Corporate Governance and Social Responsibility: Rebuilding Public by HC120708175759

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									 Rebuilding Public Trust
Through Accountability and
      Responsibility

 Address to the Ethical Corporation Magazine
                  Conference
             By Richard Edelman
            President, Edelman PR
                New York City
               October 3, 2002
            Agenda Today
• Edelman Studies on Corporate Governance
  and Corporate Social Responsibility—
  tracking attitudes towards business,
  government, media and NGOs

• Establish new approach—accountability
  and responsibility—as road map for
  business
                  Methodology
• Research conducted January 2001, June 2001,
  January 2002, June 2002
• Research among 850 Opinion Leaders
   – 400 U.S. Opinion Leaders
   – 450 European Opinion Leaders across the U.K, France
     and Germany
• Opinion Leaders are respondents:
   –   Aged 35-64
   –   Household income $100K+ in US, $75K+ in Europe
   –   College educated
   –   Business and Media Attentive
       Business Retains Trust
• In the face of the storm, opinion leaders
  have not yet lost confidence in business as
  an institution. Business most trusted
  institution in Europe, #2 in US.

• Perception that business is sound…but key
  elements of the system are flawed.
Government, Media, NGOs Fade
• We are seeing the ebbing of the 9/11-
  induced rise in favorability for government
  and media.

• The NGO message is being drowned out by
  twin issues of recession and terrorism, but
  they still dominate certain issues.
              Trust in Institutions
   Now I would like you to tell me how much you TRUST each to do what is right.
Please use a 9-point scale where one means that you “DO NOT TRUST THEM AT ALL”
and nine means that you “TRUST THEM A GREAT DEAL”. [TOP FOUR BOXES SHOWN]

100%
 90%
 80%
 70%
 60%
 50%      41%43%            43%
                                             38%
                                                42%
 40%                                                           30%
 30%                             26%
                                                                  20%
 20%
 10%
  0%
           Business        Government          NGOs             Media

                                    US    Europe
  US Trust in Institutions (Tracked)
   Now I would like you to tell me how much you TRUST each to do what is right.
Please use a 9-point scale where one means that you “DO NOT TRUST THEM AT ALL”
and nine means that you “TRUST THEM A GREAT DEAL”. [TOP FOUR BOXES SHOWN]



100%
                     Winter 2001     Winter 2002    Summer 2002
 90%
 80%
 70%
 60%
              48%
 50%             43%                         44%44%
                                                   41%           41%
                                                              36%   38%
 40%                           35%
                                  30%
          27%
 30%
                           20%
 20%
 10%
  0%
          Government          Media            Business          NGOs
       European Trust in Institutions
                (Tracked)
   Now I would like you to tell me how much you TRUST each to do what is right.
Please use a 9-point scale where one means that you “DO NOT TRUST THEM AT ALL”
and nine means that you “TRUST THEM A GREAT DEAL”. [TOP FOUR BOXES SHOWN]
100%
                    Winter 2001      Winter 2002    Summer 2002
 90%
 80%
 70%
 60%
                                                                 51%
                                                              48%
 50%                                            41%43%              42%
 40%     36%
                               33%          32%
 30%         26%26%
                           23%
                                  20%
 20%
 10%
  0%
         Government           Media           Business           NGOs
NGOs Dominate Specific Issues in Terms
      of Trust (January 2002)
100%
 90%
 80%
 70%
                          59%
 60%   55%                                     54%
 50%
 40%
 30%
 20%     16% 13%             14% 14%             17%
                                                      12%
            6%                  4%                  7%
 10%
 0%
        Environmental       Human Rights             Health

             NGO    Government   Corporation   Media
Brand Evaluator

 Brand evaluation shows difference in
 attitude between US and Europe-
 NGOs are top three brands in Europe
 on trust while top three in the US are
 companies

