Off The Record

By Ronald J. Alsop
 

Following the wave of scandals involving Enron, WorldCom, Arthur Andersen, etc. corporate reputation has been positioned at the forefront of all intelligent companies’ business strategy if it wasn’t there already. Surprisingly though, the concept of “reputation capital” is still neglected within much of the corporate world. Very few companies realize the importance of - and the enormous benefits associated with - a positive reputation: enhanced financial performance, attractiveness to investors and talented employees, and protection in times of crisis.

Drawing on many years experience reporting on corporate reputation and brands for The Wall Street Journal, Ronald Alsop provides a roadmap built around eighteen “laws” for constructing a strong, long-lasting reputation. These laws are supported by an abundance of thoroughly researched case studies and categorized into three parts: how to create a good reputation, how to retain it, and, when it has been damaged, how to repair it.  

A perfect example of the importance of company reputation is demonstrated by an incident involving Johnson & Johnson (J&J), a leader in the pharmaceutical industry, one of the toughest for reputation management. When seven people died in 1982 after taking Tylenol capsules (made by a subsidiary of J&J) laced with cyanide, J&J’s reputation was clearly at stake. J&J, however, was able to draw on a previously strong company image and together with sound crisis management strategies, recovered. J&J now enjoys one of the best reputations in the business community, as studies conducted by Harris Interactive and the Reputation Institute show. The gravity of the crisis faced by Johnson & Johnson in 1982 and its relatively positive resolution- the company regained almost all of its pre-crisis market share - proves that a company’s reputation is “its most valuable asset”, as Alsop puts it, in times of crisis.

Contrary to popular belief, reputation is far more than ethical behavior. “Though certainly of growing importance, ethics and social responsibility are but two elements of the equation. Financial performance, the workplace environment, the quality of products and services, corporate leadership, and vision also figure into reputation”. Alsop actually argues emotional appeal - the link between people and a company - is “the primary driver of reputation”.  For example, J&J, a company that understands the importance of emotional appeal, has made a conscious decision in their marketing and advertising to focus on baby products even though it comprises a small proportion of their total business.  Society, J&J rightly believes, associates more positively with babies than drugs.  Similarly, despite the financial and strategic challenges being faced by the Walt Disney Company, because of the “special aura” surrounding the Disney family, e.g., Mickey Mouse, the company’s reputation remains strong.

Alsop effectively covers such topics as instilling a culture of transparency and ethics in employees, making sound CSR program choices, and dealing with new fast-paced means of communications such as the Internet. Every significant issue relating to the management of one’s business name is covered.

Foreign companies operating in
China should also learn from Alsop’s case studies and recommendations, as still too large a number lower their ethical standards when doing business in the Chinese market. Building a good reputation in the local communities in which foreign companies operate could bring them wider benefits in the long run such as a stronger reputation at home and increased local legitimacy. Foreign companies doing business in emerging economies can help set the standard in areas such as the protection of labor rights and hence improve the overall business environment. 

Likewise, Chinese companies can also benefit from Alsop’s eighteen laws, as more and more try to develop their brand outside of China.

CNOOC’s failed bid on American Unocal, Haier’s failed attempt to buy Maytag, and the US Congress’ refusal to use Lenovo products in classified areas of government departments should indeed act as warning signs for Chinese companies wishing to go global. Quality of customer experience is not enough in the current international business environment for today’s cynical consumers, nor is writing a cheque to a charitable organization. 

The reputation rub-off associated with the “China Inc. perception” (discussed on this blog), makes the need for Chinese companies to fully integrate and embrace the concept of reputation capital, in its broader form, much greater. Not merely concerning core stakeholders- i.e. consumers and investors, but also including internal communications, community relations, and the media. 

An article published in the May issue of the China Economic Review titled “Battle of the Brands” calls into question, however, the role of brand building for Chinese companies operating domestically. The article explains that a very fragmented national retail market means “substantial barriers exist to those trying to create a nationwide brand”, which translates into price and distribution being “more important to success than marketing” and premium foreign brands having a clear advantage over domestic firms. As they consolidate, it will be crucial for Chinese brands to understand the importance of corporate reputation and act accordingly.

In the short-run however, Alsop’s eighteen laws might not be as immutable for Chinese companies operating domestically as they are for other firms.

Review by Diane Faure, Assistant Account Executive at AC Capital Strategic Public Relations, Beijing.

