THE NEGLECT AND DEMISE OF CORPORATE REPUTATION
Corporate governance can drastically impact a company’s reputation. How can communicators work with leadership to ensure better governance and protect a business against crisis or scandal? David Benady investigates
From financial misreporting at Tesco to Dickensian working practices at Sports Direct, from the VW emissions scandal to the disappearing BHS pension fund, many of today’s top businesses have been brought to book for their shoddy approaches to corporate governance.
Communicators are left with the task of minimising the reputational damage caused by irresponsible behaviour. But is the communicator’s role simply to clean up after the mess made by a chief executive in their desperation to boost profits? Or do they have a role in changing corporate behavior as well as public perceptions?
“Corporate affairs done properly is fundamentally not just about spinning a line, it is about having an influence on the business,” says Alice Macandrew, group communications director at tour operator Thomas Cook. She joined the company in 2015 after its reputation had been shredded for nearly a decade following the 2006 deaths of two children while on a Thomas Cook holiday. Bobby and Christi Shepherd, aged six and seven, died from carbon monoxide poisoning while at a property recommended by the company.
Thomas Cook’s response to the tragedy was badly mishandled. It went into denial mode under the advice of lawyers. The company took nearly 10 years to apologise to the children’s parents for the faulty boiler which killed their children. A report into the case by ex-Sainsbury’s chief executive Justin King strongly criticised the company. He said Thomas Cook’s communications with the family were often misjudged and that Thomas Cook lacked a caring and thoughtful approach. He judged that Thomas Cook put cost savings above customer experience.
Under new management, the company pledged to take King’s criticisms on board. It finally apologised and worked with the children’s mother Sharon Wood to create the Safer Tourism Foundation, which campaigns to make travel safer for holidaymakers. Macandrew joined the company from BSkyB and worked closely with Thomas Cook chief executive Peter Fankhauser to launch the charity. “The CEO was absolutely committed to doing that and he was committed to setting it up in partnership with Sharon Wood. She had been fighting the business for justice for her children for almost 10 years, so I wouldn’t underestimate what an enormous challenge that was for them to then work in partnership,” she says.
Macandrew says corporate communicators need to work alongside their management team and to have the ear of the chief executive. “It is so important to be part of the executive team and to be empowered to drive change through the business so it becomes the sort of company that it wants to be. That means driving a consistency of behaviour and identifying vehicles that can genuinely not just be used as a PR stunt but to be symbols for the business culture and the change in culture. These can be used as a way of driving true engagement of the stakeholders,” she says.
Communicators must go beyond simply burnishing the company’s public image. “If you are just doing it for PR it is a waste of time and everyone will see through it. It has to be genuine, something that the business buys into. It is not a fig leaf,” she says.
Influencing corporate governance is a central role for communicators. This is the system of rules that govern the activities of a company and the behaviour of managers. The aim is to balance the interests of all the stakeholders, the shareholders, managers, customers, consumers, suppliers, governments and NGOs. It means not putting the interests of shareholders above those of staff or customers, but striking a fair balance. When corporate governance fails, reputations suffer and businesses potentially implode.
As Neil Bayley, director of corporate brands at Chime-owned PR company Good Relations, says, “Communicators are key players because they get a degree of understanding and appreciation amongst the key audiences that shape the reputation of the company. If they are not doing their job well, people get the wrong end of the stick or don’t have a well-formed understanding of what the company is up to.”
But this must also work the other way. Communicators talk regularly to analysts, media, politicians and often to NGOs and community groups. They can identify areas that the business needs to improve and offer those insights to the board. “Company boards can take that on and move ahead on the corporate governance agenda rather than always be on the back foot,” he says.
Many companies see corporate governance as simply a box-ticking exercise concerned with performance, results and strategy. But Bayley says, “There are others who are trying to be more open-minded with the agenda, trying to find new areas that companies could take a lead on and not just for commercial benefit.”
One challenge for those promoting corporate responsibility in businesses is that they can be seen as preventing profitable activities. Some executives dub them the ‘SPD,’ the sales prevention department.
But achieving good corporate governance should be no block to entrepreneurialism, says Rishi Bhattacharya, managing partner of the corporate practice at Instinctif Partners. “In order for businesses to thrive in the long term, there have to be improved levels of trust and accountability. This should not be a barrier for entrepreneurs, but give clearer guard rails for the parameters in which we need to operate. In the mid- and long-term it will be a force for good.”
And he adds that the PR industry – which is concerned with protecting reputations on behalf of others - needs a long look in the mirror. The recent case of Bell Pottinger‘s activities in South Africa shows the importance of effective corporate governance in providing checks and balances. “The wider communications industry needs to ensure its own house is in order and, once again, for those companies that do this well there is a reputational opportunity in terms of the recruitment and retention of talent as well as using this drive towards corporate governance to build a more resilient, sustainable and healthier long term future,” he says.
