Ipsos Corporate Reputation

SHARED VALUE: THE CORPORATE IMPERATIVE?

As the demand for businesses to create shared social and environmental value increases, and the climate change doomsday clock counts down, Council members are seeing corporates coming to terms with their role in society. But businesses face significant challenges in closing the say-do gap and meaningfully embedding sustainability in their strategies and business models.

“The need for companies to deliver genuine value, as opposed to tokenistic corporate responsibility policy, that’s built into the company’s core purpose is becoming increasingly pronounced.”

The US Business Roundtable (BRT) last year dropped its commitment to “shareholder primacy”1 in favour of shared value. Accordingly, and by the “modern standard for corporate responsibility,”2 businesses must focus on creating value for all stakeholders, including consumers, employees, supply chains, governments, civil society and the planet, as well as shareholders.

Some commentators treated the BRT’s statement with scepticism – Larry Summers, for example described it as a “rhetorical embrace”3 aimed at warding off real regulatory change.

Or as old news – since at least the 1960s, organisations have had Corporate Social Responsibility (CSR) policies with the broad goal of,“contributing to the well-being of the communities and society they affect and on which they depend.”4

But for many Council members, the BRT’s announcement does signal something real and burgeoning. Shared value is not the same as CSR, it’s argued. While CSR is essentially philanthropic and extrinsic, shared value requires that environmental and social value become functions of business’ operations themselves.

It’s this shift, say members, that poses a major challenge. It raises profound questions about what exactly shared value looks like, and how to measure it? How fundamentally should or can businesses adapt? And how quickly? And how to communicate intrinsic changes in a way that cuts through with stakeholders?

“Companies are trying to figure out the balance between responsibility to shareholders and to society. We were doing positive things before the BRT statement, but it has brought focus.”

“The debate has been going in that direction for the thick end of a decade, at least in terms of talk. So, the reaction is, “yes of course,” and the next question is, “what are you going to do about it?”

THE INCREASING DEMAND FOR MEANINGFUL ACTION

In dropping a credo it’s held since 1997, the BRT is reacting to demand for environmental and social action that is radically increasing. Much of this demand is directed at business.

To complicate matters, it comes from multiple stakeholders across many issues. The UN Sustainable Development Goals, for example, cover 17 areas of sustainable development, from sanitation to gender equality to education. Every one of these to a greater or lesser degree presents a challenge for businesses. Each is a potential lens of scrutiny, with discoveries likely to be amplified and distorted online.

Expectations of corporate citizenship have increased. Last year, more than half of Council members (56%) said that consumers expected them to take a stand on socio-political issues, against only a quarter (23%) who disagreed.5

“I think we live in a new and much more complex world within which it isn’t just shareholder value that means everything. I think corporates are generally aware of their place in society now more than ever.”

For some members, the driving force behind this change is the millennial generation (born around 1980-2000) – which, based on some projections will make up 75% of the global workforce by 2025 – flexing their muscles as citizens, consumers and of course employees.

“You have work forces, in particular the millennial work forces, that are legitimately concerned about sustainability and corporate responsibility in terms of whether they want to work for a company.”

But there’s evidence that the investment community is catching up. Increasingly businesses are evaluated on non-financial, Environmental, Social and Governance (ESG), metrics alongside more traditional financial metrics. BlackRock CEO Larry Fink’s recent letter to investors claims that, “investors are increasingly reckoning with these questions and recognizing that climate risk is investment risk.”6 And BlackRock now claims that, “sustainable investing is the strongest foundation for client portfolios going forward.”7

The factor that really “changes everything,”8 however, that underpins the shift to shared value, is climate change. It is both an existential threat and, “the wickedest kind of problem imaginable: complex, interconnected, and requiring massive collective action.”9 It raises the stakes for what counts as value, and makes demonstrable action and impact a necessity for any organisation. It makes ‘greenwashing’ a threat to reputation rather than an asset. In sum, “climate change has become a defining factor in companies’ long-term prospects.”10

IN THIS WAVE, MORE THAN HALF OF MEMBERS (57%) SAY THAT BUSINESS LEADERS ARE NOW OVERTAKING POLITICIANS AS A FORCE FOR PROGRESSIVE CHANGE IN THE WORLD; WOULD THIS HAVE BEEN THE CASE JUST 10 YEARS AGO?

