (and misinformation) via digital and social media are combining to create an environment in which protests against industries, companies and brands can spread more widely and be amplified more loudly than ever before.

“I believe that preparation for, and management of crises emerging from social media will be an area of significant growth in the months to come,” says Ulrich Gartner, founder of Germany consultancy Gartner Communications. “The number of such crisis actually happening is steadily increasing, and corporate communications departments are realizing they need to get prepared for such events as traditional crisis management tools don’t really do the trick.”

Adds Micho Spring, who heads the global corporate practice at Weber Shandwick: “Consistent with increased focus on the enterprise brand, we’re also seeing increased emphasis on crisis preparedness, which has evolved from contingency planning to the need to create a culture of preparedness in order to be effective at managing issues and negative events in an online 24-7 environment.

“This goes beyond traditional crisis management and response and recognizes that in this digital and social age, it’s no longer possible to fully predict where crises will come from. Instead, the organization must build the capability to assess and act quickly, regardless of where and how the issue develops. This means more emphasis on audits that will identify vulnerabilities in advance and help prevent them, drills that anticipate the impact of digital and social media in a crisis and help develop response principles in advance, and most important, building closer partnerships with the key functions that manage the crisis, particularly legal, so that they are fully prepared to act together quickly.”

One area of specific growth: “Litigation PR continues to increase,“ says Klein, who says his firm is “experiencing what seems to be a record-level of legal action related to patents and intellectual property rights as well as compliance issues.“

The Convergence of Corporate and Consumer

In a trend we also highlighted in our consumer practice preview, corporate experts see continued convergence of corporate reputation and consumer marketing work.

“At Ogilvy, our corporate practice works more closely with people in charge of marketing and brand than might be the norm,” says Smith. “Every practitioner of PR understands the theory of the convergence of reputation and brand, at Ogilvy we are witnessing it all up close perhaps more than most.”

Again, digital an social media are playing a major role, ensuring that transparency is no longer merely an option.

“Reputation building via transparency is going to continue to increase in 2012 and not just be housed in corporate communications, but increasingly managed by brands,” says McCullough. “The greater the transparency an organization or brand provides its audiences, the greater the need for more broadly based reputation management strategies.

“Whether it is in the form of CSR, citizenship, stakeholder communications, customer communications, or direct-to-consumer marketing, our truth-test starts with this question: Does your organization or brand’s actions speak louder than your words? If not, then what can we build or coalesce that can help you get there. This need has never been more prevalent than in the always-on digital media age where the citizen journalist has the power to launch a protest or drive an inquiry.

“What organizations and brands do, how they behave, and how they react under pressure, will always travel much faster than what they say generally. But when actions are aligned with messages, it creates trust.”

New standards, driven by both governments and NGOs, are also playing a part.

“Responsible organisations and governments will be the hot topic of 2012,” says Nan Williams of UK consultancy Four Communications. “This is not just in the silo of ‘corporate reputation’ but across consumer marketing, digital and all other traditional communications practices. This is the year that Apple’s new CEO confirmed more supplier details and joined the Fair Labor Association in the face of media criticism. The UN has now introduced a global baseline [and] this is the year that companies will start to undertake human rights audits as they once introduced sustainable audits. Human rights violations can often lie hidden within complicated supply chains. Ignorance will be no defence in the face of global contempt.”

As a result, organizations are embracing more holistic approaches to reputation management, according to Stuart Wragg of Australian consultancy n2n communications. “The proliferation of channels that consumers use to engage with businesses, flatter organisational structures and fast pace of change mean that all parts of an organisation have a role to play in managing corporate reputation.

“PR agencies will need to get out of the marketing communications bubble and deeper into all parts of a business to ensure all functions are engaged including sales, customer service and human resources.”

The Age of Responsibility

That leads many observers—though by no means all—to predict more intense interest in corporate responsibility than ever before.

“Businesses will have to step up on their responsibilities to society this year,” says Andy Last, principal at UK consultancy salt. “Too many trends are pointing towards this for any business with a care for its reputation to ignore. The previously distant and invisible actions of multinationals in far foreign lands will come increasingly close to home and visible thanks in large part to digitally empowered youth. If they can bring down governments in North Africa and the Middle East, they can bring down a corporate reputation.

“The best businesses always did this, and many businesses are trying to engage more actively. But 2012 will see the increased demonization of those that don’t. Our industry has to play its part by advising our clients not how to put the best gloss on what they are doing, but how to engage better on these issues in the first place.”

