I’m not qualified to know whether Mr Thiam was more right than wrong in seeking to buy AIA. What I do know is that too many CEOs believe that they are laws unto themselves or that today all stakeholders are equals.

So the assertion by Pru shareholders of their power to stop the bid for AIA is a timely reminder of where the priorities and corporate lines of accountability lie. The deal’s collapse makes it clear to CEOs everywhere that they must listen to their shareholders more.

I’ve been predicting that in the future shareholders will, and need to, assert their power more and more. That’s because – contrary to popular mythology – one of the lessons from the last boom and today’s bust is that shareholder-value was not over-valued so much as marginalised in the pursuit of short-term interests. Real long-term shareholder value was denigrated by management teams which ran companies more or less for their own benefit whilst covering themselves in the rhetoric of wider stakeholder interests.

My bottom line (and the firms’)? Shareholders may be quite good custodians of long-term value after all. Perhaps even better ones than the “stakeholders” who bang on about sustainability.

I’m not saying that always applies or is even what’s applying in this case. I’m saying that it’s wrong to assume that modern shareholders always fit the short-termist stereotype that’s foisted on them.

What’s more, it may be that Mr Thiam has understood where the long term prospects of the Pru really lie (it may be that his spate with shareholders was mostly about the price of AIA rather than his strategy).

The challenge now is for the Pru to repair its broken relationship with its shareholders, particularly with Prudential Action Group, which planned to oppose the deal at a shareholder vote due to be held on 7 June.

Personally, I hope that the impressive Mr Thiam survives. I believe he should be given room to learn from this setback. But if the price is his head, so be it, because it will provide a much-needed reality check throughout the corporate and PR worlds.

No related pages.

Before we go on, it is worth building on part 1′s theme: what exactly do the Stockholm Accords expect to achieve? Here’s what the event’s website says about their objective:

“The aim of the Stockholm Accords is to articulate and establish the role of public relations in the “communicativeorganization”[sic] within a fast-evolving digital and value-network society.”

In essence, the Accords suppose that we live in a new “networked society in which communicative organizations are vital to organisational success” (forgive the clumsy words, they’re theirs, not mine).

In essence my beef is that this exercise over-complicates everything. Most PR is an effort to help clients both be and appear more attractive. You can usefully enrich that proposition by noting that there are internal and external audiences; that everything about an organisation can be part of its good or bad messages; that building up a good reputation may be useful for when things go wrong (as they will). One may want to stress how non-stop and intrusive and persistent modern observers are. Perversely, the globalised, modern world is more like a village than ever: everybody thinks everything is their business.

As I argued in part 1, the Accords ignore the obvious: society is, and always has been, networks personified. Moreover, all human interaction depends upon communication and relationships, or nothing whatever would have been or will ever be achieved. Of course, the digital bit is sort of new. I say sort of because the internet is now second or third generation. It strikes me that the Accords’ authors are really saying that their thinking boils down to considering technology’s influence on human behaviour. This narrow obsession has sent them and their new definition of PR’s role off in the wrong direction.

There’s no wisdom in a mob, but there’s often treasure buried in crowds. So, of course, I accept there is something in Reed’s Law. (See: “The Law of the Pack”). I accept its proposition that digital networks can scale exponentially by transforming technological platforms into social networks that add value. But in the business world, Reed’s Law is just a statement of potential. It remains a theoretical construct that might prove to be hopeless if taken too far. The commercial world is in recession. It is not currently up for the risky experimentation and investment that would be required to test the weaknesses and strengths of Reed’s Law. This is something I discussed in part 1 No. 2 & No. 14 (without mentioning Reed). In part 1, I also cited SM’s irrelevance in the British General Election and its only fleeting influence on American politics.

My charge is that the authors of the Stockholm Accords lack historical or sociological insight. Most of today’s social developments from the breakdown of traditional politics, to the shift in community alignments, or the fall of religious influence, to the decline in trust in, and authority of, traditional institutions, pre-dates the internet.

In other words, the internet and social media usage were shaped in the wake of already existing currents, including the already declining mass media. That was particularly the case with SM, which is more often used as a retreat from public life rather than as its lifeblood. That’s one thing China’s SM usage has in common with the West’s. There’s mass disengagement and passivity in society, which is the polar opposite of empowerment, which so many public relations professionals (let’s just call them ‘PRs’) like to crow about. That’s not to say SM is irrelevant, or that it does not have influence or empower people, sometimes, in this or that circumstance or usage.

It is the failure of the Stockholm Accords to look at these real world tensions during the boom and now during the recession, and the Accords’ myopic worship of all things digital, which I criticise. But let me make it plain. This blog celebrates technology and advocates innovation. It is obsessed with understanding them and with exploiting their potential. But it does not endorse technological determinism, which I believe the Accords’ authors do.

So, that’s the preamble. Let’s now look at the Stockholm Accords one by one.

Stockholm Accords on governance:

“The increasingly adopted stakeholder governance model empowers board members and organisational leaders as ultimate custodians of stakeholder relationship strategies and policies, as well as of monitoring their implementation.

“In today’s value networks, a communicative organization requires timely knowledge of economic, social, political, legal and environmental developments, as well as opportunities and risks affecting the organisation, its direction, its actions and its communication.

“Public relations professionals:
• co-create organizational values, principles, strategies, policies and processes;
• constantly report on the dynamics of stakeholder involvement;
• inform, shape the organisation’s overall communication abilities;
•  measure, evaluate and account for results;
• deliver timely analysis and recommendations to ensure an effective governance of stakeholder relationships, enhancing transparency, trust and sustaining the organisation’s ‘licence to operate.’”

My reply

I dealt with the above extensively in part 1. But let me now add a few more brief remarks;

• The stakeholder governance model or doctrine is seriously flawed. An organisation can’t look to outsiders as the first source of its probity and efficiency.
• Firms, governments and institutions primarily pursue self-interest. This will include a measure of enlightened and widened self-interest.
• PR is indeed uniquely useful in our complicated, media-orientated times. But we should beware over-stating the newness of our skills and roles.

