To the letter: How truth speaks to stakeholders

Technological change is blasting us forward and continues to solidify the role reputation and trust play for organizations of all kinds. Even some news organizations, entities multiple stakeholders look to for unbiased information, can succumb to what is less than best practice.

According to Gallup, distrust in the media has hit a new high, with 60 per cent saying they have little or no trust in the mass media to report the news fully, accurately and fairly. Pew found almost “one-third of the respondents (31%) have deserted a news outlet because it no longer provides the news and information they had grown accustomed to”.

In the New York Law Journal, 2009 was referred to as “the Year of Investor Anger”. FAIR Canada published a report in 2011 called A Decade of Financial Scandals highlighting fraud as a problem and making recommendations for prevention, detection, prosecution and compensation. Edelman‘s recent study on trust revealed trust in banking and financial services has dropped 50 per cent even amongst global, informed publics.

Against this backdrop, where investors both small and institutional are looking for a return but also an investment they can believe in, Laura Rittenhouse looks beyond what is reported in most public companies’ financials. She looks for innovation in communications.

Rittenhouse writes about CEO communications. She focuses on strategy, culture and performance with the idea of truth key in her audits.

Truth as competitive advantage

Today, forward-thinking companies are embracing the opportunity to really “talk” to investors and other stakeholders. There’s so much noise surrounding annual general meetings and annual reports that investing in communicating regarding contentious issues pays dividends.

An organization that sees the light on corporate transparency thinks in a more holistic way. Organizations stepping forward to be thought leaders are creating best practice not rushing to engage in best practices because others have already set the agenda for them.

Truth in reporting is so obvious that it bears more focus. Sometimes, it’s the obvious issues that fall out of the cross hairs of what’s important for managements to do.

Richard Edelman notes how logic becomes oxymoron:

[CEOs demand] … less regulation while CEOs suggest that enforcement of the new regulations has restored trust; this is a baffling logic problem.

Yet this is part of the duality of the human being. Although we know what’s right, we don’t always do what’s right.

Anyone who doubts what negative sentiment or negative media attention can do when an organization is held up to pursue less than best practices, and what that can do to reputation, might want to take a look at what legislators are calling “egregious” and “outrageous” regarding Apple’s “web of tax shelters”.

[While other companies have taken advantage of loopholes,] … I’ve never seen anything like this, and we don’t know anybody who’s seen anything like this.

              — Carl Levin, chairman of the Senate Permanent Subcommittee on Investigations

Business culture suffers due to lack of transparency. The reputation of business is left to the media which will tend to focus on the worst rather than the best. The media plays a vital role in highlighting tremendous failures in business but it’s up to businesses that are engaging in innovative practices to tell their story.

Business needs to get better at communicating. Business needs to communicate true innovation and best practice. It may have been the best of times with respect to some companies, but the organizations that showed up most often in the wake of the financial crisis are the ones that reflect a “worst of times” operational execution.

In such an environment, companies operating in a forward-thinking manner will be best positioned to gain from stakeholders’ need for a positive story. While it’s important to reveal worst practices, corruption and other failings, there’s a decided human need for the positive, for the feel-good story wrapped in the long-term resilience of truth.

Rittenhouse is a big proponent of a new wave of letters from directors and boards. She feels it’s a “powerful opportunity” to make a statement about governance.

A letter may be traditional but it’s impact can be revolutionary. Truth is the revolution. Companies need to tell the truth not only for the advantages truth will bring from a long-term operational point of view, but because it’s absolutely the right thing to do.

 

Part Two: Why boards need to deal with the issues

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• Denial in the Corner Office (edelman.com)

• You’ve got to do something about your reputation: Why CEOs need to pay attention to reputation management (johnrondina.wordpress.com)

• Brave new reputation: What CEOs need to know (johnrondina.wordpress.com)

You’ve got to do something about your reputation: Why CEOs need to pay attention to reputation management

Scandals. Scandals in extremely visible corporations fill the media. Enron, WorldCom, Tyco, SNC Lavalin,  Goldman Sachs, BP, News Corporation … The list goes on.

Business decisions, such as fee, pricing and user privacy missteps, have dogged Bank of America and Netflix. Simply put, there have been a lot of examples of how to damage a reputation.

Charles Fombrun says perception creates its own reality. If this is so, every business leader needs to think about the reality his company is portraying.