 This is unchanged since January 2001
    Trust in Brands – January 2002
    U.S.
               Microsoft                                         56%
               Coca-Cola                                         56%
              McDonalds                                         55%
                   Bayer                                      53%
     Ford Motor Company                                 47%
                  Nike                                44%
  WORLD WILDLIFE FUND                                43%
           Dow Chemical                             42%
               Citicorp                             42%
AMNESTY INTERNATIONAL                              40%
            GREENPEACE                           38%
                   BASF                       34%
       Royal Dutch/Shell                     33%
               Monsanto                      33%
             Exxon/Esso                    31%
          Goldman Sachs                   29%
          Deutsche Bank                 27%
                  HSBC            18%
                       0%   10%   20%   30%    40%     50%       60%
    Trust in Brands – January 2002
    Europe
AMNESTY INTERNATIONAL                                                76%
 WORLD WILDLIFE FUND                                         67%
         GREENPEACE                                        62%
              Microsoft                            46%
    Ford Motor Company                      36%
                  Bayer                     36%
      Royal Dutch/Shell                     36%
              Coca-Cola                    35%
                   Nike                   34%
                  BASF                   33%
            Exxon/Esso                   33%
         Deutsche Bank                  32%
             McDonalds               26%
                 HSBC             20%
         Goldman Sachs          16%
               Citicorp        15%
          Dow Chemical        13%
              Monsanto       12%
                      0%   10%   20%   30%   40%   50%   60%   70%   80%
         Advisors in Trouble
• Trust in consulting/advisory services
  low…lower than business in general

• Particular suspicion of brokerage firms and
  management consultants, especially in
  Europe
        Trust in Advisory Services
  Now I would like to focus on your trust in industries that provide advisory services
    to businesses. Please tell me how much you TRUST businesses in each of the
    following industries to do what is right. Please use a 9-point scale where one
   means that you “DO NOT TRUST THEM AT ALL” and nine means that you “TRUST
                 THEM A GREAT DEAL”. [TOP FOUR BOXES SHOWN]
100%
 90%
80%
70%
60%
50%
40%       34%                 32%
30%              25%                               26%                24% 26%
20%                                 11%                   12%
10%
 0%
         Accounting Firms       Brokerage           Management         Law Firms
                            Houses/Investment     Consulting Firms
                                  Banks


                                        US      Europe
Perception of Problem

 European and US opinion leaders have
 similar perceptions…but more government
 seems not to be the answer…sense of
 “misleading marketing” shows risk to brand
 reputation of corporate scandals…low
 confidence in business “to fix it”
Perceived Problems in Corporate Behavior
(US Data)
                   Misleading financial reporting                            73%

     Integrity and behavior of Senior Executives                         72%

                  Deceptive marketing practices                          71%

 Unethical business practices by accounting firms                        70%
  Misleading communications regarding business
                                                                         70%
                 performance
                  Integrity and behavior of CEOs                         70%

    Inappropriate executive compensation plans                          69%
  Conflicts of interest among financial and stock
                                                                        68%
                      analysts
 Inadequate accounting standards and principles                         67%

              Behavior of the Board of Directors                       65%

    Insufficient attention to social consequences                      63%

                         Biased media coverage                     61%

             Inadequate government regulation                    52%

                                                0%   20%   40%   60%         80%   100%

Percentage saying problem is
“Extremely” or “Very Serious”
Perceived Problems in Corporate Behavior
(Europe Data)
                   Misleading financial reporting                         72%

Unethical business practices by accounting firms                          72%
  Misleading communications regarding business
                                                                         70%
                 performance
    Insufficient attention to social consequences                        67%

     Integrity and behavior of Senior Executives                        66%

    Inappropriate executive compensation plans                          65%

 Inadequate accounting standards and principles                         65%

              Behavior of the Board of Directors                        65%

                  Integrity and behavior of CEOs                        64%
  Conflicts of interest among financial and stock
                                                                   57%
                      analysts
                  Deceptive marketing practices                   54%

             Inadequate government regulation                     53%

                         Biased media coverage                   48%

                                                0%   20%   40%    60%         80%   100%

Percentage saying problem is
“Extremely” or “Very Serious”
              Low Confidence in Business to
                    Solve Problems
            Inappropriate executive compensation plans                   27%
                                                                   16%
          Misleading communications regarding business                   26%
                         performance                               16%