Stockholm Accords on management:

“Effective and timely decision-making related to operations and resource management are essential for organizations seeking to enhance their license to operate. These management choices must be sensitive to the concerns of internal and external stakeholders, seeking equilibrium between societal and organizational goals.
A communicative organization listens to its stakeholders, uses this input to improve the quality of its decisions, and communicates through its behavior.

“Public relations professionals:
° help understand and interpret broader societal, political and economic interests and aspirations;
° participate to the solution of organizational issues and lead those that are particularly focused on stakeholder relationships;
° help to legitimize the organization; by increasing the communicative value of products, processes, services; and building financial, legal, relational and operational capital.”

My reply

Yes, PRs are the professional diplomats of the modern organisation’s internal and external relationships. But we won’t do the job better by having theories and ambitions which are too fancy for the valuable but recognisable work they have to do. Way too much of the Stockholm Accords’ approach brings in more posy sociology, management-speak, media studies, post modern guff. This is the way to lose the interest of clients and audiences alike.

Stockholm Accords on sustainability:

“An organization’s sustainability is based on balancing today’s demands with the ability to meet future needs, based on economic, environmental and social dimensions.

“In this network society, sustainability leadership offers a transformational opportunity for the communicative organization to enhance it’s license to operate and demonstrate success across the triple bottom  line.- economic, social and environmental.

“Public relations professionals identify, involve and engage key stakeholders contributing to appropriate sustainability policies and programs by:
• interpreting society’s expectations for sound economical, social and environmental investments that show a return to the organization (the advocate);
• creating a listening culture – an open system that allows the organization to anticipate, adapt and respond (the listener);
• ensuring stakeholder participation to identify what information should be transparently and authentically reported (the reporter);
• going beyond today’s priorities to anticipate the needs of tomorrow, by engaging stakeholders and management in long-term thinking (the leader).”

My reply

Sustainability has to do with robustness and flexibility, which can be darn hard things to reconcile. We need to be modest: sustainability is about the future, a thing we know very little about. We should not pretend to know the recipe for survival (or to assume, for instance, that environmentalists are any cleverer at it than supposedly un-green capitalists).

Stockholm Accords on the new boundaries of internal communication:

“Internal communication enhances recruitment, retention, development of employee loyalty and commitment to organizational goals by ever more diverse and segmented publics.

“In the network society a communicative organization goes far beyond today’s traditional definition of full-time employees, understanding that internal stakeholders now include full-timers with tenure generally shortening, part-timers, seasonal employees, contractors, consultants, suppliers, agents, distributors, volunteers and more.

“Public relations professionals constantly address:
° how organizational leaders communicate;
° how knowledge is shared;
° how decisions are made;
° how processes and structures are created;
° and expand communication to include many boundary publics that are also often considered as highly trusted sources of information about the organization and essential players contributing to the organization’s success.”

My reply

Yes, many of an organisation’s relationships are now both important and fleeting or arm’s length. Actually, that will often require an unattractive wariness. The need for secrecy, privacy and caution is greater than ever and has to be communicated as well as possible.

Stockholm Accords on the new boundaries of external communication:

“The network society mandates that a communicative organization expand its scope and skills to focus on customers*, investors*, communities*, governments*, active citizenship groups*,  industry groups*, mainstream, digital and social media*, and other situational stakeholders*.

“Public relations professionals:
° promote, support and contribute to modify products, services or processes;
° bring the voice of the organization into regulatory and community decisions;
° adopt social networking and research skills and tools to listen to stakeholder demands and report to management so that they may be appropriately interpreted and, where relevant and effective, integrated into the decision making process;
° strengthen brand loyalty* and equity*, thus reinforcing the organization’s license to operate;
° work with all organizational functions, through every step of production and delivery, to craft and implement effective communication programs*.
° actively participate in dialogue*, evaluate and measure results*, and accordingly adjust their practices.”

My reply

This looks like PR’s pitch to stick its nose in everywhere. Nice try, and to some extent justified.

Stockholm Accords on co-ordination of internal and external communication:

“In value networks, each communicative issue* is multi faceted*, multi stakeholder* and inter relational within and between different networks* and positioned in diverse legal frameworks.

“The communicative organization must balance global transparency, finite resources and time sensitive demands dealing with dynamic changes in inside/outside territorial borders and new conflicts of interests emerging from multiple stakeholder participation*.
Dialogue with internal, boundary and external stakeholders must be coordinated with the organization’s mission*, vision*, values*, implementation*, promises*, as well as actions* and behaviors*.

“Public Relations professionals:
° research, develop, monitor and adjust organizational behavior and communication behaviors providing leadership for issues based on stakeholder and societal relationships;
° develop a knowledge base that includes social and psychological sciences, best practices and formative research to create, evaluate, measure and implement programs for continuous improvement.”

My reply

This looks like a pitch for PRs to be rulers of the universe: all-seeing, all-knowing, etc. I don’t mind this accord but it is not so much edifying and energising as yawn-making. How about: “Almost every aspect of your work will convey a message about your organisation, so expect a good PR to take an interest in everything you do.”

No related pages.

Here’s a muse on how the stakeholder doctrine failed both politics and business and how it may not survive the challenge from the BRIC countries where there’s a bit more realism about life.

Let’s start in the present with UK politics. Then we’ll turn to how stakeholder doctrine originated in the trendy 1960s in the business sphere. Finally, I’ll make the case for saving the term “stakeholder”.

What a difference thirteen years makes. Tony Blair’s mission, he said, was to use the stakeholder concept to redefine rights and obligations and to extend accountability in society. Under Mr Blair there was a flurry of government-NGO-private business partnership arrangements. The “Third Sector” swam into view. This was the stuff which Geoff Mulgan and the think tank Demos were promulgating. I suppose the point was that Thatcher gave us popular capitalism and Blair’s mission was to widen the remit to a new participatory, networking society. Trying to move things on, and find a new Tory mission, Mr Cameron castigated Mr Blair’s “bureaucratic accountability” (all that tick-boxing, all those targets which Blair actually inherited from John Major), which he claims he’s going to smash. Mr Cameron has his own “power to the people” agenda, and we’ll see if it happens.

