Earlier this year Citigroup promised to look carefully at changing its protocols for lending to ecologically questionable projects. In turn, the Rainforest Action Network promised to cease its celebrity advertisements in which movie stars like Susan Sarandon and Ed Asner tear up their bank cards on TV. The agreement marked a rare moment of cooperation in an atmosphere not noted for it.
The general mistrust arising from recent scandals and financial collapses has created an unprecedented set of challenges for corporate managers. New regulations, such as those contained in Sarbanes-Oxley, might be the least of their problems as the simmering war between corporations and society goes beyond financial reporting and government oversight. And everyone is in on the act – non-government organizations (NGOs) that monitor environmental and human rights matters, shareholder activists, anti-globalization advocates, corporate governance watchdogs and the press.
At the same time the internet has created a public super-consciousness, providing access for everyone to immense stores of information. Groups opposing virtually anything can now organize both their message and mass action with push-button ease.
Undercurrent of paranoia
This democratization of corporate oversight has created an undercurrent of paranoia in companies. Risk management has, in many cases, evolved into risk-aversion. Managers are concerned that they no longer know the rules, or that the rules will change in unforeseen ways. This is how an appropriate and needed focus on ethics has led to a business passivity no one can afford.
The mood has sometimes had a chilling effect on investment and innovation, deepening cyclical economic difficulties by slowing the limited amount of growth available. So now, having completed the trip from irrational exuberance to irrational fear, we have found ourselves in a vicious circle where reaction to the dilemma is the strongest factor perpetuating it.
Company managements must accept that a new business model now prevails. The idea of the old fortress-style corporation, in which information was a protected competitive asset, has crumbled. The new scrutiny requires an intensified search for consensus. And for corporations that can resist their defensive instincts, there is an effective way to build that consensus.
It lies in a transformed approach to communication that goes beyond financial reporting to reveal the values, intentions and fundamental character of the company. The Age of Skepticism, therefore, has brought us a new and rather stunning paradox: self-revelation as a risk management tool.
Reputation, it is said, is built drop by drop, but lost by the bucketful. And corporate reputation has never been more important or fragile. This dilemma is deepened by management isolation caused, in part, by a misperception that the dialogue about a company is uncontrollable.
The good news is that there is much a company can do to educate even its most sophisticated stakeholders, by using communication based on understanding stakeholders’ views. This can be acquired only through extended conversations and in-depth inquiries that convey to management the thinking behind stakeholder decisions.
Committed communication
One initial benefit of this approach is that the simple act of asking actually demonstrates commitment. Communication based on knowledge of underlying attitudes can also earn companies a heightened level of engagement with their stakeholders. A shared vocabulary emerges and, eventually, the communication becomes one of convergence where the primary effect is to enhance the company’s sustainability.
Among the early leaders in such pre-emptive communication are certain energy and mining companies – prime targets of environmentalists. BP, for example, has negotiated with each occupant of the land alongside its 1,000-mile pipeline through Azerbaijan, Georgia and Turkey. It has given appropriate NGOs the responsibility to allocate $25 mn in ‘social investment’ along the route. Is BP altruistic? No. But it has recognized, through outside pressure and a sober reading of the landscape, the terms it must meet to maintain its social license to operate.
In the coming years, similar consensus-building will be needed by any company clearing land for manufacturing, altering infrastructure to do so, hiring workers in inexpensive countries or lending money to other companies that do any of these things.
It may have seemed unlikely that a couple of actors cutting up their bank cards would sway the world’s strongest financial institution. But Citigroup seems to have looked into the future and decided, after due deliberation, to get ready for it.
