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Comments by Olga Podoinitsyna, Member of the Board at VTB Capital, for PR Week (USA)

1 June 2013
The Reputation Issue: The world is watching 

01.06.2013

PR Week (USA)

Stakeholders demand transparency and are acutely tuned into every facet of your business. Every choice made must be scrutinized through the reputation lens, the measure most vital to today's successful brands.

Virgil Dickson; Brittaney Kiefer; Sarah Shearman; Lindsay Stein

Stakeholders demand transparency and are acutely tuned into every facet of your business. Every choice made - from IT to supply chain - must be scrutinized through the reputation lens, the measure most vital to today's successful brands.

In this age, most communications leaders agree that what a company stands for is more important than what it sells. However, according to the Reputation Institute's 2013 US Chief Reputation Officer Survey, a majority of CEOs, CMOs, and CCOs do not believe they are ready for the so-called “reputation economy.”

Only 20% of those surveyed, which included CEOs, CMOs, and CCOs from the 150 largest US multinational companies, said they had the metrics and were set up for success in managing corporate reputation, the study found. These findings are not much different from last year's survey, but respondents expressed “a bit more frustration” this year, says Reputation Institute senior adviser John Patterson.

Reputation management, while necessary, is still an immature discipline, Patterson explains. For that reason, communications executives often face difficulties in setting up a process and getting other company leaders on board with corporate reputation efforts.

This is especially true if the C-suite has experienced significant turnover, as was the case with many companies following the 2008 financial crisis.
“If a new CEO comes in and is only focused on top-line growth, reputation management becomes secondary,” explains Patterson.

“Among those organizations that are successful [in managing reputation], you tend to see CCOs who have been in place for a decade-plus and have had ample time to fight those battles and get a setup for success working.”

Insurance giant Aflac is an example of a company still in the early stages of streamlining its reputation management initiatives.

Aflac has developed a scorecard with 30 attributes important to the company's identity and goals, covering areas such as corporate governance, ethics, and environmental standards.

However, the biggest challenge is refining the company's focus, says VP of corporate communications Laura Kane. “Various people have different things they find important. That's how we ended up with 30 items, but that's too many. We have to find a more manageable number,” she explains.

Aflac conducts an annual survey of stakeholders and employees using its reputational scorecard.

As Kane and others show, CCOs “are building the capability to be more predictive,” says Reputation Institute managing partner Anthony Johndrow.

“They need to have that crystal ball,” he says. Most importantly, reputation management must involve the entire organization, he adds.

“There is a barrier to progress when the organization is pretty siloed. That challenge is not an easy one to surmount,” Johndrow explains.

“The best way is when you get your CEO to understand what you're trying to do and get them to be the champion behind getting your company ready.”
–Brittaney Kiefer

Supply chain accountability vital

A supply chain gone awry can pose a threat to a company's reputation. In recent years, information about supply chains has become more readily available to consumers, and business partners, customers, and activists are putting more pressure on companies to monitor practices and conditions at their suppliers.

With this in mind, it is imperative for communications leaders to be advocates within their companies for better supply chain standards, PR executives say.
“If it looks like you don't have control of your supply chain – even if it's a third party – that can change your reputation,” says Heather Wilson, EVP and corporate group director at Ogilvy Public Relations.

Last November, 112 workers died in a fire that swept Tazreen Fashions, a Bangladeshi factory that produces clothing for some of the world's top retailers. Clothes made for stores including Walmart, Sears, Disney, and European chain C&A were found at the scene of the fire, yet most of the retailers – including Walmart, which is one of the biggest buyers in Bangladesh – claimed they were unaware Tazreen was making its products and that their suppliers were unauthorized to produce goods there.

The tragedy at Tazreen, along with other disastrous incidents such as the collapse of a Dhaka building in April, which housed five garment factories, has led to increased scrutiny on the retail industry's supply chain, with critics saying retailers should be more aware of their suppliers' business practices and worker conditions globally.