“Many companies began their corporate responsibility journeys over a decade ago, and along the way they made bigger and bigger commitments and launched more initiatives,” says Liz Gorman, senior vice president in the corporate responsibility practice at Boston-based Cone. “Their programs have become increasingly complex with multiple priorities. The challenge is determining what and how to communicate their CR stories in ways that engage stakeholders, build reputation and differentiate their brands.

“Online reporting will continue to gain preference as a communication tool, but also look for more companies to create CR branded platforms and use social media to keep their messages fresh. Our opportunity as experienced CR professionals is to serve as a trusted advisor to clients who must navigate the complexity of all this and tell their stories in the most compelling manner. We are already doing this for a wide array of clients.”

More formal reporting—now a staple in Europe—will expand globally.

“It is likely that more companies will combine a financial and sustainability report into one document,” says Richard Brett, managing director of the UK’s Shine Communications. “What we might see is a greater attempt by companies to quantify the financial impact of their non-financial performance. The drive to use reporting as a platform for interaction will gain speed in 2012. As time goes by, more companies will realise that online engagement around reporting is an inevitable feature of being a sustainability leader.

“We will see a proliferation of corporate CSR blogs, more CSR Facebook content, and more CSR tweets from a company’s account. In this way, companies will try to engage stakeholders in the content and development of the report, rather than just gaining their reactions.”

Having said all that, there are some dissenters on both sides of the Atlantic.

“I think we’re going to see a stabilization in CSR communication,” says Gartner. “What used to be a trend and then turned into hype has now come under greater scrutiny as to where it actually contributes to business performance—and, for my part, rightfully so.”

Tom Coyne, CEO at New Jersey-based Coyne PR, agrees. “Most companies have done a great job becoming better corporate citizens throughout the last five years,” he says. “They made their production, products and services more efficient and the world is a better place. It is no longer a marketable difference for a company but simply table stakes for competing in the marketplace.

“We are predicting that we will see less buzz surrounding greening efforts of a company. The big game changers still make news and received the well-deserved accolades; but overall this area is flattening”

Energy and the Environment

One industry that clearly need to continue communicating its commitment to responsibility is the energy sector, which observers expect to step up its activity in 2012.

"We see energy continuing to provide strong growth of opportunity for communications consultancy support internationally” during the UN's 'Year of Sustainable Energy for All,' says Simon Brocklebank-Fowler of UK financial communications consultancy Cubitt. “The opportunities we see encompassing growth in traditional energy, [but] we also anticipate the increasingly mainstream character of renewables, accounting now for instance for 20 percent of Germany's total energy requirements, and the transformational opportunity for the United States of shale gas. A large part of our prospective IPO pipeline in London remains energy or mining and minerals focused, often with an Asian dimension."

Matt Wolfrom, who heads a new energy practice at New York’s Makovsky & Company, is similarly bullish: “Electric and water utilities and energy players are entering a critical period of investment, market and regulatory reform, and technological innovation that will shape the sector for decades to come. Building and protecting reputation and creating the associated shareholder will be even more complex with so much change.”

Effective communication will be critical, he says, because “we stand on the cusp of yet another historic shift in the energy markets with the Federal Energy Regulatory Commission Order for Demand Response. The winners, losers, innovators and laggards will be defined soon enough. Building and protecting reputation and creating the shareholder value associated with demand response will be even more complex with so much change.”

The Financial Sector Reawakens

Another sector where many observers expect increased activity is financial services, a sector that has been reluctant to engage with stakeholders, many of whom still hold the industry responsible for the financial crisis of the past four years, and resent the ability of its executives to avoid either financial hardship or stricter regulation.

According to Barb Iverson, who leads the financial Services practice at Weber Shandwick, “After four-plus difficult years for companies and organizations in the financial services industry, many have concluded that today’s environment is the ‘new normal’ and that they must more aggressively and proactively communicate with their many stakeholders—all in their quest to rebuild trust.

“There are several important forces at play: new regulations that are playing a significant role in reshaping the landscape for both providers and consumers; increased recognition that companies must reach their audiences in a very local, personal, social and customized way; considerably more focus on the women's market and reaching Gen Y as many companies move to adjust to demographic trends, post-financial crisis; more emphasis on corporate social responsibility and financial education programs; and significantly greater interest in social media engagement programs, both consumer and B2B.”

Experts on the other side of the Atlantic see the same potential.

“Sustained economic turmoil, coupled with outrage at bankers’ bonuses, has left the financial services sector with a severely battered reputation and a question mark over its growth prospects,” says Lauren Greatorex, a consultant at UK firm Man Bites Dog. “In recent months, several banks have taken steps to salvage the situation by improving their offerings and spreading the word through tailored PR campaigns. Over the next 12 months, this focused effort on proactive communications could help banks and the wider financial services sector grow their profits as well as their reputations.”

