Playing the corporation reputation game

Playing the corporation reputation game

Post Op-Ed at Townhall.com
June 26, 2006

Business leaders believe that a corporation’s reputation—the general opinion of the company held by the public—is increasingly important. A report published by the World Economic Forum claims that “the proportion of a company’s value derived from intangible assets—reputation—rose from 17 percent in 1981 to 71 percent in 1998”. But many corporations are ill-equipped to manage their reputations in an increasingly politicized business world. Consider the following:Case 1: AOLEarlier this week, AOL (part of Time Warner, Inc.) found itself in the midst of some very bad publicity. Vincent Ferrari, a longtime customer of AOL, called up the company to cancel his subscription to AOL’s Internet service. But instead of having his request promptly honored, the customer service representative stalled and baited him for several excruciating minutes. Luckily, Mr. Ferrari recorded the conversation and put it online. AOL’s response was to swiftly apologize to Mr. Ferrari and fire the offending employee. Interestingly, just last month, AOL parent company Timer Warner, Inc. may have thought it was ahead of the curve regarding its corporate reputation when it issued its first corporate social responsibility (CSR) report. In the introduction, chairman and CEO Richard Parsons states that in order to be a great company Time Warner needs “to earn the respect of our shareholders, customers, partners and employees”. Unfortunately, the report doesn’t offer any comfort to customers like Mr. Ferrari who just want the company to fulfill its basic services. Instead, the Time Warner report points out that its ‘accessibility office’ hosts company wide disability awareness events such as one featuring Ted Kennedy, Jr. We also learn that AOL “recycles white paper, plastic, glass, aluminum cans, cardboard and toner cartridges.” Are these really the types of activities that boost the reputation of a company? Or does the treatment of Mr. Ferrari matter more?Case 2: StarbucksAlso this week, according to an ABC news report, the Center for Science in the Public Interest hopes to “shame” Starbucks into putting nutritional information on the menu boards at its coffee shops even though such information is readily available on the Starbucks Web site. But why the campaign against Starbucks, especially when the CSPI, according to ABC news, acknowledges that Starbucks is “not the worst restaurant, not even close” when it comes to selling high-calorie food? Starbucks is well-known for previously caving in to the demand of left-wing non-government organizations in 2000 when it agreed to begin selling ‘Fair Trade’ coffee. Since then, the company proudly acknowledges its use of ‘Fair Trade’ coffee as well as its wider efforts at ‘corporate social responsibility’. Yet, for some strange reason, Starbucks’ virtuous actions have not shielded the company from further threats from activist NGOs.Case 3: The Body ShopBack in March, the Body Shop announced its sale to French cosmetics company L’Oréal for £652 million, of which £130 million would go to Body Shop founder—and left-wing activist—Dame Anita Roddick and her husband T. Gordon Roddick. The Body Shop is well-known for its opposition to animal testing in the cosmetics industry and the company neither sells products that have been tested on animals nor products that use ingredients that have been tested on animals. L’Oréal, too, had long ago agreed to halt cosmetics tests using animals. So then why was this announcement met with such vehemence by the ‘social responsibility’ crowd? Why were former supporters of the Body Shop accusing Dame Anita of “selling out”?It turns out that the L’Oréal animal testing ban did not extend to the ingredients used in the cosmetics they sell. According to L’Oréal’s own CSR report, “suppliers of chemical ingredients are required to guarantee their safety and harmlessness before they reach the market. At the present, most testing required under the various regulations can be carried out only on animals.” But at the same time, L’Oréal “seeks to link our financial performance to robust ethical principles and a genuine awareness of our responsibility towards all within the company, and to our environment and the wider community.” So both L’Oréal and the Body Shop are under siege by left-wing NGOs despite their long-term acquiescence to the activists’ demands.Reputation matters. But corporations lack the tools and the standing to wage a successful defense of capitalism within the realm of ideas, the real battlefield of the NGOs, ‘activist’ label notwithstanding. As the above three cases illustrate, the ideological demands of NGOs have either distracted companies away from their core mission (AOL), have been reluctantly accepted by companies until the NGOs demand something more (Starbucks), or have only been insufficiently embraced by a reputed corporate ally (The Body Shop). The battle for reputation, though, is not just about the reputation of a single firm but about the reputation of anyone or anything that buys and sells something to make a profit. It is about the reputation of the free market and of capitalism itself. In an ideological conflict, companies must realize that they need to defend their legitimacy as businessmen. Many free-market organizations, think tanks and conservative and libertarian activist groups do this already by communicating the importance of economic liberty and individual rights and by explaining how the institutions of a free society contribute to the freedom and prosperity of all. But pro-market is not necessarily pro-business, in the words of the Economist magazine. The challenge for free-market groups, then, is to do a better job of communicating how “free-market forces favor the public good, not special privilege.”<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />