Trust in the engagement process
Stakeholder engagement is vital amid an increase in the expectations of customers, the media, government, employees, NGOs and trade bodies, says Edelman's Bob Grove
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| Grove: Localised stakeholder engagement is important |
In a world where companies get bigger and bigger, their influence and impact grows too. This is a point not lost on the US government as it plans a massive bail-out of its financial sector.
It is inevitable that the focus of attention on businesses will intensify and no more so than in Asia Pacific, despite its largely paternalistic heritage. At the heart of this is technology as it accelerates the flow of goods, makes geographic borders irrelevant and allows information to be disseminated to millions instantly.
Predictably, increasing influence results in higher stakeholder expectations when they assess responsible corporate behaviour.
Edelman’s annual Asia Pacific Stakeholder Study, a survey of more than 1,000 key influencers across ten markets, shows there has been an across-the-board rise in intensity of expectations when it comes to defining a responsible corporation.
For example, in 2005 just 35% per cent of respondents thought that a corporation being “concerned about/active in doing something about community welfare” was important. By 2007 this had risen to 54%.
Similarly “communicating frequently and openly” with staff was cited as being important by 52% in 2005, but rose to 73% by 2007. Trust in leadership and operating in a “transparent fashion” also took on more importance over the period.
Stakeholders expect companies to take the lead in addressing the needs of communities and will criticise them strongly when they fail to meet raised expectations.
This pressure-pot of stakeholder expectations has been compounded by the rapid adoption of peer-to-peer online communications. The Internet has evolved from being a supplementary marketing channel, which helps corporations sell more products, to a vital medium for protecting and building corporate reputation.
Activists have also been empowered by the Internet. They can now share their beliefs, disseminate information and group together with absolute ease. It is a forum in which stakeholders can scrutinise companies locally then speak their minds with global impact.
Internet rising
For the first time, in 2007, trust in information on the Internet about companies amongst business influentials overtook trust in information on television in most markets in Asia Pacific; although foreign mainstream media remains the most trusted source of information in the region overall.
With the convergence of online and offline channels, what starts online now triggers offline debate and vice versa; and whilst traditional media tends to move onto the next thing, reputational baggage online remains forever.
What does this mean? Companies in Asia Pacific have traditionally been able to navigate around or react to reputational landmines and sometimes expertly, but today, when scandal hits or issues arise, reputations do not just catch fire – they can explode on impact.
Management of critical stakeholder relationships needs to change fundamentally. In the past, companies adhered to a top-down strategy based on a pyramid of authority, using mass media campaigns which emphasised managing public perceptions to maintain corporate reputation.
The convergence of technology and media renders the pyramid strategy as ineffective. There is no longer one single source of credible information. It moves unpredictably among stakeholders and conversations take place spontaneously, in a "sphere of cross influence".
In this model, companies need to not only manage product brands, but focus on proactive and simultaneous engagement of multiple stakeholders – be they customers, trade bodies, NGOs, governments, investors, employees or the media.
The Edelman Asia Pacific Stakeholder Study reveals that three consistent factors have emerged in the region, as the core drivers of stakeholder trust and corporate reputation in this more dynamic and interdependent environment: management practice, social accountability and a company’s product and service quality.
An engagement strategy that transparently manages all three of these reputational cornerstones will ultimately enhance a corporation’s long-term relationships with critical stakeholders and build a bed-rock of trust.
The fundamentals of business still apply, with quality products and services still the key drivers of stakeholder trust. In an environment governed by tighter regulations (for example, most Asian countries have made quarterly reporting of results mandatory and rules govern the disclosure of ownership structure) managers are also being held to a higher standard of operational performance.
Social performance
But it is the greater standard of social performance that adds the biggest challenge for communications. The definition of social accountability has broadened beyond the context of philanthropic work to form part of the fabric of nearly all corporate practices.
Managers need to be sensitive not just to customer needs and being committed to the products and services already purchased, but also environmental and labour practices, as well as investments in community welfare.
To add further complexity to the reputational equation, culture, economic development and government policy vary from market to market.
So, the relative importance and impact of the drivers of corporate reputation differ by country. For example, China values quality products more than any other market surveyed, while Australia is at the other end of the spectrum with ratings for management practices being more important than all other markets.
In South East Asia, significant intra regional differences also exist. Among the ten markets surveyed, trust in business is highest in Indonesia (average score of 7.45 out of 10) but among the lowest in Singapore (5.93). Singapore has the highest trust in government (7.4), but just a footstep away, Malaysia ranks among the lowest (5.7).
These variations highlight the dangers of adopting a common Pan-Asian stakeholder engagement strategy, or even an East Asian or Southeast Asian one.
Instead, they show the need for companies to prioritise different relationships with various stakeholder groups in each market.
For example, Singapore companies would do well to align reputational initiatives with the government’s societal and economic priorities, but will achieve more success in Malaysia if they foster strong relationships with non-governmental organisations.
The building of corporate reputation is a long term endeavour that requires diligent commitment. The current global economic climate will exert pressure on businesses to focus more on demonstrating their ability to deliver sustainable returns to their shareholders.
The rallying cry in the post-dot-com collapse was “back to basics”, but the reputational risk of today’s muddy waters are far more complex than basics, as recent events in the west have shown.
The unrelenting challenge for corporates in Asia, right now and for the foreseeable future, will be to manage their multiple stakeholder relationships in order to maximise their social and business impact.
The rallying cry of shareholders and other stakeholders this time around will be for executives to ensure a more conducive operating environment that protects competitive advantage in the long term.
Bob Grove is Edelman's managing director in South East Asia
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