As the New Labour project makes way for David Cameron’s Tories (or something less new than New Labour), we should remind ourselves that the slogan was a fiction. The new active politics was top-down, not bottom-up. This really did mark a significant shift from past practice: Tony Blair’s infamous decision-making “sofa government” was the most unaccountable clique to rule the UK in modern times. It was perhaps even more closed than aristocratic rule once had been. The involvement of stakeholders turned into the manipulation of stakeholders and the sidelining of a democratically elected parliament.

Of course the idea that politics is everybody’s business – that we are all stakeholders in it – is the very core of modern democracy. The term may have gone out fashion in politics, but the political class is obsessing on how to engage people, which is much the same as trying to make more people feel like stakeholders. Indeed, the tragedy is that so many people don’t feel and act like social stakeholders. They’ve volunteered themselves to be on the sidelines, not least by not voting. It’s tempting, too, to think of anti-social people as being the reverse of stakeholders. It’s enough to make one nostalgic for the idea that people are stakeholders in the degree to which they pay taxes and don’t sponge, but that’s another story.

But whilst the idea of everyone being a social or political stakeholder – at least in principle and as an ideal – is valid, and whilst the phrase was borrowed by politicians from business, I don’t think it make sense in a business context.

So now let’s go back a bit and look at how stakeholder doctrine worked its way into business.

The 1960s origins of stakeholder doctrine

The word stakeholder has been around most likely since the 1930s, perhaps before. But its modern persona began to take shape in the 1960s. According R Edward Freeman’s history of the term:

“The actual word “stakeholder” first appeared in management literature in an internal memorandum at Stanford Research Institute (now SRI International, Inc) in 1963. The term was meant to generalize the notion of stockholders as the only group to whom management need be responsive. Thus, the stakeholder concept was originally defined as  “those groups without whose support the organization would cease to exist.”

The groups defined as stakeholders back then consisted of little more than shareowners. So it was tightly defined and designed to help organisations understand and achieve their corporate objectives. But over time, as Freeman describes it, the meaning of stakeholder theory changed dramatically. It began to include people whose personal interests were closely related to those of a firm (employees and so on).  As the doctrine evolved it eventually came to be defined, as Freeman put it, “any group or individual who can affect or is affected by the achievement of the organization’s objectives.” It later evolved to mean the whole of society. This radical development in stakeholder theory dates from around 1975 with the introduction of the “stakeholder audit”. The aim of this was to measure the social costs and benefits of business to all its stakeholders and to give them equal importance to financial results. So what was a deliberately narrowing term transmogrified into its reverse: something as wide as possible.

Freeman identified “stake” as an “interest” or a “share” (in an undertaking) and he considered three groups of stakes: Equity stakes (held by shareholders); economic or market stakes (employees or customers); influencer stakes (interest or activist groups).

Of course, stakeholders like publics are often found in more than one role. Employees can be shareholders, customers can be activists, suppliers might be creditors etc. Their interests might be contradictory in the different roles they occupy. Moreover, the stakeholder’s perception of his or her own interest might not be measurable clearly either by consultation and or research (that’s an issue I’ve looked at on my PR blog in relation to Edelman’s trust survey results here here here).

Reasons to cutback on stakeholder hype

Here are my concerns about the stakeholder doctrine in business:

• Firms were no longer run for the benefit of their owners who risked their capital in them.
• The objective of business with stakeholder theory became the balancing of stakeholder interests (this precluded favouring one group over another) rather than maximising shareholder value by achieving specific corporate objectives as defined by the owners.
• The foundation stones of capitalism are the concepts of private property, the rights of its owners to exploit it, and the first duty of its agents being owed to principals. Those foundations have not been overthrown in a social revolution. Rather they remain legally binding but weakened by populist nonsense in the public domain. The suspicion has to be that stakeholder theorists are crude propagandists trying to effect change by the back door, or that they are self-deluded.
• Stakeholder theory created ambiguities for corporate governance – exactly to whom and for what is management accountable?
• If management is effectively accountable to everybody, then it is not accountable to anybody.
• If “active publics” define stakeholders, as Jim Grunig seems to suggest, then perhaps that gives them power over the silent majority that they don’t deserve? For sure, laws and democracy were long-ago designed to limit activist power in the interest of the greater good.
• The specificity of the terms stakeholder, public and “activist public” as useful categories is rendered meaningless if one accepts Freeman’s definition of what constitutes a stakeholder, which includes the unborn, the environment and much more.
• At its most absurd stakeholder theory identifies irreconcilable forces as each other’s stakeholders. Hence Greenpeace becomes a stakeholder in the nuclear industry.
• Stakeholder theory does little to tackle the real problem business faces today; which is that managers have become unaccountable to their owners for their poor results. Today’s recession is partly caused by irresponsible bankers destroying shareholder value because they pursued short-term interests. The recession is about falling profits, failing businesses and their social consequences, not a shortage of CSR (BTW: corporate governance is not primarily about the relationship of corporations to society).
• Right now, business has to make brutal decisions. Consensus will matter but so will speed and agility. Stakeholder management techniques, if taken seriously, are slow. They lack the robustness to be tough and to set priorities which produce clear winners and losers.
• The insight that stakeholder theorists claim as theirs that relationships, networks and consent are crucial to business success has been known since trading in goods and services began.

How some of this works in politics

• Politicians who big-up stakeholder politics on the basis that it’s participatory can be taken with a pinch of salt. New Labour went in for the Big Conversation and masses of consultation, but it often turned out to be a sham.
• In the modern perverse definition, stakeholders are self-defining. Victims – or anyone who says they feel strongly – have to be listened to as though they were experts.
• Representative democracy empowers people who go to the trouble of getting elected: stakeholder politics risks undermining that process.

Whose side are PRs on?

One of the startling logical implications of stakeholder theory for PRs is that we no longer remain representatives of our employers. Rather we become brokers of different interest groups, listeners, facilitators and managers of the many stakeholder relationships an organisation has. In this brave new world PRs are more likely to want appear on the side of activists or competitors than on their employer’s side. This fiction needs a reality check in the interest of transparency.

What then was the great attraction of stakeholder theory? In my view it was the opportunity to have power without accountability or risk. This compelling doctrine is a hippy hangover from the post-World-War-II boom. It promised all the benefits of business and political life without the responsibility and disciplines of them; no wonder it became popular among freeloaders.