         Unethical business practices by accounting firms             25%
                                                                   17%

  Rank order              Integrity and behavior of CEOs              24%
                                                                     21%
  by US data
                           Misleading finanical reporting             24%
                                                                    20%

                       Behavior of the Board of Directors              26%
                                                                    19%

                                  Biased media coverage               23%
                                                                   14%

            Insufficient attention to social consequences            23%
                                                                    20%

             Integrity and behavior of Senior Executives                22%
                                                                        23%

                           Deceptive marketing practices              22%
                                                                    18%

  Conflicts of interest among financial and stock analysts           21%
                                                                   14%
Percentage saying they are “Extremely”
                                                         0%   10   20    30    40   50   60   70   80   90   100
or “Very Confident” in business’ ability to
                                                              %    %     %     %    %    %    %    %    %     %
police themselves                                      Europe      US
CSR Data
• Tech Industry Ahead
• Gates Foundation Impact
• Young, egalitarian industry—no
  environmental issues
• Consumer-facing industries do better
• CSR expected even during recession
      Corporate Social Responsibility
      By Vertical Market
        Technology                                            65.0

Consumer Packaged
                                                       61.9
     Goods

              Retail                                  60.9

     Manufacturing                                    60.9

    Pharmaceutical                                    60.7

         Publishing                            58.2

        Automotive                             57.6

  Financial Services                    53.8

  Energy/Oil & Gas               50.4

                       40   50                   60                  70   80
  Attitudes – CSR and NGOs

   Continue social                                        92%
    responsibility
  during recession                                    88%



Business should do                                  83%
   more to build
relationships with
                                              70%
       NGOs



   NGOs should
                                                    81%
  cooperate more
 with business and
                                                77%
    government


                 0%   20%     40%       60%    80%        100%
                            U.S.    Europe
     Engagement with Civil Society
    Now a Matter of Risk Assessment

• Must look beyond traditional constituencies to
  employees and customers

• Business seen as enabler and more powerful than
  government
Interviews with Six Major NGOs
•   Friends of the Earth
•   Greenpeace
•   Amnesty International
•   World Wildlife Fund for Nature
•   Transparency International
•   Human Rights Watch
   NGOs’ View – “New Type of Risk”




  “Banks assess risk, but mainly from a financial
  point of view. We aim to create roadblocks for
   environmentally abusive companies – thereby
forcing the financial institutions to factor exposure
        to controversy into their investment
                    decisions”
  NGOs’ View – “Capitalism Good or Bad”




“Wall Street decisions impact the lives of folk half
              way around the world.
 Capitalism is not an automatic force for good.
       We intend to make sure that it is.”
   NGOs’ View – “Ethics”




  “I honestly don’t believe that many financiers
           truly understand the meaning
  of ethics. It’s much more than insider trading.
              What about the ethics of
       protecting endangered species or the
        rights of indigenous people. Their
common ignorance of these issues is unacceptable”
The Road Map

How to connect in a world filled
with mistrust?

What business can do?
  The End of the “Inside Game”

• Pyramid of authority gives way to sphere of cross-
  influence with multiple stakeholders
• Continuous partial attention and pinging
• Empowered consumers, intelligent employees
• Speak simultaneously with all audiences–
  “paradox of transparency”
Rebuild Credibility from the
Inside Out

• Employees are the first line of connection
  with CSR as a real way to establish
  emotional link

• Customer experience critical—dialogue,
  feedback, rational and emotional ties
CEO Profile
• While the era of celebrity CEO is over,
  corporate leadership can not afford to hide