What does the company look like to assertive stakeholders?

Since a corporation’s reputation affects a lot of stakeholders, what is today’s savvy CEO to make of reputation issues?

Think about it. Before we make a purchase, the reputation of a company or product impacts on us.

What do people say about a product? What have influencers said about the new smartphone we want to buy? What are suppliers’ business practices? How does advertising influence our purchase?

When investing our money, a company’s reputation undoubtedly affects us. We turn to people, as Charles Fombrun, writer of Fame and Fortune says, who have knowledge “better than our own”.

“Clearly,” Fombrun says, corporate “reputations affect the judgments we make”. Consumers and their perceptions have a definite effect on blackening corporate reputations.

Eighteen industries covered in one recent study only improved their reputation scores slightly over last year.  Even worse:

• 16 per cent of companies ranked “poor” on reputation, down 3 per cent from a year ago

• None came in with a “leading” ranking, the top score, where 14 per cent did last year

Fombrun makes a strong case for effective reputation management and public relations. In the future, it will be all the more important. Fombrun says reputation “is a key source of distinctiveness”, and that “it differentiates [a company] from its rivals.”

Lars Thoger Christensen adds that transparency is crucial because “the investment policies of pension funds … are regularly scrutinized these days by investors.” Because of pressure groups, business analysts and “other inquisitive stakeholders,” many organizations “feel more vulnerable”.

Transparency, one of the foundations of a reputation, is now necessary. CEOs can’t ignore more assertive stakeholders. Christensen feels corporate communicators must “transform [transparency] from a market condition to a business strategy”.

The Economist writes public relations firms are becoming  “not just service providers, but also purveyors of strategic advice to senior management”. The best firms and practitioners are the ones already providing strategy.

In a world where, as William Briggs of San Jose State University says “79 per cent of Americans take corporate citizenship into account when making purchase decisions,” and 71 per cent consider it “when making investment decisions,” a corporate leader who ignores this fact does so at his or her peril.

Reputation affects the drive to recruit and retain employees. In a study cited by Fombrun, undergraduate students preferred to work for companies regularly in “the 100 best companies to work for.” Interviewed MBA graduates chose “high reputation firms in consulting, investment banking, and high technology”.

Sometimes what glitters is gold, at least for attracting talent.

Institutional investors focus on corporate reputations. Fombrun says these investors control “80 per cent of all U.S. trading activity.” To further bolster reputation, Fombrun says in recent years “a number of institutional investors have flexed their muscles on various corporate governance issues, questioning the reasoning behind executive pay packages,” and that vision and leadership are “at the heart of the crisis in confidence”.

In the wake of the financial crisis especially, investors are tired of corporate smoke and mirrors. In the U.S., 46 per cent of people surveyed said their trust in the financial services sector had decreased.

According to Fombrun, strategic positioning pushes reputation into prominence. Reputation “is a mirror.” When stakeholders like and support the company, “an upward spiral results that attracts more resources to the company.”

But, if people are unhappy with what they see, a downward spiral can lead to a “reputation-damaging criminal indictment”. Think Arthur Andersen, British Petroleum or News Corporation.

Every CEO should remember the above companies and their plunges into corporate limbo.

In a study featuring CEOs’ views on reputation management, CEOs said they didn’t expect or look for return on investment (ROI) alone with respect to public relations expenditures. CEOs use public relations regularly to enhance and protect reputation.

As advertising struggles, businesses now think of public relations and the management of reputation as mission critical. Social media innovators continue to make strides in reputation management.

Interested in exploring:

• What reputation is worth?
• How reputation affects a corporation’s stock price and ownership?

Find out more:

Brave new reputation: What CEOs need to know

Related articles:

• Positive PR lessons from JPMorgan’s derivatives loss
• The attributes of the socially-conscious consumer
• Reputation, the new transparency and exploding cigars
• When Corporate Culture Becomes a Public Relations Nightmare
• Can Goldman Sachs’ Reputation be Repaired?
• Brave new reputation: What CEOs need to know (johnrondina.wordpress.com)

Follow @JohnRondina

Three digital considerations for the year(s) to come

Will the “app phenomenon” decline?

Are apps yesterday’s news or will they continue to be part of the mobile odyssey?

 

 

 

 

 

 

 

 

 

 

 

The revolution may not be “apped”.

Developers may experience “app fatigue”. They may look to a system for mobile web development that doesn’t run on separate mobile operating systems.

