The|Intangibles » CR http://blogs.hillandknowlton.com/boydneil Selected posts from Boyd Neil's blog at http://www.boydneil.com Tue, 23 Nov 2010 20:22:30 +0000 http://wordpress.org/?v=2.9.2 en hourly 1 CSR & the Capital Markets http://www.boydneil.com/blog/2010/9/16/csr-the-capital-markets.html http://www.boydneil.com/blog/2010/9/16/csr-the-capital-markets.html#comments Thu, 16 Sep 2010 13:54:25 +0000 Boyd Neil 417677:4590288:8870745 Discussions about the relevance and influence of corporate social responsibility usually don’t take into account the significance of corporate conduct on capital market decisions, perhaps because it is thought this is the arcane domain of financial analysts and academics.

However, if those of us who believe responsible conduct is an imperative and not just an afterthought to a business strategy, then we should get better at finding and defending the evidence that the capital markets will react to social and environmental behaviour if only to manage risk.

Fortunately, we’ve been given an advantage with two academic papers appearing over the past couple of months which look at the repercussions of CSR on cost of capital and investment strategies. (Thanks Tara, a colleague, for sending them my way!)

Having not read the full studies yet, I can’t tell you whether the findings are  definitive. But the abstracts offered here suggest they may provide some materiel for engagement with the Freidmanites.

The first Does Corporate Social Responsibility Affect the Cost of Capital? jointly authored by four academics, three of whom are based at Canadian universities:

We examine the effect of corporate social responsibility (CSR) on the cost of equity capital for a large sample of U.S. firms. Using several approaches to estimate firms’ ex ante cost of equity, we find that firms with better CSR scores exhibit cheaper equity financing. In particular, our findings suggest that investment in improving responsible employee relations, environmental policies, and product strategies contributes substantially to reducing firms’ cost of equity. Our results also show that participation in two “sin” industries, namely, tobacco and nuclear power, increases firms’ cost of equity. These findings support arguments in the literature that firms with socially responsible practices have higher valuation and lower risk.

The second is a working paper called The Impact of Corporate Social Responsibility on Investment Recommendations by Ioannis Ioannou of London Business School and George Serafeim of Harvard Business School.

Using a large sample of publicly traded US firms over 16 years, we investigate the impact of corporate socially responsible (CSR) strategies on security analysts’ recommendations. Socially responsible firms receive more favorable recommendations in recent years relative to earlier ones, documenting a changing perception of the value of such strategies by the analysts. Moreover, we find that firms with higher visibility receive more favorable recommendations for their CSR strategies and that analysts with more experience, broader CSR awareness or those with more resources at their disposal, are more likely to perceive the value of CSR strategies more favorably. Our results document how CSR strategies can affect value creation in public equity markets through analyst recommendations.

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A Model of Trust http://www.boydneil.com/blog/2010/5/18/a-model-of-trust.html http://www.boydneil.com/blog/2010/5/18/a-model-of-trust.html#comments Tue, 18 May 2010 20:38:40 +0000 Boyd Neil 417677:4590288:7711631 Trust is one of those things companies want and stakeholders give sparingly. And trust is being granted even more sporadically today given ample evidence, for example, of a cavernous spin-reality gap in the social performance of some companies.

For companies wanting to assess how likely it is they will win trust, here is a simple graphic against which to chart their performance on the actions and values that are the simple building blocks of trust, credibility and belief.

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Trust is one of those things companies want and stakeholders give sparingly. And trust is being granted even more sporadically today given ample evidence, for example, of a cavernous spin-reality gap in the social performance of some companies.

For companies wanting to assess how likely it is they will win trust, here is a simple graphic against which to chart their performance on the actions and values that are the simple building blocks of trust, credibility and belief.

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The Power of Apologies http://www.boydneil.com/blog/2009/10/22/the-power-of-apologies.html http://www.boydneil.com/blog/2009/10/22/the-power-of-apologies.html#comments Thu, 22 Oct 2009 18:50:26 +0000 Boyd Neil 417677:4590288:5582295 Anyone who has followed my posts on apologies will know how important I feel they are as a way to manage reputation in a crisis. (Forgive the self-reference, but two of the most recent posts can be found here and here.)