In April, Swedish clothing giant H&M published the names and addresses of its suppliers for the first time in its 2013 sustainability report. H&M, which did not produce garments at Tazreen, but is the biggest buyer of clothes made in Bangladesh, is one of the few retailers to make its supplier list available in the public domain.

The following month, after the Dhaka building collapse, H&M led the charge again when it agreed to sign a legally binding plan to help finance fire safety and building improvements in the factories they use in Bangladesh.

Its decision prompted other retailers, like Zara's parent company Inditex and Calvin Klein owner PVH, to join the agreement. “With this commitment we can influence even more on this issue,” says H&M head of sustainability Helena Helmersson. Walmart and Sears also pledged to institute worker safety training programs in Bangladesh.

Public scrutiny

While supply chains of some industries can be vast and unwieldy, it is important for communications leaders to be as educated as possible about their companies' suppliers, rules, and processes, especially in this open digital age, Wilson and others say. “With NGOs, activists, and social media users monitoring companies for human rights, sustainability, and environmental issues, everyone has to assume they're being scrutinized,” she adds. “Social media has amplified this as people will publicly shame you.”

Companies are still not the leading source of information about their supply chains, sometimes because they are unwilling to share sensitive details with competitors, says Chris Nelson, SVP at FleishmanHillard.

However, companies such as H&M are part of a larger trend to be more transparent about suppliers as consumers increasingly seek this information. “When evaluating products and services, customers want to know if a product is environmentally sound and sustainable,” adds Nelson. “Does the company take care of its staff?” The retail industry has not been alone in its soul searching over supply chain issues. Last year, The New York Times published an article series exposing poor labor conditions and underage workers at Foxconn Technology and other Chinese factories manufacturing products for technology giants, such as Apple, Dell, Hewlett-Packard, IBM, Lenovo, Sony, and Toshiba.

The controversy pushed Apple to increase its scrutiny of safety and student workers at its Chinese manufacturing partners, and earlier this year, HP introduced new supplier guidelines to limit student labor. Such efforts reflect a shift in the technology industry, which has typically been more focused on communicating about its products rather than CSR efforts, PR executives say.

For example, “Apple was never a player in the CSR and sustainability community. They decided it wasn't something they needed to invest in for their reputation, which was established and sustained by their innovation,” says Liz Gorman, SVP at Cone Communications. “Now, they have done due diligence to get their house in order.”

However, Lenovo says that while it strives to meet supply chain standards, issues annual CSR reports, and participates in industry councils, the company's communications and marketing efforts remain focused on its products. It does not promote its suppliers, believing its work to manage the supply chain should be done in the background, says Jeff Shafer, VP of global communications at Lenovo. “You have to be well-versed in what is going on behind the scenes of your supply chain and ensure it is meeting every code and standard,” he adds.

Collaborative effort

Arrow Electronics, a $20 billion global electronics company, says while its corporate legal team monitors codes of conduct for suppliers, the communications department's participation in operational discussions is key to helping the company avoid supply chain issues.

“We partner with all functions across the business so we can communicate effectively,” says John Hourigan, VP of global communications at Arrow. “We're included in all aspects of the business, including anything that could have a negative or positive effect on the supply chain.”

But as with other reputation management efforts, advocating for better supplier standards can be difficult for communicators if they cannot prove its direct impact on companies' stock prices or revenues, Gorman says.

“No company likes to get negative press. If companies thought this would affect stock prices, they would take it more seriously,” Gorman adds. “You can link reputation to things such as better employee morale, but it's a conundrum, because it's like you cannot quantify it.”

The supply chain stakes are higher in sectors such as the food industry because consumers take health and food safety issues more personally, Gorman explains.

Tyson Foods' FarmCheck will see third-party auditors monitor approximately 12,000 farmers.