How to rescue the term stakeholder

Stakeholder theory therefore requires a radical overhaul because the challenges ahead call for risky and accountable leadership. So it will either reform, get real, or be blown away by necessity as the democratic West reorganizes to compete with the BRIC countries.

We should begin with this proposition. It’s a nice compromise, I think. Stakeholders are people with a stake in a firm’s – or any entity’s – well-being. So yes, it can be much wider than shareholders or voters alone. What’s more, legitimate stakeholders may differ very strongly about what a firm’s or country’s aims should be, just as shareholders and voters can. Plenty of people who are not strictly speaking stakeholders may have very interesting and useful views to contribute. Having skin in the game is not the measure of a person’s value to a firm or to the rest of us. But the more skin you have in the game, the more of a stakeholder you can legitimately claim to be. If we are to rehabilitate the stakeholder category usefully, we must first cut the crap.

Note: I owe a debt to Elaine Sternberg’s “Stakeholding: Betraying The Corporation’s Objectives“, SAU, 1998, for insight on this challenging topic.

No related pages.

Roman represents the future of our trade. His quality of thought is becoming more common – though far from common enough – across the in-house and agency world.

Roman Geiser

He embodies how PR is maturing as a business under a new generation’s leadership as it enters its Golden Age.

His take on things ranges from radical ideas for repositioning Swiss banks, to questioning the effectiveness of the S in CSR.  He’s prepared to think big about what disintermediation could do for his clients, while staying alert to the possible downsides for society as a whole. He is cleverly nuanced about social media (a tad over-enthusiastic for my taste, but there you go).

He joined the agency world seven years ago. His background was as a public affairs lobbyist for an umbrella organisation of Swiss businesses. Then he was hired by Jäggi Burson-Marsteller, a formerly family-owned business based in Zurich and Bern, which was bought by BM, Young & Rubicam.

So, as he readied himself for his journey as a PR agency EMEA COO, I asked him to give us an insight in to his business and thinking. Here’s the outcome:

Strategy, evidence and today’s market

PS: I’d like you to describe what the recession has done to your clients, to explain how well your business in EMEA has fared.

RG:  It really depends market by market and positioning by positioning of each unit we have in our organisation. In Switzerland, we work for industries such as energy, pharmaceuticals and food.  If you take those three industries, they’re doing pretty well in the recession.

We see a clear trend to specialisation and focus.  The mid-sized agencies in this market – those offering 360 degree service – have an issue. Clients either want an agency that really understands their business, or an agency with functional or specialist expertise, for instance agencies that are 100% specialised in digital media and social media.  So there is a need for all agencies to find a sweet spot.

We see a certain cautiousness. There’s a psychological impact on even healthy businesses. Investments are taken more slowly than before.

Some services have become commoditised.  However the more strategically an agency is positioned the better it is protected from the crisis.  So offering product PR in the fast moving consumer goods area, for example, has become a low margin business.  Or even doing financial communications around standard transactions like public offerings has become internalised by banks and commoditised.

That means the higher up the value chain you are, and the better the quality of service you offer, the better off you are during the crisis.  Services like doing press releases, or just media relations in multi markets – those are not services where you can differentiate your brand. They are really price-based discussions which put your margins under pressure.

Burson-Marsteller is known in the industry as being extremely strategic. Of course, all agencies claim that!

PS: What exactly does ‘strategic’ mean?

GS:  If I take the Swiss example, we are very successful in healthcare.  We have a team of scientists here.  We have four medical doctors and a professor at Rockefeller University.  You need that kind of calibre to really bring evidence to the table to provide analysis. Then you can have a discussion with the client based on “This is the existing mindset and this how we get to where we want to go”. For me, that insight and knowledge and in-depth analysis based on qualitative and quantitative research is evidence-based.  And it starts at the beginning of a project.

Froth on the boom’s coffee or the caffeine in the latte?

PS: Do you agree with me that PR was guilty of putting the froth on the late boom’s coffee? Or put another way, if bankers have had to say sorry, do we need to, too?

RG: I understand where you’re coming from. One of the key reasons to have a PR agency, or a trusted advisor, is to bring critical faculty to the table and to ask the right questions. And, for sure, in certain industries the PR industry profited from the hype and we were part of the overall economic system.  At the same time, I believe there were great attempts to warn and also to support CEOs in their function.

PS: To warn?

RG: Yes to warn. You like to quote Dr Leslie Gaines-Ross on your blog. She recently highlighted how the trend from celebrity CEO to credibility CEO, more of “please show me” and not just the glamour stuff, began some four or five years ago. And that’s a kind of clear anti-hype warning that came from the PR industry itself.

Burson-Marsteller tried to engage the Swiss Bankers Association, for instance, in some pre-emptive reputational research during the boom. But what do you do when a decision-maker tells me “Thanks for your advice but we don’t have an issue”? That’s why I feel we did our job properly.

What kind of capitalism comes next?

PS: Will the new boom produce a different capitalism, particularly considering that the world’s most dynamic economies are going to be amongst its least democratic?

RG: I don’t think that there will be new models to capitalism.  I mean, it’s a pretty well established domain, right? There will be a new global balance of economies being at the table as equals with with the US in some fields.  That, I believe, is certainly more than a trend.

PS: Is there a new morality to capitalism?

RG: First, capitalism is not anti-moral. Second it’s been in practice for decades. So it won’t have a new shape or new dimensions in future.

I wouldn’t jump to saying: “Here is the new global regime with new power bases”. For instance, I still see the US, just by its historic capability for revitalisation, reinvention and innovation, as a strong leader and player in the future.  But it’s interesting to see that the most recent growth and first signals for recovery came clearly from China, also from India, but basically from China, which is new.

We shouldn’t underestimate the power of the old economies. In a world which is getting much more complex, with multi-stakeholder management, with so many stakeholder groups having an impact on your business, that calls for managing complexity.  And if you look at the continent which really has experience of managing complexity from language to cultures, it is Europe.

Where is PR headed?

PS: What are the three major three trends that will dominate the PR landscape over the next ten years?

RG: The key trend definitely is social media and digital communications and the shift of paradigm from mass media into more dialogue-oriented communications. That’s a huge shift. But its impact varies from market to market, culture to culture. For instance, Switzerland is highly digitalised, but it also values privacy. People don’t speak up on blogs here, as they do in the UK, and give their opinions.

Second, I would say, is the balance of purpose and performance in an organisation in order to build trust longer term.  It’s basically the question of: “What is the purpose of a corporate, of a multi-national?”.  It’s very often around employees.  It’s around the products and the services for consumers.  So it’s around the mission and vision of a company

The third trend is multi-stakeholder transparency in a globalised world.  Companies operating around the globe need to demonstrate transparency and to explain themselves to many more stakeholders in the age of trend No. 1.

It’s not about structures but about leadership

PS: How will PR agencies change their business models and services?

RG: The first one sounds easy, but it’s extremely complex to make digital communication more than an add-on to your communications programmes. Very often you say “What could we do digitally?  Do we do a website? And yes, there are new trends like Twitter.  We need to offer that in our communications programme”.  And that’s the wrong attitude.  I believe digital or kind of low-cost media needs to become an integrated part of all communication concepts.

At the same time, you need to understand your business extremely well to see the limits of digital social media, such as in pharmaceuticals for obvious regulatory reasons.  Going into it with a kind of hype attitude can be dangerous. It’s new, but it’s more than just a fad. But it’s not a revolution. It’s an evolution. It’s an evolution which brings the business more into the dialogue-oriented sectors of communications.

The multi-stakeholder global trend goes into new agency models, which I believe are going to be more international.  PR agencies are still coming out of the first phase of family-owned businesses with very local business models.  But we are becoming more digital and more international.  Offering that service to your client becomes more and more important.

Of course, managing the matrix of markets and practices in agencies is extremely demanding. It needs people who like to work together. And it starts at the top.  So if you have a management team or market leaders who like each other and work together well, you have the key ingredients for not working in silos any more.  So there is no real ideal structural model. You can have all kind of bonus systems and financial incentives. But what is really needed is investment in a team that works together collaboratively and which produces success stories together. That’s the way to go.

What are reputations made of? A five point list

PS: How would you explain the success of Apple and Ryanair’s PR, both of which, for different reasons and in different ways, seem to do everything wrong, and yet seem to get everything right in terms of their reputation and business strategy?

RG: My explanation would be that it is always multi-dimensional. Let me list the top five elements that create great reputations for firms.

First, is how they develop talent and how attractive are they for potential employees.  Take Apple.  They are doing that extremely successfully.

Second is product and services of high quality.  You can be as digital as you want.  You can be as corporate responsible as you want.  If you don’t get your product right, if you have a problem explaining your hedge fund to your target group because you don’t understand it yourself, you might ask yourself the question, “Is my product really a good product”.  In the case of Apple or Ryanair, they have solid services, good products, which fit into very specific target groups.

Third, transparent leadership structures.

The fourth is financial results and performance. If you drive a business which is financially sound, you create the momentum for a sound reputation. And that brings me to number five.

The last one on my list would be CEO reputation.  And here again both Ryanair and Apple score through the roof on that one.

It is the balance between these five factors creates a good reputation and trust. You do not need to be top on all five. But it’s always a dimension of those aspects.  And other reputation studies maybe have a different ranking. But it’s those that I’ve listed which are the key drivers that count.

Time to ditch the S in CSR? And what is CR about?

PS: Is CSR a marketing tool or a genuine attempt to inject morality into capitalism?

RG: This really comes under my “purpose and performance” answer. Let me explain. I prioritise the  concept of responsibility rather than the social bit of it. That’s because “social” is corporate giving and sponsoring. But corporate responsibility goes to supply chain management and to diversity in the workplace. It goes to labour standards in all kinds of countries. It goes to compliance issues, too.

If you take corporate responsibility or give that angle to CR as a communication platform, we are talking evidence-based communication. We are talking about content and not just about how you brand it or how you position it and how you make a better marketing tool out of it. It is really about how you run your business and how you act responsibly in the roles in which you operate.

Elevator pitch to put Swiss banking back on track

PS: Good to hear. I’ve always advocated dropping the S in CSR and also for promoting business sustainability much more forcibly than we currently do.

Now, moving on. Please pick an unpopular person, institution, firm or country and make an “elevator pitch” for it.

RG: I’d pitch the financial sector in Switzerland.  And what I’d be pitching would have nothing to do with communications.

PS: Okay, go ahead.

RG:  Behaviour drives communications and reputations. It’s all driven by behaviour.  And the first behaviour recommendation I’d make to the Swiss banks would be not to base a product or the financial sector on a system of differentiation of tax evasion and tax fraud.

The only differentiation that matters is excellence in Swiss banking. There are huge assets which come with excellent banking and the positioning of it. So Swiss banks should not hide behind a smart legal differentiation of evasion and fraud. That’s not the way to go.

Second, nobody likes secrets.  We do like privacy, though.  Why is Swiss banking branded “banking secrecy”?  It’s the protection of the individual and the protection of one’s privacy that matters. And that is a different concept.

My third point would be look at self-regulation. I say don’t wait until the regulators push their positions on you.  Self-regulation can be a very healthy way to come out of the crisis stronger and to keep enough room for your core business.

My fourth is look at the products, because the banking products have become too complicated. There are many ways to shape products in more understandable ways. After all, good products, as we discussed earlier, are one of the key drivers of reputations. Products need to be much more transparent. Any risks in those products require a clear assessment of the portfolio. Sometimes in the boom years, the underlying risks were not clear even to specialists working in the field.

Power shifts in media – good news and not so good news

PS:  Ask yourself the question I should have asked you.

RG: A point you haven’t mentioned is the role of old media, if you want. There is right now a power shift of who produces relevant content and who has the power to invest in content?  And that shift goes from media to the PR sector.  It goes to in-house PR, external PR. And as a PR man, I could say it’s a great strength. But as somebody who is socially or politically aware, I would say it can do harm to the balance of democracy, because media have an important role there.  And sizing down all those newspapers, and taking away their ability power to do in-depth research is a problem.