A colleague in my firm's Seattle office, Drew Arnold, sent me an article from the Oregon Business Journal referencing a June 2009 discussion paper called 'The Power of Apology' from the University of Nottingham's Centre for Decision Research and Experimental Economics.

Here is the paper's abstract:

After an unsatisfactory purchase, many firms are quick to apologize to customers. It is, however, not clear why they should do that. As the apology is costless, it should be regarded as cheap talk and thus ignored by the customer. In this paper, we test in a controlled field experiment whether apologizing influences customers' subsequent behaviour. We find that apologizing yields much better outcomes for the firm than offering monetary compensation."

Based on a study of customers using eBay in Germany, the study found among other results:

  1. "Customers who receive an apology instead of a monetary compensation are more than twice as likely to withdraw a (negative) evaluation."
  2. "When money is offered, a higher purchase price makes it less likely that a customer withdraws his (negative) evaluation. An apology works independent of the level of the purchase price."

Why then can't we assume that the propensity to consider legal action when harm has been caused by an accidental event, even if negligence is involved, just might be mitigated by a genuine (and the key here is the word 'genuine') apology?

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Anyone who has followed my posts on apologies will know how important I feel they are as a way to manage reputation in a crisis. (Forgive the self-reference, but two of the most recent posts can be found here and here.)

A colleague in my firm’s Seattle office, Drew Arnold, sent me an article from the Oregon Business Journal referencing a June 2009 discussion paper called ‘The Power of Apology‘ from the University of Nottingham’s Centre for Decision Research and Experimental Economics.

Here is the paper’s abstract:

After an unsatisfactory purchase, many firms are quick to apologize to customers. It is, however, not clear why they should do that. As the apology is costless, it should be regarded as cheap talk and thus ignored by the customer. In this paper, we test in a controlled field experiment whether apologizing influences customers’ subsequent behaviour. We find that apologizing yields much better outcomes for the firm than offering monetary compensation.”

Based on a study of customers using eBay in Germany, the study found among other results:

  1. “Customers who receive an apology instead of a monetary compensation are more than twice as likely to withdraw a (negative) evaluation.”
  2. “When money is offered, a higher purchase price makes it less likely that a customer withdraws his (negative) evaluation. An apology works independent of the level of the purchase price.”

Why then can’t we assume that the propensity to consider legal action when harm has been caused by an accidental event, even if negligence is involved, just might be mitigated by a genuine (and the key here is the word ‘genuine’) apology?

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Social Media and News Miscellany http://blogs.hillandknowlton.com/boydneil/2009/06/12/social-media-and-news-miscellany/ http://blogs.hillandknowlton.com/boydneil/2009/06/12/social-media-and-news-miscellany/#comments Fri, 12 Jun 2009 14:10:34 +0000 Boyd Neil tag:typepad.com,2003:post-68018891 Lots of juicy factoids and information today that add a little more to my thinking on new communication memes:

  • Twitter_logo_header Of the many striking statistics in a report called ‘Inside Twitter‘ out of Canada’s Sysomos people, this one stands out for evidence of the sheer stupidity of the hordes who now call themselves  ’social media consultants’: “Of people who identify themselves as social media marketers, 65.5% have never posted an update (on Twitter).” I guess they just can’t be bothered . . . or don’t have time?