Last year, the beef industry came under fire after a news report said unlabeled finely textured beef, known as “pink slime,” could be found in 70% of ground beef sold in US supermarkets. This year, scandal erupted in Europe when horse meat was detected in beef products sold by companies ranging from Nestlé to Ikea.

Against this backdrop, Tyson Foods, one of the world's largest food companies, is bolstering a program to audit the treatment of animals at its supplier farms. Launched in October, FarmCheck is the company's first enterprise-wide farm audit program, and involves independent, third-party auditors monitoring approximately 12,000 farmers. Tyson's customers, most of which are grocery stores, food service companies, and restaurants, need support in responding to animal rights campaigns and consumer concerns about farm conditions, says Sara Lilygren, EVP of corporate affairs at the company.
“Customers want assurances that the meat they buy comes from animals raised responsibly. They're not always familiar with the methods our suppliers use,” Lilygren adds. “We find ourselves trying to bridge that gap.”

The best-case scenario is for companies to demystify the farm or factory before a crisis erupts. Corporate accountability is at an all-time high among all stakeholders. The overarching rule for business pros, says Nelson, “make sure you have control of the things consumers expect you to have under control.”

–Brittaney Kiefer

Striking a balance on social issues

Travel site Expedia decided to take a chance last fall and put out a promotional advertisement featuring Artie Goldstein traveling to his daughter's wedding. In the clip, he speaks about how he always dreamed of his daughter Jill finding a husband.

His daughter had a different dream in mind.

The ad was the company's first paid national promotional endorsement of gay marriage. Prior to the spot, Expedia had shown support to the LGBT community through an online store, search preference options on their website, local outreach, and an It Gets Better video featuring its CEO Dara Khosrowshahi.

“It was the right time to do it. We have a big national platform and we wanted to make sure this story was out there,” says Sarah Gavin, director of PR and social media for Expedia. “We wanted to change the way people thought about gay marriage.”

Expedia isn't the only company using its brand to show support for a social issue, as it's becoming an increasingly common practice according to a March 2013 study by Global Strategy Group. The practice has become common as the expectations among consumers have changed. Seven out of 10 respondents in the firm's study say it is important for businesses to take action to address important issues facing society.

Different opinions

However, there are some caveats to this. For instance, 56% of respondents thought it was inappropriate for a company to take a stance on political issues that are not related to their business and 31% believed it was appropriate to take a stance on sensitive social issues, such as abortion or same-sex marriage.

While many people liked Expedia's commercial, scores of others didn't. Its social networking channels were filled with comments such as “disgusting” and an “abomination.” Many Christians said they were turned off by the ad and some said they would no longer use the site. “Our goal was to start the conversation,” says Gavin.

“We can't move forward without hearing everyone's voice on this issue and finding out where everyone is coming from, so we thanked them for sharing their view.”

Employee power led to American Apparel releasing this shirt.

In the planning stages of the video, the company tried to proactively negate potential negative response to the video by focusing the narrative on the father and not his daughter. “[Goldstein] had to make a decision. Was he going to be involved in his daughter's life or not,” Gavin adds. “We thought no one is going to say a father loving his daughter is a bad thing.”

If a company is going to take the plunge and publicly back a social issue, it needs to find out not only what its customers think of the topic, but also its employees as well, PR professionals say.

“It is rare that a company would take a position on something if a significant percentage, not even a majority percentage, won't look favorably on it,” says Bob Knott, a senior MD at FTI Strategic Communications. “That is not good for the brand or for business.”

It was actually employees that led American Apparel to begin its line of Legalize Gay T-shirts, which have been used around the world as a unifying symbol for marriage equality. “We have given away millions of dollars' worth of these shirts in the last five years,” says Ryan Holiday, a media strategist for American Apparel.

“The idea was never to make any money from the campaign, but to speak out strongly in favor of an issue that our employees feel strongly about and that we feel is important to society.”

Being genuine

Holiday adds that he doesn't feel supporting LGBT social issues involves any sort of best practices or positioning.