Will there be a return to websites and browsers? Will mobile users also experience downloading “app fatigue”? There’s no doubt that a common platform simplifies matters immensely.

Stay tuned.

Oh, and by the way, there’s an app for that. The question is: Have you downloaded it? Will you download it? Or do you have “app fatigue-ia”?

Get your hands off my information!

Will there be a social media privacy backlash?

Social media buzzwords aside, have we become our own worst enemies? Have we thrown our privacy rights straight into the cyberverse?

There’s no doubt that the social media universe is a force to be reckoned with, however, as stories multiply in the media regarding privacy issues, are Facebook (et al) going to face one large public relations nightmare?

While Facebook looks like the organization that may have to contend with this issue more than any other, privacy will grab headlines. LinkedIn operates in a different zone and will most likely not face the same scrutiny as Facebook.

The thing to remember is, as Egypt, usage-based billing  and WikiLeaks have quickly proved, social media vehicles offer just as much opportunity for criticism as they do for dialogue with the consumer. The consumer has a voice tremendously amplified by the bullhorn of digital public opinion (a simple mouse click or button press away). The backlash should present all kinds of transparency issues for government and corporations – which leads nicely into:

Hyper transparency at warp speed

The conversation is indeed multi-directional

If you’re wondering who that is stumbling around in the ring, it’s the U.S. government.

Julian Assange’s name has been branded onto the psyches of government officials and communicators world-wide. But what of corporations? Are they next? Is this the age of the digital whistleblower?

The financial crisis has already caused a massive amount of analysis in the financial sector. What will such scrutiny do to government and business planners?

Crisis and reputation managers are going to need to not only understand such potential hyper transparency issues, but they are going to have to come up with solid strategies to address digitized revolutionaries who know that the revolution will not be televised.

As a matter of fact, in an age of social media tools that project information at light speed, contingency planning strategies had best not be traveling in a vehicle that creeps along at the speed of sound.

The “hedge” in hedge funds: Just what are hedge funds?

Protection against market volatility

When investors hear “hedge fund”, they think of all the stories that include volatility and risk. This is completely wide of the mark.

Hedge funds were created to minimize volatility and risk. No one can completely eliminate market volatility. If you hold stocks, you will experience some volatility even if you are a conservative investor.

A hedge what ... ?

A hedge fund takes positions to reduce the risk of adverse price movements in certain securities by taking offsetting positions in related securities. It is the relationship between the securities that creates the “hedge”. Accordingly, if an investor is holding long stock positions, he can eliminate some market volatility by short-selling other stocks. This strategy has become very popular over the years.

Institutional investors use hedging. Affluent investors have also embraced hedging. These two groups have driven the approach, which in turn has driven demand for hedge funds. The demand for hedge funds has grown to the point where at its peak in 2008 the industry managed about $2.5 trillion.

Hedge fund risk

There are some typical risks to owning a hedge fund.

Leverage

Many hedge funds will borrow money or trade on margin. Some funds borrow many times the amount of the original investment.

Short selling

Short selling, in theory, can incur limitless losses, unless, of course, a short position directly hedges a long position. Naked short selling is the practice of shorting a financial instrument without borrowing the security as is usually done. Naked short selling fundamentally increases risk.

Other forms of risk include risk appetite since hedge funds are more likely than other funds to take on investments with high degrees of risk. Because hedge funds are largely private entities and they don’t have the same disclosure requirements, critics point to this lack of transparency. In turn, in some jurisdictions, hedge funds are not exposed to much oversight and may carry undisclosed structural risks due to lack of regulation.

What are the advantages of hedge funds?

Better returns. Less risk.

These days, there are a lot of different hedge funds available to the sophisticated investor. Some are more risky than others. However, hedge funds offer an opportunity that most sophisticated investors really should not miss.

The bottom line is that real hedge funds seek to provide investors with superior returns year after year. Hedge funds accomplish this holding a percentage of the portfolio in long investments and a percentage of the portfolio in short investments. While traditionally, investors have used bonds to hedge losses in their portfolio, hedge funds allow for a more efficient use of hedging products.

Real hedge funds have provided investors with superior returns while at the same time incorporating less risk to the overall investor portfolio than equities.

There is one caveat. Hedge funds are often products for high net worth investors — and they can have very high initial minimum investment amounts as well as other restricitions.