  • To be filed under the tab ‘Public Relations Through the Rear View Mirror’, according to an article today in the Ottawa Citizen Canada’s National Defence HQ has a new ‘conduit’ approach to public relations (in which all media questions are funneled through public affairs staff, with the journalist never allowed to speak to a subject matter expert directly) that the writer calls the 24 DAY news cycle: “Into this brave new world of hyper-speed news gathering, NDHQ has rolled out what I’ve termed, the 24-day news cycle. Yes, 24 days…..That’s about the length of time I figure that it takes NDHQto answer a question from the news media…..if it is answered at all.”
  • Bear with me on this one. Those who follow me on Twitter will know that as a native ‘Geordie’ I am an ardent — and frustrated, some would say foolish — supporter of the Newcastle United football club, formerly of the English Premier League now relegated to tier two football as a result of an abysmal season this past year. Thankfully, the owner has put the club up for sale (at 0,,10278~3488677,00 about US$200 million). Before he did so, he published a statement in which he said “I’m sorry” about four or five times. Frankly, it sounded hollow given Ashley’s unwillingness to invest in the club and his lack of commitment to its success in spite of having one of the most loyal fan bases of any football club. The lesson here is simple . . . saying ‘Im sorry’ in a crisis is not enough. An apology has to be backed up by action to resolve the underlying problem. In this case, the owner getting out is the right move, although that is not counsel I would give to many CEOs.
  • Finally, this about philanthropic giving . . . “Today, the Committee Encouraging Corporate Philanthropy (CECP) shares a first-look at results from its annual philanthropy survey of nearly 140 leading companies, revealing that 53% of companies increased their total philanthropic donations in 2008, and 27% increased their giving by more than 10% year-over-year.” So things are not as bad as the CR critics would have us believe.

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Reputation Risk and Water http://blogs.hillandknowlton.com/boydneil/2009/06/01/reputation-risk-and-water/ http://blogs.hillandknowlton.com/boydneil/2009/06/01/reputation-risk-and-water/#comments Mon, 01 Jun 2009 12:38:54 +0000 Boyd Neil tag:typepad.com,2003:post-67499873 Reputation risk for companies is an underestimated consequence of global concern about climate change. Rather than expending more inventive energy on denying a relationship between CO2 concentrations and global temperature, smart businesses should be looking for ways to gain come reputation capital by managing climate change risks in cooperation with communities and global agencies.

Last week, the UN Global Compact and the Pacific Institute released a short paper on climate change and its impact on water which recommends a number of sensible management strategies. The context for the paper is the statement that:

“There is overwhelming scientific evidence that burning fossil fuels has altered the chemistry of the atmosphere. Figure 1 shows that atmospheric CO2 concentrations are reaching levels that are likely higher than in the last 20 million years.Rising CO2 concentrations along with other greenhouse gases (GHG) are changing the planet’s climate. Global mean temperatures have increased three-quarters of a degree Celsius since 1900 and 11 of the 12 warmest years since 1850 have occurred since 1996.These climatic changes are expected to accelerate over the coming decades.”

The paper argues that a significant body of scientific evidence suggests climate change will affect the scarcity, sustainability and quality of the global water supply, which increases business risk, especially with respect to energy supply management, raw material inventories, industrial production systems and the associated financing costs.

Reputation risks can easily follow, for example as “people become more aware of their rights to access water . . . local businesses may find themselves using copious amounts of water in regions where people lack sufficient water to meet basic needs.”

The paper outlines some business strategies which mirror two dominant themes on how businesses today need to think of corporate responsibility (CR): CR as part of business strategy discussions (integrating “water and climate change into strategic business planning and operational activities”) and engagement of stakeholders in responsible planning (engaging “key stakeholders as a part of water and climate risk assessment, long-term planning and implementation activities”).

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Philanthropy – No Stand-In for Better Behaviour http://blogs.hillandknowlton.com/boydneil/2009/05/22/philanthropy-no-stand-in-for-better-behaviour/ http://blogs.hillandknowlton.com/boydneil/2009/05/22/philanthropy-no-stand-in-for-better-behaviour/#comments Fri, 22 May 2009 16:11:10 +0000 Boyd Neil tag:typepad.com,2003:post-67153317

The Economist, not normally a booster of corporate social responsibility (CSR) or sustainability as it  tends to be known in Europe, this week has a piece on CSR that hits the mark. The author concludes that corporate philanthropy (contributions to charitable causes) is being cleaved but the attention being paid to behaviour — ethics and governance in particular — is holding steady, as it should.