“When companies speak out genuinely about issues its leadership and employees feel strongly about, that's when it works,” he says.
Expedia expanded its endorsement of same-sex marriages with the release of an ad last year.

Speaking genuinely to gay audiences also means companies need to make sure “their internal house is in order,” says Stephan Roth, a principal at OutThink Partners. The minimum for this is having anti-discrimination policies in place. It also means not financially supporting people or organizations with non-inclusive viewpoints.

One public example of a company that didn't follow this rule was Target, a company known for its gay-related outreach, as it got in hot water a couple of years ago by giving money to a political fund for a candidate that had anti-LGBT viewpoints. “It was doing one thing publicly and another behind the scenes,” Roth says.

One company that can't be accused of this is pharma giant Merck, whose charitable foundation suspended funding for the Boy Scouts of America at the end of last year because of its discriminating policies against gay scouts and leaders in the organization.

“Ensuring we do not support groups that do not embody our funding guidelines and key principles is not a unique move for Merck, but rather is in keeping with our long-standing ethical practices,” says Kelley Dougherty, executive director, global media relations, Merck.

–Virgil Dickson

The war against cyber criminals

Burger King, Jeep, Saudi Aramco, Epsilon, and the Associated Press. At first glance, brands that seem dissimilar, but in reality they share a common link – cyber attacks.

Over the last year, IT breaches have become more prevalent and, with the increased potential for hackings, companies need to be aware of and plan for possible reputation and security risks.

“It's now a high probability, high-impact event,” explains Leigh Nakanishi, privacy and security strategist at Edelman. “It's become more of a when, rather than if, a company will have a security incident.”

With breaches being covered more by the media and becoming a bigger concern for consumers and stakeholders, communications teams must begin viewing their IT departments as strategic partners, notes Nakanishi.

Many companies, he adds, have a technical plan to identify what type of attack has occurred, but the key is aligning all the necessary constituents during an attack. IT specialists should patch the system and explain what happened. The PR team should manage the information and get the message out to the right people, and the legal department should make sure everything is compliant with laws in different regions.

Ed Garsten, head of digital media at Jeep parent Chrysler, agrees that PR and IT need to be more tightly integrated to prepare for cyber threats. “We're communicators, not tech experts,” he says. “We depend on our IT team to give us advice on how to secure our accounts.”

Jeep's Twitter handle fell victim to hackers in February.

In February, Jeep's Twitter account was hacked and reported that the automaker had been bought by Cadillac. The breached account, which has more than 115,000 followers as of press time, also posted fraudulent photos of the CEO and employees doing drugs. 

Ignite Social Media, which handles Jeep's Twitter ac-count, noticed the fake tweets immediately and worked with Twitter to regain control of the page. Chrysler has been involved in social media since 2005, says Garsten, and its policy has always been about transparency.

“If people see you reacted quickly and decisively that can actually enhance the brand's image because it tells people that you're open and honest,” Garsten adds.

Social media hacks happen in the public domain and are much more recognized than other breaches, but Nakanishi says the necessary “responses are somewhat unique and dependent on what the IT department finds.”

Breaches on the rise

One breach that has received numerous headlines recently is a distributed-denial-of-service attack, or DDOS, which is when a company's site is flooded with Internet traffic that temporarily shuts it down. Both Charles Schwab and Reddit's sites were affected by DDOS attacks in April. Another popular attack is the theft of intellectual property from businesses, such as trade secrets, says Nakanishi.

Email marketing services firm Epsilon experienced a major “spear phishing” attack in April 2011, where cyber criminals stole millions of customers' email addresses. Names were also taken in the attack, but no financial in-formation. Epsilon learned the importance of disclosure following the breach, explains Jessica Nable, senior director of strategic communications at the firm.

“This meant immediately communicating with not only impacted clients, but also non-impacted clients, as well as partners and consumers,” she says.

