Opinion April 2012

Taking Care of Stakeholders

Interpreting social change is critical to building trust with clients, staff and investors

When all is said and done, a firm survives and prospers only with the consent of key stakeholders. Lose their trust and they can simply pull the plug. Unhappy customers can shop somewhere else. Talented but disaffected employees can leave. Sceptical investors can decide against buying your stocks or your bonds. And so on.

This has always been true. Today, however, the risks of stakeholder revolt are especially high, for two reasons.

First, as recent surveys have shown, trust in firms across many industries has fallen sharply in the long wake of the financial crisis. There is widespread scepticism about business ethics, above all but not only at financial institutions. The public is hypersensitive to corporate wrongdoing of any kind, and looking to assign blame. Anger over executive pay, exemplified by the Occupy movement, continues to simmer.

At the latest World Economic Forum gathering in Davos, “income disparity” topped the list of issues that participants believed could threaten global stability this year. This may be an issue for governments as well as for firms to resolve, but firms still take most of the heat.

Second, the power of stakeholders to express and act on their dissatisfaction has been dramatically increased by the ongoing digital revolution.

Surveys show customers and other company stakeholders now rely more on the opinions of their social media peers than on any pronouncements by the company chief executive or other official spokespeople. In crisis situations in particular, firms’ reputations are increasingly at the mercy of stakeholders and activists they cannot control.

In this environment, many firms have been visibly struggling to identify an effective communications response.

Some major global firms, noting that trust in governments in the US, Europe and elsewhere has also collapsed have taken a bold approach, arguing that now is the time for them to seize a bigger leadership role in shaping the public discourse on key social and economic issues.

Other firms have opted for increasingly aggressive promotion of CSR credentials, while playing down the commercial motives.

This approach can easily backfire if firms are perceived as disingenuous. It also fails to recognise that stakeholders are generally open to the business case for CSR, as long as firms can demonstrate they are delivering appropriate social value.

There is evidence that consumers react negatively if they get the impression that CSR is crowding out core business priorities such as, for example, product quality.

Many firms have rapidly embraced the power of social media and other digital platforms. However if they focus more on the marketing opportunities than on corporate reputation management they risk leaving themselves vulnerable to attack.

From a defensive perspective, firms need to organise themselves to at least match the social media capabilities of NGOs and activist groups. Any company with inadequate online defence capabilities is courting reputational disaster.

The corporate communications challenge is sometimes as much about language as it is about strategy. Some firms with exceptionally sophisticated strategies still need to find a new vocabulary to escape from the hyperbolic language trap they’ve driven themselves into. We still hear far too much about “passion for clients” and “fanaticism about results”, along with other tired expressions that, these days, ring hollow in many ears.

One of the most important roles of top corporate communications people and their external advisors has always been to act as interpreters of social change. Rarely has this role been more challenging or more critical to building trust than it is today.

And, of course, trust is a precondition for consent which, in turn, is the ultimate prerequisite for business survival.