“There is one other important reason for thinking that companies will
maintain their commitments to sustainability through the downturn and
beyond: the need to restore confidence in business. The financial
crisis was triggered by a bout of corporate social irresponsibility on
a massive scale that has tarnished the reputations of even the bluest
of blue-chip companies. Now corporate leaders have a chance to show
that they are not just motivated by short-termism after all.”

As Intel (a client) says in the management analysis and strategy
portion of its 2008 corporate responsibility report (Note . . . I agree with ridding CSR of its restrictive ‘S’),  “By incorporating
corporate responsibility directly into our strategy and objectives, we manage our business more effectively and understand our impact on the world more clearly.”

Corporate or ’strategic’ philanthropy is a programmatic means by which a company contributes to its community. Philanthropy evidences a corporate recognition that profits are derived from the community and that a return to the community in the form of wages paid for labor and consistent dividend payments to shareholders as well as steady share price growth is — at least in terms of today’s social expectations — insufficient.

Communities expect companies to give back, and companies have obliged either through random acts of kindness or more structured investments in causes which match company values or business goals.

But let’s be honest. Philanthropy is unlikely to define or affect company behaviour when it comes to choosing business strategy, rewarding employees, managing supply chain relationships, committing to respectful and sensitive business principles and overseeing board and C-suite conduct.

A generous philanthropy program, and commitment to a cause, can comfortably sit side-by-side with dishonest accounting, excessive senior executive compensation, autocratic and harsh management, deferential governance, poor labour and sourcing practices, and denial of environmental impact. Philanthropy provides a reputational sheen, but it doesn’t de facto require ethical conduct or a socially astute business strategy. Philanthropy buys goodwill but it doesn’t drive responsible behaviour nor build social trust.

If The Economist is right, and I think it is, and the decline in spending on smoke-screen philanthropy is NOT being matched by a retreat from investment (time, focus, intensity) in better behaviour, then maybe out of the current crisis we will see a steady push-back within companies against insular corporate boards, inappropriate rock star-like CEO salaries, and short-sighted and opaque business strategies.

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Economies Down: CSR Up? http://blogs.hillandknowlton.com/boydneil/2009/03/04/economies-down-csr-up/ http://blogs.hillandknowlton.com/boydneil/2009/03/04/economies-down-csr-up/#comments Wed, 04 Mar 2009 23:11:44 +0000 Boyd Neil tag:typepad.com,2003:post-63652051 Spirited debates happen all the time when people talk about corporate responsibility (CR) especially now that our economies are stumbling along and evidence continues to leak out about the governance missteps that led to egregious examples of greed-driven shortsightedness.

Research studies and white papers on the subject also proliferate, at least as fast and as often as politicians blaming their predecessors for current problems.

Here are a few that have made their appearance recently:

  • The Conference Board released the results of a survey yesterday on the future of corporate giving programs. Corporate giving officers are noticing their companies are concerned about their overall financial health when considering the allotment of their philanthropy dollars. Not surprising. But remember, public expectations about behavior — and the punishment it inflicts on transgressors — are not significantly influenced by random acts of kindness no matter how generous or strategic.
  • Yesterday, the Rotman/AIC Institute for Corporate Citizenship also released what it calls “a real-world guide that helps business leaders understand
    and prioritize key social and environmental issues and identify
    opportunities as well as potential risks.” Called ‘What’s a CEO to do?”, it is described as a toolkit and is built on a model introduced by Rotman School of Management dean, Roger Martin, called the “virtue matrix” which he wrote about in HBR a few  years ago. I haven’t had a chance yet to do a deep dive into it, but Rotman often produces worthwhile management frameworks. (Disclosure . . . I have an M.B.A. from Rotman.)
  • The third is truly timely . . . an article in the Deloitte Review called “The Responsible and Sustainable Board. (Sorry I can’t find a link to it but it is Issue #4, 2009). It includes a warning to boards of directors that “Even if your organization is disinclined to tackle CR&S issues voluntarily, you may ultimately have no choice if, as expected, regulatory requirements take hold.” 