Epsilon enacted an “all-hands-on-deck” strategy for the attack, bringing together all departments. The company, which works on marketing campaigns for big businesses, such as Best Buy, JPMorgan Chase, and Target, helps identify and send email promotions to customers.

Nable says that Epsilon, a primarily b-to-b focused company in the past, now puts an emphasis on consumer engagement, offering tips on its website on how to pre-vent phishing attacks and identity theft.

The only way to prepare for an attack is to realize that one will likely happen, explains Steve Bell, partner and director of public affairs at Eric Mower + Associates.

“Don't sit there saying ‘it happened to the guy across the street, and we're better,'” he says. “It can happen to you. The best way to deal with it is to anticipate and plan for it so you can react as quickly and effectively as possible.”

–Lindsay Stein

Effective global plans traverse borders

In a world where digital technology dissolves borders and connects global communities, the role reputation has to play in delivering business value is greater for brands looking to transition into new markets.

This means that while sales teams may have once been the ideal choice to launch a business in a foreign territory, reputation experts can help ensure they have a receptive market prior to introducing new products and services.

“No matter how small a group you are putting in a market to be your advance team, a communications person should be part of that,” explains Tim Fry, chair of Weber Shandwick's global technology practice.

For VTB Capital, the investment arm of the Russian VTB Group, reputation management was a crucial component of its global expansion plans from the outset.

Having launched in nine countries in five years, Olga Podoinitsyna, Member of the Board at VTB Capital, says the company connects with local experts to develop its strategy and “double check” its understanding of a market, which includes legislation and reg-ulation, prior to launch. “We develop a relationship with the local community to speak one language. This is not just a technique; it is a deep knowledge of nuances, which will be your reputation at the end,” she says.

While having a cohesive global reputation strategy is important, tailor-made local execution is “incredibly important,” says Fry. “Just because it worked in one market doesn't mean it will work in another,” he says.

Using local experts and partners is an approach the United Nations Foundation has taken when building campaigns in new markets, according to the nonprofit's VP of communications and PR Aaron Sherinian.

“The way you talk about poverty, philanthropy, or peacekeeping is very different in Mexico, Mumbai, and Manhattan. In each place, however, there is a real opportunity for high-impact communications if you are creative, open to listening, and rely on local partners.”

While reputation is an essential part of a launch strategy, it needs to be a lasting investment and always evolving.

Sherinian says brands should look beyond one-off projects as a way to build goodwill in a market when launching. “People want to know a brand or corporation is in it for the long term,” he explains. “They want to be engaged when it comes to working together for good.”

But just as corporate reputation management gives brands an advantage in new markets, it's a liability for those who ignore it, warns Peter Verrengia, president and senior partner at Communications Consulting Worldwide, a FleishmanHillard subsidiary. “It should be considered a violation of business risk management to not invest in the creation of a well-rounded corporate reputation in any market a business operates in,” he says.

With digital technology meaning potential purchasers and business partners can access company information instantly, that company will likely have an existing reputation in a market before they launch. Verrengia says if the pre-existing reputation is negative, then prior to launch the company should meet senior executives, influencers, and policymakers, who can highlight the positive work it has done in the country.

Embracing your origins

But brands must be aware that they will not be the only companies engaged with stakeholders and the public in a new market. “Things move quickly in countries such as China, Indonesia, Korea, and Japan,” adds Verrengia. “It's not necessarily an advantage to be from another location.”

Brands should not assume that their country of origin does not matter either. “Businesses think of themselves as stateless, but if it's a German car company, for example, this national symbolism is unavoidable,” he says.

That is something VTB Capital experienced when launching in new markets, says Podoinitsyna. “It is important to confirm to the markets, our potential clients, and partners from the start that, yes, we are Russian, but we also understand the requirements of international markets, including each region we deal with,” she says.

Going forward, the power of reputation to transcend borders will amplify. “The more power people have in their hands to communicate globally, the more important corporate reputation is going to become,” says Fry.


VTB Capital

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