At the same time you have big companies, PR firms basically involved in paid-content production.  It doesn’t mean that the content is not correct, but it always presents one perspective in a discussion and I believe there still needs to be strong media to play a role in public debates.

Certainly, big corporate can become the media. Why not have Nike TV doing sports programmes? But I like the “competition of ideas”. If you want to have a competition you need a few players being part of that competition.

PS: Do you have any closing remarks?

RG: Yes. If you ask our founder Harold Burson what makes a great PR person he says “curiosity”. And I think it is fascinating right now to be a PR person. There are so many things going on. We are challenged more than ever before. There’s loads of opportunity. I think we can say it is a new age, as you say, a golden one.

PS: Thanks. Great stuff, if I may say so.

No related pages.

If we want a glimpse of where PR might go over the next ten years, we should examine Japan. The world’s second-largest economy’s property bubble burst 20 years ago. Since then deflation, recession and reality have broken the country’s commitment to consensus building, as Leo Lewis argues in “Japan’s harsh new reality” in today’s Times.

Lewis opines:

The supposed great tenets of the Japanese way of business – cosy relationships with customers, consensus-based decision-making and the social kudos of protecting jobs – have been exposed for what they always were: conceits that would never survive a hideous economic crunch.

Lewis highlights how reality has been a tough teacher in Japan:

“…suddenly, a good number of Japanese companies do not look benign and paternal but brutal and pragmatic. They are exploiting labour laws and sacking vast armies of temporary staff taken on in favour of permanent employees. They are terminating contracts with suppliers and reshuffling managements with an aggressiveness that nobody foresaw.

Lewis adds that a psychological transformation has taken place among Japanese companies. They now feel more ideologically capitalist than their battered brothers in the West.

Let’s get this straight: in reality hard times make people appreciate the realities of capitalism. As President Obama said yesterday: we’d better stop knocking the get-up-and-go of greedy bankers. We’ll be out of this hole when they rediscover it.

The lesson is surely that companies will be quite brutal as they fight for survival, which is their first duty. They want – they have – to be around to fight another day. Altruistic self-sacrifice is for heroes not firms.

Is our PR industry ready for such a transformation in capitalistic practice? Well, the language of Mutual Social Responsibility, stakeholder engagement, aligning stakeholder values, corporate social responsibility and even word-of-mouth advocacy comes from another age to the one we are entering.

As I have argued before, the future is going to see more different – and angry – messages flying around. Our clients are going to be fighting harder for much more differentiated positions which are sharper-edged. The arguments will be fiercer, more aggressive, less obvious.

The reality check is on. Frankness, honesty, robust communication rather than fluff, flannel and puff are what’s called for in future from communicators.

These were issues I took up in my recent WSJ Editorial & Opinions piece, which those who missed it can read here.

No related pages.

The merchants of doom such as Shirky overdo the gloom. He says it will make less and less sense to talk about a publishing industry, “because the core problem publishing solves — the incredible difficulty, complexity, and expense of making something available to the public — has stopped being a problem.” This misses the point about what newspapers were all about in the first place (more on that later).

Here’s his take on what gave publishing houses the edge in times past:

“The old difficulties and costs of printing forced everyone doing it into a similar set of organizational models; it was this similarity that made us regard Daily Racing Form and L’Osservatore Romano as being in the same business. That the relationship between advertisers, publishers, and journalists has been ratified by a century of cultural practice doesn’t make it any less accidental.

“The competition-deflecting effects of printing cost got destroyed by the internet, where everyone pays for the infrastructure, and then everyone gets to use it. And when Wal-Mart, and the local Maytag dealer, and the law firm hiring a secretary, and that kid down the block selling his bike, were all able to use that infrastructure to get out of their old relationship with the publisher, they did. They’d never really signed up to fund the Baghdad bureau anyway.”

And, of course, he has a point. The internet has allowed us to publish and network for next to nothing. Moreover, most of the newspaper business models of the past did, indeed, emulate each other, particularly in their reliance on advertising.

He rightly points out that newspaper people often note in their defence that newspapers benefit society as a whole. But adds:

“You’re gonna miss us when we’re gone!” has never been much of a business model. So who covers all that news if some significant fraction of the currently employed newspaper people lose their jobs?”

On this he is just plain wrong. Business is in the business of satisfying otherwise unmet needs. Indeed, he shoots down his own argument when he tries to explain why the WSJ has been a commercial success online and why its success cannot be replicated by other newspaper houses covering different topics:

“The Wall Street Journal has a paywall, so we can too!” (Financial information is one of the few kinds of information whose recipients don’t want to share.)”

Shirky’s parenthetical assertion of the uniqueness of financial information is nonsense. It is convincingly dismissed by Adrian Monck. In short, newspapers such as the WSJ have an audience, a community of relations, and they relate to that audience by providing it with the information it requires, which it cannot easily acquire elsewhere cost-effectively. This was ever so with newspaper publishing.

What made the publishing industry profitable in the first place was never the costs and complexities of production, but the content that it produced that satisfied real consumer demand at a price. Hence the print-led porn magazine industry has been virtually destroyed by the internet.

But whilst some needs are now met elsewhere, there is still a mass of unmet need for news, information and comment. Quality will always matter. So will imprimatur. And it is quite possible that the ability of media brands to package material will remain (or become more) attractive.

Shirky is not alone in worrying about how many local and national newspapers are struggling right now. A combination of the internet and recession is hitting them hard as advertising revenue falls. However publishing was – like many other industries – a bloated boom-time industry that is now undergoing a reality check. That challenge is certainly made all the tougher by the ubiquity of internet information.

He captures the chaos of the moment well when he comments:

“The old stuff gets broken faster than the new stuff is put in its place.”

That goes some way to explaining why newspapers are finding it hard to stop the rot, but it does not substantiate Shirky’s core arguments.

It’s my view that to survive in the future the best newspapers will have to go up the value chain. They will have to straddle off and online, print and virtual digital media. We can expect the industry to contract and to become more focused – just as many other industries are going to have to do. Whether they are a tabloid or a broadsheet in style, newspapers will have to offer a unique package that meets a need and is supported by a strong brand.