Maybe there will be some kind of retrenchment back into the philosophy of ‘the business of business is business’. (Simply wishful thinking on the part of cave-dwellers?) Evidently though it doesn’t stop the think tanks from thinking about it.

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False Apologies and Greed http://blogs.hillandknowlton.com/boydneil/2009/02/17/false-apologies-and-greed/ http://blogs.hillandknowlton.com/boydneil/2009/02/17/false-apologies-and-greed/#comments Tue, 17 Feb 2009 22:30:00 +0000 Boyd Neil tag:typepad.com,2003:post-62961407 Since I have such respect for the quality of writing and ideas (although not always the politics) in the British magazine The Spectator, I am always delighted when the point of view of an editor or writer corresponds to my own. (I am not foolish enough to think there is any correlation between the two other than coincidence).

So imagine my contentment in reading the February 14th number when both the lead editorial and a column by Sarah Standing echoed comments I have posted here and here over the past few weeks.

Sarah Standing on saying sorry:

” ‘Sorry’ has lost its mojo for me, it’s gone mainstream. It’s one of those words that began life as a covetable Chanel handbag only to end up as a worthless flake flogged on eBay . . . I no longer believe in all these force-fed public apologies. They’re starting to sound very hollow . . . I’m old school and from where I stand a true apology should come from the heart.”

And not, I would add, because a crisis communications or political consultant has said it is necessary to apologize when harm has been caused. Without sincerity an apology is nothing more than gamesmanship.

The editorial ‘Bonus Points’ calls out many British bankers for the damage caused by the huge payouts they received, which lead as the editors conclude to the wrong balancing of risk and reward:

“Bankers must face reality and bring about changes themselves, rather than trying to face down public disgust with a last-ditch defence of the status quo. Their profession has to revert to being dull but respectable, decently but not lavishly paid, transparent in its accounting practices and the way it measures profits, intelligently regulated, and by nature risk-averse. And if that means talented people drift away from the banking sector, so be it: there are plenty of other parts of the economy that urgently need them”.

Better said than by me, but at least my ideas are in line with some top notch writers.

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CR on the Hotseat http://blogs.hillandknowlton.com/boydneil/2009/02/10/cr-on-the-hotseat/ http://blogs.hillandknowlton.com/boydneil/2009/02/10/cr-on-the-hotseat/#comments Tue, 10 Feb 2009 21:44:04 +0000 Boyd Neil tag:typepad.com,2003:post-62487103

It should be unnecessary after so many years of the corporate responsibility (CR) “movement” — if it is right to call it that — to have to jump to its defense and provide arguments for why CR makes a difference. But the harrumphing of the troglodytes has started again, this time under the pretext of determining whether our wretched global economy will cause companies to re-think CR actions and investments.

In one of those dismissive, glib pieces favored by business journalists when writing about CR, Stefan Stern of the Financial Times (registration required) writes from Davos “Thank goodness, now the recession’s here we can forget all that nonsense about corporate social responsibility (CSR) and get back to trying to make some money.” Canada’s own Terence Corcoran followed suit in his remarks to a recent panel on CR reported in one of Canada’s national newspapers.

Communications professional Paul Seaman takes up the discussion in his blog and comes down somewhere in between supporting the preeminent goal of business to make profit yet recognizing that “Traditional values and professional ethics will become highly valued virtues and the true measure of corporate responsibility.”

More often than not, the critics use ideology rather than evidence to back up their arguments. They ignore books like Lynn Sharp Paine’s exhaustive study of the financial benefits of responsible conduct called Value Shift (Sharp Paine is the John G. McLean professor of business administration at Harvard Business School), or a recent study published in MIT’s Sloan Management Review called Does it Pay to be Good? The conclusion of this study by two professors at Canada’s Ivey School of
Business about consumer behaviour and sustainability:

“Yes customers will pay a premium for ethically produced goods.
Conversely, they will punish companies (by demanding a lower price)
that are not seen as ethical. The punishment exacted is greater than
the premium customers are willing to pay. Companies need to be 100%
ethical to be rewarded.”