Something this writer has suspected for a long-time has been confirmed; namely that some Chinese media outlets, or individuals within those outlets, on occasion create and then coordinate crises that impact the reputation of foreign companies operating in the market.  A well placed senior Chinese journalist has confirmed, off the record, that this is in fact the case and likely to increase as competition intensifies amongst the Chinese media.  As many media organizations are no longer funded by the government, according to our source, they sometimes create crises for foreign companies in order to drive circulation and consequently revenue from advertising.

In some situations, particularly when media outlets are facing falling revenues and potential financial ruin, they might create a crisis and then blackmail the target of the crisis to spend more of their “advertising” budget with their own outlet.  Put another way, they make the target of the crisis an offer they can’t refuse, Tony Soprano-like.  The target of the crisis is usually keen to see the negative coverage stop and therefore agrees to the media outlet’s demands.  (Our source warned that one media outlet currently experiencing financial difficulties may be planning just such a move to get itself out of its difficulties.)

Why does this happen?  Part of the reason is that there are some very unethical media outlets or individual journalists operating in
China.  But the other part of the reason is that many foreign companies have allowed, or indeed through their actions encouraged, this situation to develop.  Just ask yourself, how often has your company caved in to unethical demands “because this is the way things are done in China” or because it is easier than taking a stand?  Some MNCs have even taken advantage of this situation to extricate themselves from crises when they were in fact in the wrong.  (This author, regrettably, has had to mop up too many problems companies have created for themselves after starting down the slippery slope of paying the media for “favours”.)

Why is it that major Chinese companies, such as the large SOE’s, are not targeted in these types of media stings?  The answer is simple because the media knows that large Chinese corporations won’t allow themselves to be blackmailed like this.

Foreign companies that want to see the Chinese media adopt more ethical journalistic standards need to live by those standards themselves.  The few foreign companies that have taken a principled stand have not suffered for it; to the contrary, they have won respect.

Their findings were reported in a Press Release of 6 June 2006. 

According to the researchers, many media reports overlook limitations of medical studies.  For example, they said, only six percent of news stories about animal research reported that the results might not apply to humans.  Moreover, only two reports out of a total of 175 articles about unpublished studies mentioned that the studies were not published.  The concern is that unpublished studies are still subject to peer review and may require substantial revision before they are ready for scientific publication.  Many may never see the light of day in academic publications. 

However, the researchers note that the situation is not entirely the fault of poor media ethics.  They claim that often researchers and conference organizers downplay critical information or “over-hype” their findings in order to achieve better media coverage for themselves, which in turn can lead to academic accolades and higher research grants. Given that public interest in medical research is unlikely to decline, the authors of the report urged journalists to ensure their stories include three things: 1) basic study facts about the type of study conducted, the sample size and main results; 2) explain the limitations of the studies; and 3) clear statements about how preliminary a stage the research might be at. 

At AC Capital we believe that public relations officers also bear responsibility for how they present stories to the media.  PRO’s should advise their bosses and clients against “over-hyping” announcements.  While they are often tempted to hype the news to achieve coverage for their organizations, the practice can prove counterproductive.  Too much hyperbole and an organization will lose credibility with both the public and the media.  A simple rule of thumb is - “keep it real”.

I have often said
China is a land of contradictions.  One of the biggest contradictions must be the fact that it is near impossible to get a wireless internet connection in Shanghai’s Hong Qiao Airport.  In many other airports in China – e.g., Shenzhen – wireless internet access is provided free of charge and is dead easy to connect to.  But not in Shanghai, despite its reputation as China’s leading commercial city and regional financial hub.

At Hong Qiao Airport wireless internet access is only possible via China Netcom (CNC).  The user needs an account number and password to access this network.  One way is to have CNC as your mobile phone service provider.  If that isn’t the case you can purchase a CNC internet access card for about RMB100 for 60 minutes of wireless access – but not at Hong Qiao Airport.  That’s right – the cards to access this network are not sold at the main domestic airport of China’s leading commercial city!  This means that if you get to Hong Qiao Airport without having purchased a card during your day of rushing from one business meeting to the next, you are totally screwed. 

Come on, Shanghai, get your act together.  The 2010 Expo is coming.  Even Beijing is miles ahead of you on this one.

Reader Stephen Yan commented on our Sago Mine crisis article that it was an interesting case study and asked to see our views on how cultural factors in China influence the operation and outcome of crisis management here. 