It is also wrong to think that advertising is about to disappear as a source of finance for newspapers and media companies. The pot might get smaller in the age of mass internet access, but so will the number of terrestrial players seeking to access it. Regardless of that, there is going to be a lot of money available from premium brands wishing to ride on the back of the professional media’s audiences.

Charlie Beckett predicts, for instance:

“I think there are plenty of ways forward. I argue that most of them involve much greater public participation and a shift of power from media institutions towards creating social networks of news.”

Reading a draft of this blog, my friend Richard D North argued that news firms such as Reuters and AP might become people’s source of news much more directly, and price much of their news according to how fresh or detailed or specialised it was. And comment might go the other way, with star writers becoming their own profit-centres online.

It is clear that the relationship between print and online does change things. But there is going to be no such thing as a “post-news or newspaper-world” as Shirky seems to imply.

No related pages.

The exodus of Davos Man has quieted the skies above my home office on Zurich lake. I now have the luxury of rummaging in peace through FT.com’s analysis of the World Economic Forum held up the road and over a few hills. Perhaps most importantly, there’s a challenging The hot air of CSR, by Stefan Stern, the FT’s management writer.

Before exploring what Stern says, I note that the FT boiled down the conclusion of this year’s Davos meeting to a few words. It says that the “economic crisis has destroyed many rules the world has been using – the only certainty now is pain”.

Stern begins his report by explaining how the “rediscovered responsibility” at Davos was really an acceptance that firms need to make a profit to stay in business. He then recounts a recent House of Lords closed door meeting at which he found serious PR CSR advocates in a reflective mood:

One executive declared: “I can’t stand writing CSR reports. I hate it. It’s so boring.” Another – in fact our co-host, Michael Littlechild, the head of the advisory business Good Corporation – conceded that, for many business people, CSR was just a case of BDF: “babies, dolphins and forests”.

He highlights that:

There is a mismatch, to put it mildly, between the politically correct rhetoric of a chastened global elite and the reality of what managers have to do every day of the week. It is easy to get confused by these mixed messages. Is it time to embrace the new morality, or to drive the business even harder in search of every last bit of revenue? What should this new era of responsibility look like?

Stern’s right to suggest that mixed messages cause confusion. He’s also right not to back Richard Edelman’s Davos call to put on a par with maximising profits other ideals such as “public engagement”, “corporate mutual social responsibility” or “private-sector diplomacy”. The last by the way is corporate activism on global concerns such as climate change. Elsewhere, Jeff Jarvis usefully describes this activity by its right name, PR.

The PR agencies’ clumsy new vocabulary smacks of old wine in new bottles. One gets the feeling the profession is merely reinforcing boom-time communication practices. One wonders why leading agencies are not properly considering offering their clients a refreshed strategy.

Contrariwise, Stern gets straight to the heart of the issue. He questions whether there really always is a straight-line connection between CSR, reputation and the bottom line. He says:

Customers may decry company X in a focus group or opinion poll. But where do they do their shopping?

He cites as a case study the UK discount fashion store Primark. He describes how its name has been dragged through the dirt in the past year, after worrying aspects of its supply chain were uncovered. Stern points out that its sales figures have risen by 18 per cent (aided by new store openings) in the 16 weeks to January 3, when almost every other UK clothes retailer was struggling.

Of course this does not prove that reputations do not matter. Neither does it mean that Edelman is wrong to advise firms to engage, discuss and find points of mutual self interest with stakeholders.

Stern’s view does, however, add substance to the argument put by Sir Terry Leahy the chief executive of the UK’s leading retailer, Tesco, that do-gooders often do more harm than good.

Stern explains how if Tesco wants to continue competing on price, it will keep up the pressure on its suppliers. He then asks whether this constitutes “corporate social irresponsibility”? He concludes: hardly. Instead, he says, the truly responsible thing to do is to run a good business competently. He concludes:

As the wise CSR practitioners know, it is how you do business that counts. All the rest is just hot air.

In my view, the buzzword that will replace CSR will be sustainability, and business sustainability will be at the front of all the jostling sustainabilities which campaigners and others will suggest. Profit and business models will be at its core. Shareholders will ensure that their interests are put first. They will demand more transparency and accountability from management. They will be more active and less trusting. Traditional values and professional ethics will become highly valued virtues and the true measure of corporate responsibility.

Wider issues such as environmental risk will still be on the agenda to an extent depending on the specific nature of individual risk. Barclays has already acknowledged that point. Others will follow. Watch this space for reports on the new language and development of CSR and corporate responsibility.

No related pages.

A PR’s heart is bound to leap when it reads the Barclays story. What an opportunity at last to stop schmoozing a soft-line to all comers.

There was no talk of aligning the values of employees, consumers, shareholders and other stakeholders. There was no talk of mutual social responsibility either. What was on offer was a take it or destroy it option. TINA was the Board’s message (There Is No Alternative). The board wasn’t playing nicely. George Dallas, corporate governance director at F&C Investments, told the meeting:

“We deeply object to being put into a position where the consequences of voting against this deal would make a bad situation worse.”

No wonder Barclays needed security guards to hold back shareholder anger when both retail and institutional investors were losers in an unprecedented fund raising exercise. Its chairman Marcus Agius expressed regret for the mess without backing down. Hence, nobody can accuse Barclays Bank’s board of lacking courage or leadership.

It has laid itself and its bank’s future on the line. It had the balls to reject the government offer of the taxpayers’ shilling because of the strings attached. Instead it sought more expensive capital elsewhere. In the process it shocked, indeed horrified, its existing stakeholders. But these are extraordinary times. The bank had few choices, it said (unlike Standard Chartered). There was no time for niceties. This was about securing long term survival, it argued. There were few advantages in going down the route of the near-nationalised banks, it said. What a narrative! We’re coming out fighting! We’re not giving in! We’d rather dangerous and costly independence than sucking on the state’s wet-nurse teat like babies!

The resistance won a few concessions – rather than a U-turn. Shareholders did take action to defend their interests as they saw them. The board was forced to reonounce its bonuses this year and next and put itself up for re-election annually.