Some of the most famous examples of poorly handled corporate governance can found in businesses run by entrepreneurs – such as Mike Ashley at
Sports Direct, Arcadia’s Sir Philip Green, Uber’s Travis Kalanick and Ryanair’s Michael O’Leary. These billionaires are revered as inspirational leaders who have driven their businesses to the heights of success. But they are also accused of putting growth, profits and sales ahead of the interests of staff, voters and consumers. The question for all businesses, and the corporate communicators they employ, is how to balance profitable growth with socially responsible behaviour.
Ride-hailing app Uber is a prime example of a company that has struggled to find the right balance between success and corporate citizenship. Under former chief executive Kalanick, Uber became famous not just for convenience and low prices but also for its lax corporate governance and dismissive attitude to regulators. Kalanick was finally forced to stand down in June after months of controversy and allegations of bullying and sexism. A few months later London’s transport authority withdrew Uber’s operating licence, saying the company was not “fit and proper” and did not have “corporate responsibility,” which Uber denies.
For incoming CEO Dara Khosrowshahi, recruited from Expedia to replace Kalanick, the number one task is to fix stakeholder relations, particularly with regulators and staff across the world. As he told staff in a speech on his first day, “Right now, Uber is in some trouble as far as public perception goes.”
Khosrowshahi has issued an apology for the mistakes that led to Uber losing its London licence and promised that the company will change.
James Bickford, managing director at the Reputation Institute, compares Uber’s approach to that of another new economy app, Airbnb. “The two took very different pathways,” he says. “Airbnb’s model was very much about governance, building support with its customers with regulators, with its stakeholders, with its partners and with people who own their homes.”
He says Uber adopted a smash-and-grab strategy but, “because it didn’t put governance at the centre when it started, it is really struggling. Airbnb did and is growing, regulators are inviting it in because there is a genuine authenticity about its governance.”
This demonstrates the need for today’s entrepreneurs to build strong corporate governance and ethical behaviour into their business from day one rather than waiting for the inevitable backlash against aggressive practices. Trying to retrofit corporate governance will always be difficult.
If a business can only succeed by cutting corners on ethics, paying low wages and ignoring high standards of behaviour, this could suggest a fundamental problem with its business model. That could come back to haunt and possibly destroy the business at some point.
Some believe that the lifecycle of any new venture usually involves an initial period of fast growth under a creative and aggressive boss who may pay scant regard to social and ethical issues.
“They say that in the life of a company there are phases where different types of people should be in charge,” says David Haigh, founder of brand valuation company Brand Finance. In the initial startup phase, an ambitious entrepreneur is needed to drive growth. The company may then be acquired by a larger business or get a new round of funding from investors. This may require a new type of boss who puts greater emphasis on process and corporate governance. Uber seems to be a good example of this with Kalanick giving way to Khosrowshahi.
“At some point,” he adds, “you want to minimise the impact of blokes like Sir Philip Green or Mike Ashley. Once people feel the business has reached its zenith, they pass it across to the apparatchiks who are a bit boring but they maintain the value.”
An early stage investor would probably pay a low price to get involved but would sell the stake on to the next investor for a higher price. “The next investor is probably paying a fancy price and would rather not have the white-knuckle ride of ‘Christ, what is he going to say next?’” says Haigh. The investor will look to either replace the entrepreneur or to weigh them down with a corporate governance structure that makes them accountable, such as appointing a chairman and non-executive directors.
The point about bad behavior is that it will usually leak out and become common knowledge among stakeholders. When it does, this threatens to inflict long term damage on the corporate reputation as its name will be forever linked to the scandal online. Simon Wadsworth, founder of online reputation management business Igniyte says, “Entrepreneurs should be more realistic in what can be achieved – don’t cut corners – but more important is to consider the impact of everything they do.” This includes trying to foresee the impact of decisions about wage structures and working conditions and the way they treat employees, suppliers and other stakeholders. “If they don’t consider the impact of this, it will eventually creep online. It might creep online in a slow stealth way over a period of years or it might come with a real bang and at that point, they are extremely vulnerable.”
Corporate governance is in the news these days as the Government brings in new rules to force companies to report on executive pay and the differentials between staff and senior managers. This reflects the disaffection among many stakeholders – from the public to investors – about the worst excesses of big business.
The situation is getting serious – Uber stands to lose its licence in London, one of its biggest markets. Other businesses collapse completely because they fail to balance profits with responsibility – from Northern Rock and Lehman Brothers to the News of the World.
Communicators are the lifeline between management and stakeholders. They need to take a significant role in guiding corporate activities to ensure poor governance does not destroy their businesses.