Reputation Management & Inherent Negatives: Don’t Let it Hit the Fan

1. Reputation Management & Inherent Negatives: Don’t Let it Hit the Fan International Association Of Business Communicators Annual Meeting, June 2004 Barie Carmichael Partner, Brunswick Group LLP

2. Reputation: More than Nice to Do • 5% change in reputation can equal 1 – 5% change in market value • 70% of global corporations see increasing interest from mainstream investors in corporate citizenship • For 2001 – 2003, socially screened funds up 6% vs. professionally managed portfolios down 4%

3. Reputation: More than Messaging • Accentuating the positive through branding and positioning is not enough • Understand positive and negative stakeholder impact of the business • Identify inherent negatives • Take constructive action to mitigate the negatives and preempt a crisis

4. Inherent Negatives Elements inherent to your company’s business model that have the potential for negative impact on your stakeholders. The more successful your company, the more potential for damage.

5. Every Business has Inherent Negatives

6. Every Business has Inherent Negatives

7. Every Business has Inherent Negatives

8. Impact of Not Addressing These Latent Issues

9. Accentuate the Positive; Mitigate the Negative • Strategically manage both the upside and downside • Address inherent negatives through constructive action • Institutionalize the action through policy

10. “Since much of the justification for giving the corporate responsibility agenda a high priority relates to the maintenance of goodwill and relationships with stakeholders, it is clearly helpful for management that investors increasingly see the value of such intangibles and, at the very least, see the downside risks to value from failing to uphold high standards.” --Anthony Trahar, Anglo American

11. Examine Sources of Inherent Negatives

12. Self Inflicted Business Risks Analysis of Crises in 2002 • Only 20% or less of crises start from people or forces outside the organization • Two thirds of headline-level crises were small, internal and “smoldering” and probably could have been averted • The Institute for Crisis Management

13. Product Cycle

14. Service Cycle

15. Understand Your Degrees of Involvement • Individual company impact • Upstream or downstream impact • Industry impact

16. Downstream Impact:Diageo • World’s leading premium drink business • Brands include Smirnoff, Johnnie Walker, Guinness, Baileys, Tangueray, Beaulieu Vineyard and Sterling Vineyard wines • Examples of Inherent Negatives: alcohol misuse, under-age drinking

17. Diageo:Mitigating Inherent Negatives • Institutionalized business practices • Code of Marketing Practice for Alcohol Beverages • Employee Alcohol Policy • Product development process aligned with marketing code • Downstream training for Responsible Serving; Teacher and Parent Education • Partnerships with industry, not-for-profit organizations, public-private initiatives

18. Diageo:Lessons Learned • Changing expectations require ongoing engagement with stakeholder groups • Commitment must start at the top and permeate the company • Industry leadership confers a duty to set the priorities and standards • Progress requires reporting both achievements and areas for improvement

19. Upstream Impact:Nike • World’s leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment, and accessories • Brands include Nike, Cole Haan, Bauer Nike Hockey, Hurley International, Converse • Inherent Negative Focus: Contract workers and factories, product lifecycle management

20. Nike:Mitigating Inherent Negatives Contract Workers and Factories: • Factory Risk Assessment • SHAPE Assessment • New Source Appraisal Process • Factory Grading and Remediation

21. Nike:Lessons Learned • Strategic leadership, not crisis management • Solve and remediate rather than defend • Business ownership • Focused priorities • Balanced performance measures and metrics • Integrated brand communications

22. Industry Impact:Responsible Care • An obligation for membership to the American Chemistry Council (ACC) • Initiated in 1988 following industrial accident in Bhopal, India • Inherent negative focus: Improved performance in Environment, Health and Safety (EHS), security, product management issues, and value chain

23. Responsible Care:Mitigating Inherent Negatives • Direct engagement of third parties in design and implementation – Advisory Panel • Guiding coalition at CEO level to provide authority • Third party certification of practices • Public reporting on results by company and industry • Consequences for non-performance

24. Responsible Care:Lessons Learned • Mitigating negatives is a process, not an event, requiring upgrades • Focus on credible results, not activities • Third party validation is fundamental • Institutionalize actions as part of the overall business system • Extend impact to value chain and product life cycle • Ensure a formal governance process to ensure accountability for results

25. Enhance the Brand and the company high MAXIMIZE DIFFERENTIATION BENEFIT low Protect the Brand and the company RISK ABATEMENT / POTENTIAL IMPACT low MINIMIZERISK RISK high TIME / INVESTMENT low high Accentuate the Positive; Mitigate the Negative Source: Nike

26. Mitigating an Inherent Negative • Understand your impact before your critics do • Engage those impacted • Define constructive actions and do them • Institutionalize the actions • Don’t drink the Kool-Aid • Communicate benefits while also acting on negatives • Monitor and upgrade over the long term

27. Benefits of Managing Inherent Negatives • Gives “air space” for positive messaging on brand or corporate positioning • Higher assurance of a continued license to operate • Decreased litigation exposures, fines and insurance costs • Lower staff turnover • Increased cost efficiencies (eco-efficiencies)

28. The Bottom Line “[The] risk aspects of corporate responsibility are as important as bottom line impacts…Many companies are not yet managing these systemic risks adequately posing threats to shareholder value, which investors need to take into account.” - Association of British Insurers

29. This is the Seat at the Table • Investor trends are driving an expanded definition of business risk to include inherent negatives • Today’s ignored low-visibility inherent negative is tomorrow’s high-visibility, costly crisis • Effective risk management requires excellent business practices well communicated • Communications sits at the intersection of multiple stakeholders’ relationships with the enterprise

30. Communicator’s Place at the Table More than Messaging • Identify corporate blind spots and their business implications • Partner with stakeholders to understand evolving issues, identify common ground and conceive of potential constructive actions • Identify vulnerabilities for the executive team before your critics do it for you • Speak truth to power