After a prolonged silence, the financial sector can only step up its communications efforts in response to a potential rebound, experts says.

“This industry has been so battered and so under the radar, the potential demand is enormous,” says Don Middleberg of New York’s Middleberg Communications. “We know that investors, particularly baby boomers, desperately need sound financial advice. Yet, they have been gun shy to return to the financial markets. Plus, we know there are enormous amounts of cash sitting on the sidelines waiting to be invested. If the current uptick in the market continues people will return, slowly at first but then with increasing momentum, eager to participate. It will be the financial services firms—banks, mutual funds, hedge funds—that will be the beneficiaries and these companies will, in turn, seek out PR agencies to help gain awareness, recognition and credibility in the marketplace.”

Aaron Kwittken, founder and CEO of New York-based Kwittken & Company, agrees. He says that while “the great majority of financial services communications programs over the last three years have been reactive, focused primarily on the crisis and reputation management activities designed to help companies manage a shifting landscape,” financial institutions are now “revisiting proactive communications and making significant investments in the kinds of creative, integrated, multi-platform strategies they had necessarily abandoned in the wake of the crisis.”

Many of those companies are now embracing social media. Until recently, “the value of using platforms that were then largely viewed as tools more suited to the B2C or personal world just wasn’t obvious to an industry beset with challenges,” Kwittken says. “That’s changing though—and fast. This year, we have already begun seeing some of the larger financial institutions tackle social media in earnest—and in highly innovative ways.”

Companies are coming to recognize “that one of the most exciting aspects of today’s social media platforms is that they provide companies with a more-effective means than traditional communications channels for reaching and, most important, engaging with their highly fragmented universe of business customers, partners, vendors, etc. And they’re taking bold steps in order to harness this potential.”

But No Rebound for M&A

But even if there is plenty of activity in the financial sector, there is unlikely to be a huge surge of activity in financial communications, particularly in the high-stakes, high-margin world of mergers and acquisitions and other transactions, which has been stagnant since the start of the downturn.

“As banks remain highly cautious to provide capital, it is not only the private equity industry that has to delay its planned transactions,“ says Klein. “While we have won many pitches for IPOs and M&A deals in 2011, the majority of them have been or may have to be postponed. To be on the safe side, we have taken a more conservative outlook for transaction communications in 2012.“

“Corporate coffers are full of cash, particularly at public companies in the United States, but also for multinationals all over the world,” says Marc Dreschler, head of the financial communications practice at Ketchum. “One would expect a flurry of M&A activity across borders as money is cheap. And we have seen some proposed major deals such as AT&T/T-Mobile or Deutsche Boerse/NYSE.

“However, with impaired sovereign balance sheets in the developed world, tighter capital regulations for banks, highly-levered yet undercapitalized European banks and generally mute aggregate demand, risk appetite remains restrained to sure bets. From an investor’s perspective, these sure bets have been US treasuries and gold.”

Even in China, the IPO market is expected to stay relatively flat.

“Even though there will be a change of governments across Greater China in 2012, their agenda will likely be the same, which is to sustain economic growth and stability,” says Richard Tsang, chairman and managing director of Hong Kong-based Strategic Public Relations Group. “This will be of utmost importance as Asia is expected to continue being and essential capital raising platform, particularly as the economic downturn has yet to relinquish its grip on the Western markets.

“However, investors are likely to adopt a more circumspect view towards the financial markets given past volatility, hence, large-scale deals will be less numerous than in past years. We anticipate the number of fund-raising exercises to remain at a similar level with last year, or possibly achieve only modest growth while involving smaller scale campaigns. Still, more mergers and acquisitions are expected by PRC-based corporations seeking to go global, thus spurring demand for corporate communications and investor relations expertise to attract an international audience.”

Of course, that’s not to say that companies can afford to cut back on their overall communication with investors; far from it.

“M&A generally and IPOs in particular are likely to remain rare events,” says College Hill’s Sanderg. “But across the piece, where corporate brands are traded on capital markets, the C-suite will remain focused on maximising valuation to deter opportunist raiders with balance sheets stuffed with cash.”

“The global market jitters that emerged last year look set to continue in 2012 with uncertainty hanging over Europe, and to a lesser extent China and the US,” says Liz Dougall of Australian consultancy Rowland. “In 2012, shareholders will be watching their investments even more closely and any shortcomings or mistakes by public companies will be dealt with harshly by investors, with serious implications for valuation.

“In this climate, getting the basics right becomes even more important in investor relations and we predict the greatest challenge will be educating investors on how the company is mitigating external risk factors and how corporate strategy is translating financial results.”
 

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