Detractors like Stern and David Henderson (author of Misguided Virtue: False Notions of Corporate Social Responsibility) also don’t seem to be able to make the connection between the frequent lapses in ethical judgment of some senior executives and the idea that “profit” at any cost — without the filter of some moral or ethical framework (a basic tenet of corporate responsibility especially as it relates to governance)– can be a precursor to greed. And look at what unrestrained greed has wrought today.

Will there be a step back from good governance, social engagement, committed citizenship, defense of human rights, product innovation driven by environmental concerns, willing social and environmental problem identification and resolution, and efforts by companies to control their GHG emissions? I doubt it. Why would companies set aside years of building reputation capital (an intangible with enormous financial value) for a short-term retreat from responsible conduct? Why would senior executives look on now as an appropriate time to set aside public concerns, when trust in many of them has eroded even further over the past six months and led to precipitous government and regulatory action?

Bruce Sewell, posting on Intel’s CSR blog from Davos, (disclosure . . . my company’s client although I don’t work on the account) made this observation about the mood of the meetings: “Gone was the patina of entitlement, replaced instead with a palpable sense that at some profound level this collection of bankers, regulators and politicians had failed to read the writing on the wall, and for that omission the world as we know it will pay a stiff price.”

The CR “movement” can only benefit from a flight from entitlement, from some sense of guilt about transgressions, from a recognition that a “stiff price” may be exacted from those who don’t take care to act responsibly . . . or are dismissive.

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Random Reputation, CSR, & Social Media Predictions for 2009 http://blogs.hillandknowlton.com/boydneil/2008/12/22/random-reputation-csr-social-media-predictions-for-2009/ http://blogs.hillandknowlton.com/boydneil/2008/12/22/random-reputation-csr-social-media-predictions-for-2009/#comments Mon, 22 Dec 2008 20:26:51 +0000 Boyd Neil tag:typepad.com,2003:post-60041588 In spite of Casey Stengel’s warning to “Never make predictions, especially about the future”, I will anyway.

  1. Companies will continue to struggle over the question of creating a corporate blog. In fact, there will likely be only minimal incremental uptake, at least by North American CEOs. The risks are frankly great and the perceived benefits too marginal. A CEO would have to accept three things in order to blog: There is value in being seen as a leader who is willing to have his or her personality, ideas and quirks on show; Freedom from weakness, miscalculation and error are not commodities valued by citizens, markets and employees — honesty is; Disagreement, discussion and criticism are necessary for progress. (All three ideas are at the core of Web 2.0.) 
  2. Trust in corporations will continue to decline, although it is hard to imagine it getting any lower given recent examples of the manipulative shenanigans of U.S. financial industry executives. The latest evidence? Researchers at Forrester found that when it comes to trust ” Only 16% of online consumers who read corporate blogs say they trust them.” Yes, this says something about corporate blogs (see #1). But it is really about the endemic mistrust of corporate executives given their propensity to ignore ethical lapses.
  3. Corporate social responsibility will not decline in 2009. Even the most obdurate CEOs will recognize the trust deficit won’t be chipped away if they sidestep expectations for sustainable business decisions and ethical conduct.
  4. Further, more companies will recognize that business strategy can benefit from assimilating care for the impact of products and services on the environment. As Peter Drucker pointed out in 1968 “Social responsibility objectives need to be built into the strategy of a business, rather than merely be statements of good intentions.”
  5. Twitter, which for me is a means of staying surrounded by smart ideas, will not be the social media panacea dreamed of by marketers. Attempts to get people to “follow” product-based tweets will be ignored unless, like @jacqsava at Soak Wash (not a client), you bring the person behind the product to the dance.
  6. My posts will cover the same subjects, but will feature more creative presentation. Think charts, diagrams, pictures and videos.

Bricks_clipart

 

Only number six is in my wheelhouse to do something about . . . show me how and you can hold me to it.

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