• Need multiple interactions to establish trust

• No single source of credibility
                               Issue Agreement
        In light of recent events, it is more important
          than ever for CEOs to take the lead role in                                   93%
       communicating with a company’s stakeholders,                                  85%
                  including the general public
    I usually don’t believe something the first time I
     see, read or hear it; I am more likely to believe                               87%
   something I see, read or hear from many different                                  90%
                           sources
         The recent revelations regarding Enron and
     others are not isolated incidents, they are a sign                             82%
          of broader problems with business beyond                                  82%
      financial reporting controls, including corporate
         I am skeptical about the truthfulness of
                                                                                  75%
     communications issued by companies regarding
                                                                                     83%
        their business and financial performance

       The media should play the role of corporate
                                                                          58%
      watchdog in addition to disseminating general
                                                                            64%
                newsworthy information

      The government needs to be more involved in
                                                                         52%
     oversight and regulation of private enterprise in
                                                                        50%
                       this country

                                                      0%    20%   40%    60%   80%     100%
Percentage saying they “Agree” or
“Strongly Agree”
                                                Europe     US
Communication in a Credibility Vacuum

  • Need to be visible in media and to work
    with employees and customers in web of
    trust

  • Corporate advertising is not the way
Sources of Information: Credibility Ratings
        In general, how credible do you feel each of the following sources is for information
      about a company? Is information about a company that you get from (INSERT SOURCE)
            extremely credible, very credible, somewhat credible, or not credible at all?


  Rank order
                       Articles in business magazines
                                                                    43% 56%
  by US data                       Friends and family
                                                                 34%   55%
                       Stock/industry analyst reports
                                                                  37%48%
                Articles in newspapers/newsweeklies
                                                                 33% 47%
                                   TV news coverage
                                                              31% 46%
                                Radio news coverage             38%
                                                               34%
Third party (NGO/Shareholder activist) communications
                                                           22% 36%
                       Press releases/Annual reports
                                                            25%35%
                                  Internet in general
                                                          18% 30%
                                    Company website
                                                         14% 26%
                       Corporate/product advertising
                                                        8% 20%
               Internet chat rooms/discussion groups
                                                        8%16%

Percentage saying source is
                                                   0% 10 20 30 40 50 60 70 80 90 100
“Extremely” or “Very Credible”                                 %
                                                      % % % US % % % % % %
                                                       Europe
You Have to “Be It”, You Cannot
           “Buy It”

• Corporate responsibility is the key
  issue

• Philanthropy important but secondary
  to actions of company
 Defining Corporate Responsibility
  People define corporate social responsibility many different ways. In your opinion,
      would you say that corporate social responsibility is more about a company’s
   philanthropic efforts, that is, donating money and resources to the community and
  charitable organizations or more about the ethics that occur within a company, that
    is, everything from the way a company treats its employees to their policies on
100%                      social issues such as the environment?



 80%
                               66%
                                      62%
 60%


 40%
                                                        23%
 20%                                              16%
             12% 12%
                                                                     4% 2%
   0%
           Philanthropic     Internal Ethics        Both             Neither
              Efforts

                                    U.S.       Europe
Change Communication Process
• Broaden group of stakeholders receiving
  regular information
• Document annual progress on key issues
  through sustainability report
• Engage in debate with NGOs
• Empower local markets to connect with
  media & community
  New Strategy for NGOs and
  Business—Preferred Dancing
           Partners
• Advantages for NGOs include companies’
  global scale, marketing prowess,
  flexibility/speed
• Advantages for companies include NGOs’
  credibility, link to employees and
  customers, expertise in distant markets
• Government will listen if business and
  NGOs make common cause
          What This Means
• The end of business bashing and the
  beginning of constructive dialogue
• Each disagreement should not wind up in a
  divorce
• Large NGOs need to stand their ground
  when splinter groups move to preempt
  issues
      Accountability and
Responsibility—A New Standard
        for Companies
• Proper disclosure of financial data
  important but not sufficient—also require
  true social responsibility
• Business pledges to be transparent
• There needs to be a specific agenda and
  tangible progress
• Link to employees and customers
Conclusions
•   Business has window of opportunity
•   CEOs must continue to be visible
•   Must rebuild trust from the inside out
•   CSR is major advantage in converged world
    of multiple stakeholders

								
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