In Robert Heinlein’s 1960’s science fiction novel, Stranger in a Strange Land, the protagonist, Valentine Michael Smith, a human raised by Martians returns to an earth that he finds completely alien to him.  An earth that he cannot understand – that he cannot “grok” to use the Martian lexicon of the novel.   Nearly seven years in the market and experience handling more than 15 crises that have gone hot in the media have taught this PR-man a few lessons about cultural differences.  Although not yet completely groking Chinese media culture, here are some of the more important lessons to draw on.

Lesson Number One.  Don’t be afraid to use the “S” word.  Say “sorry” and eat some humble pie.  While in the West Public Relations Officers (PRO’s) are trained not to say sorry in a crisis because it is an admission of liability and could force a company to pay compensation, this is not necessarily the case in China.  Chinese society is much less legalistic and based more on personal connections, relationships, and social harmony.  Saying sorry at the start of a crisis can help to demonstrate respect for individuals and society, repair relationships and bring society back into balance.  In a number of recent crises, some foreign companies that came out showing great humility and saying “sorry”, were let off the hook by a nationalistic media that proceeded to crucify those companies that remained defiant.

Lesson Number Two.  Be prepared to disregard Lesson Number One when the lawyers say to.  First, they may know more about the impact of saying “sorry” globally and
China is not part of a global market.  What you say here could have repercussions outside China.  Secondly, China’s legal system is still evolving and you don’t know when saying “sorry” might come back to bite you.  The lawyers might have good reason for their advice, even though everything from a communications perspective screams out against it. 

Lesson Number Three.  Communicate with your staff about what is happening and what your expectations are of them.  While this is also important in the West, it seems doubly important in China, where employees have less experience of the day-to-day trials and tribulations of corporate culture and management change programs.  Companies operating in these circumstances in China should err on the side of over-communication.  They should also set clear guidelines of expectations of staff during the crisis situation.

Lesson Number Four.  Translate your crisis manual into Chinese.  Crises manuals in English or German or French or Japanese are little use to Chinese employees who are not native speakers of those languages.  If you want to ensure a tight ship during a crisis you had best get the crisis manual into Chinese to ensure there is no ambiguity or confusion on how to operate during a crisis.

Lesson Number Five.  Have strong personal relationships with the media before the crisis happens because it is too late after it happens.  Unlike in the West, simply sending out a press release blast to set the record straight doesn’t work in a relationship (guanxi) culture like China.  Press releases sent to media with whom you have little or no relationships are more than likely going to end up in the waste paper basket.  You need strong personal relationships with senior editors and producers whom you can call into a room when a crisis hits to explain your side of the story and hopefully obtain from them a commitment to balanced reporting on the subject.

Lesson Number Six.  Make sure you have strong third party advocates who can come out on your behalf during the crisis, particularly from amongst relevant government agencies.  While third party advocacy is important in a crisis situation in the West, companies there are less reliant on government as often their credibility is low and because NGO’s and other advocacy groups play a more influential role.  In China, by contrast, the “NGO’s” and advocacy groups often form part of the government or come under government control and therefore your first port of call in enlisting their assistance might have to be through a government ministry or department – with which you need to have strong relations prior to the crisis.  It is also important to realize that government in China has considerable credibility and influence in certain areas that necessitates their full support in a crisis.  This is but one of the virtues of living in a command economy.

Lesson Number Seven.  Be flexible and be prepared to disregard lessons one through to six at any moment.  China is a society in flux and everything is changing rapidly.  China is a country and culture of contradictions.  What holds true today may not necessarily hold tomorrow.  What works for one company in one part of China today may not work for another company even in very similar circumstances in another part of the country on the same day. 

Lesson Number Eight.  As an outsider you will never completely grok China or its culture.  So, don’t try.  Ask for advice and help from locals as appropriate.  Dismiss 50% of what you are told and fall back on your judgment and instincts as a PRO. The secret of successful crisis management, whether in the East or West, is judgment based on knowledge and experience in the market.  To manage a local crisis well, companies operating in China need to select crisis management advisors that can bring the best of East and West together.  They need good consultants who can read the market and make good judgment calls to get them through the situation.

But never forget, whether in China or outside, you are going to take a hit in a crisis situation.  The first casualty in a crisis, as in a war, is always the truth:  reporting on the crisis generally will be out of proportion to what has occurred from your perspective.  No lessons or rules, no matter how diligently followed, will extract a company from the crisis.  They can only help to keep it from getting worse – and sometimes not even that can be done.