It can be argued – and the FT has – that Barclays’ board is more accountable and more prone to listen to its shareholders than before. Perhaps had shareholders been less satisfied and more active over the last ten years the financial sector would be in better shape now. The period before – a period of boom in which many assumed bust would never reappear – was characterised by a complacant and meaningless consensus, with fake accountability and translucent transparency. Otherwise, we wouldn’t have got in to the credit crunch in the first place.

Barclays Bank will have to repair its relations with its shareholders. The board’s reputation will need nurturing. But this time around the whole process will be more volatile, more democratic and honest than what we witnessed during the amazing aberration of the last boom.

The wider PR lessons are that there will be far more different – and angry – messages flying around. Our clients are going to be fighting harder for much more differentiated positions which are sharper-edged. The arguments will be fiercer, more aggressive, less obvious.

We will have to accept that not every difference is reconcilable and not every stakeholder is going to be a winner.

Yesterday Barclays share rose by almost 10 percent. While, Standard Chartered shares fell 34½p to 725p.

No related pages.

Let me declare an interest. In the late 1980s early 90s I led media relations for both the Council of Mortgage Lenders (CML) and The Building Societies Association. Like Gordon Brown and Kenneth Clarke, I thrive on crisis. (Sorry, that’s the nature of lots of work – from the priesthood to journalism.)

Back then up to 75,000 houses per year were possessed by lenders, compared to an estimated 45,000 expected this year. But who knows what next year will bring. It does not look good. On Friday the CML released arrears figures that revealed that 168,000 mortgages were three months or more late with their repayments. That is 8% higher than the 155,600 at the end of June.

The statistics are important because they indicate the number of homeowners living on borrowed time in houses that may soon be put up for auction to pay off debts. But what gets forgotten is that defaulting mortgagors (for the sake of clarity mortgagees are the lenders) represent just 1.44% of all borrowers. That means that 98.56% are managing to keep up with their repayments.

The housing market is suffering, sure. But it remains a British success story. British houses are still worth many times what they were twenty years ago when I became the industry’s spokesman.

Nevertheless, banks and building societies have to accept some of the blame for this crisis. They became, in polite English, imprudent. Lenders, governments and central banks failed to constrain an expansion of credit that drove an unsustainable boom in house prices. But hang on a minute.

Borrowers now complaining about “over-priced” fixed-rate mortgages or endowments that look set to fall short of paying back their mortgage don’t have much of my sympathy. This was the biggest investment of their lives. They were adults taking risks, sometimes reckless ones. They made choices. They presumably read their contracts before signing them. Now they, the minority in real trouble, have to face up to their responsibilities. Letting them escape their debts is not an option, not least because it would discourage the rest of us from repaying ours.

But the good news is that it is not in lenders’ interest to take back properties except as an action of last resort. The government seems more determined than in the 1990s to find solutions that keep people housed. I think that makes sense.

Getting into a mess is one thing, managing it another. This crisis could easily have become a disaster for mortgage lenders. However, the CML has taken the PR initiative. As a result the industry has won more praise than criticism for its efforts. Therefore, the CML’s work is worth noting in detail:

• It came out fighting when its members were criticized for not passing on the full BoE interest rate cuts to hard-pressed borrowers. It explained the complexity of the market and different types of policies that borrowers held. It explained the difference between LIBOR and base rates. It explained its members’ duty to both savers and borrowers.
• Mortgage lenders came in for some bad press for speaking market truths. But it had to be said otherwise honesty and integrity would have gone walkabout. Moreover, by voicing market realities early on, the CML made its long-term work of defending its members’ interests and winning public acceptance easier. The bad press is no longer such an issue, but the market has not shifted much.
• Its Director General Michael Coogan said on air that the CML never favoured 125% mortgages (which was brave given some of his paymasters did).
• It helped expose the damaging criminality in the buy-to-let market which involved mortgage professionals and borrowers colluding.
• It publicised far and wide how how borrowers can help themselves and lenders protect their mutual interests.
• It explained why sometimes it is in the interests of both parties for homes to be possessed, stating that’s why many owners just hand back the keys.
• It released more information than ever on the state of its members’ mortgage books so that the government and public were forewarned of what to expect in the future.
• It worked with its members, government and consumer groups to manage this very challenging situation creatively.

This is a developing story. Lenders and borrowers recently lost sight of what the market was all about: providing homes for people to live in. Lenders must end the lending freeze as soon as possible, on responsible, sustainable terms. They have got to get back to their day job.

Meanwhile, the CML deserves to win a prize for its crisis management skills.

No related pages.

Oh doom, oh gloom, oh glum. Thank goodness, Boris says that view’s nonsense.

Oh no, let’s not think anything like it, boomed the Mayor of London at today’s opening bash. He said:

Let me ask you the question, with unemployment rising in the UK, is it right that Westfield make an investment of £1.6 billion and create 7,000 jobs?

He added:

Gordon Brown says to me we’re in a hole. I say to you, we need a hole the size of Crossrail. The essential thing to do is keep digging.

Yesterday Boris urged us to eat, spend and be merry. Writing in The Daily Telegraph he said that those with money – and there’s still loads of them – had a duty to keep shopping, keep spending and to lead by example for the benefit of us all.

Markets downturns are as much about mood and confidence as anything else. Perception isn’t exactly reality, otherwise my sausage dog is a Pit Bull. But a smile and some confidence are infectious. So, three cheers for Boris’s guts gusto and umpth. As Ian Dury – “we’re all Blockheads now” – once wrote:

Reasons To Be Cheerful, Part 3

Health service glasses
Gigolos and brasses
round or skinny bottoms

Take your mum to paris
lighting up the chalice
wee willy harris

Bantu Stephen Biko, listening to Rico
Harpo, Groucho, Chico

Cheddar cheese and pickle, the Vincent motorsickle
Slap and tickle
Woody Allen, Dali, Dimitri and Pasquale
balabalabala and Volare

Something nice to study, phoning up a buddy
Being in my nuddy
Saying hokey-dokey, singalonga Smokey
Coming out of chokey

John Coltrane’s soprano, Adi Celentano
Bonar Colleano

Reasons to be cheerful part 3
Reasons to be cheerful part 3
Reasons to be cheerful part 3
Reasons to be cheerful part 3

No related pages.