“All of us can see that the investment community is really much, much more interested now in the way that businesses operate beyond just the financials. Financials stay important but it is about how people do business and we see that all the time in our analyst briefings or when we go out to meet the investment houses.”

“This is how sustainability is moving – from communications to true business. Greenwashing was about communication, now the finance industry thinks of sustainability as financial survival.”

“Because of the actions of Greta Thunberg and the spotlight that Extinction Rebellion has placed on the environment, I think all businesses have got to take responsibility and accountability for sustainability.”

“Investors rate us on our sustainability practices. I think that today everyone has a sustainability imperative.”

THE SAY-DO GAP

A study by Boston Consulting Group and MIT in the US in 2016 found that, while 90% of executives described sustainability as important, only 60% of companies had incorporated it in their strategy, and just 25% had it incorporated in their business models.

Four years on, for many Council members, particularly outside Europe, crossing this chasm from recognition to meaningful action remains a key challenge.

 “I think companies are finding it quite hard after the first wave of enthusiasm for green topics, where they said lots of nice things, to embed that into what they actually do day to day.”

“At present, keywords such as Sustainable Development Goals are flying around in Japan and there is consciousness about instilling social purpose into business purposes, but I think that many companies are wondering how to do it.”

While the majority of Council members consider the shift towards shared value to be a long-term trend, there is much less agreement that a company’s performance on sustainability is currently important in determining valuation.

As these responses reveal, the say-do gap is partly based on a perceived tension between short and long-term priorities. Still, for many businesses, financial and sustainable aims are seen as different in kind. Companies and CEOs are seen to live or die based on financial metrics, and investors care far less about an organisation’s performance on ESG metrics.

The US Business Roundtable, consisting of CEOs from some of the country’s biggest companies, recently issued a statement saying that shareholder value was no longer the overriding corporate priority and that companies should have a broader social purpose and remit.

Some hedge fund managers may be more interested in immediate returns, as opposed to pension funds that want long-term sustainable returns which can only come if a business is planning to be sustainable.”

If your business is run through short-term measures all the time, would you ever put money into doing something that might not return an investment for 5 years, when CEOs are only there for 3 years?”

If economic conditions deteriorate, unless you can show immediate ROI or growth because of the strength of being sustainability-oriented, you’re going to see companies get right back to basics.”

Understood in this way, sustainability and purpose remain a risk and a cost to businesses.

Meanwhile, the Harvard Business Review enumerates the benefits of creating shared value: competitive advantage through stakeholder engagement, improving risk management, fostering innovation, improving financial performance and building customer loyalty.11 And at the same time, there are plenty of warnings about the long-term threats of failing to adapt. For example, the outgoing governor of the Bank of England warned businesses in 2019 that those who don’t move towards zero-carbon emissions will ultimately go bankrupt, “without question.”12

So, what our Council members highlight is that, while there’s a growing long-term business case for focusing on shared value, the shift in mindset required to set this in motion is proving difficult in the short-term.

APPROACHES TO CLOSING THE SAY-DO GAP

Clearly, the scale of this challenge differs by company and industry. In some cases, there appears a fundamental tension between historical business models and sustainability – for example, in extractive industries or ‘fast’ fashion. This inevitably impacts the rate of change. But the lesson from Council members, is that companies that are performing well on sustainability are at least moving towards, “a sustainable approach that is not an add-on but is integral, integrated to their business and their strategy and their purpose.”

EXAMPLES GIVEN BY COUNCIL MEMBERS OF BUSINESSES THAT STAND OUT AS BEING AT THE CUTTING-EDGE OF SUSTAINABILITY TEND TO FALL INTO ONE OR MORE OF FOUR CATEGORIES.

01. DELIVERING SUSTAINABLE PRODUCTS

For some businesses, sustainability is the key feature of a product. Council members cite Telsa’s electric cars as a good example of this type. Oil companies that are investing in renewable energy also fall into this category, though there is a long way to go before they become providers of a sustainable product. The technology sector may count, as it focuses on offering the technology to underpin sustainability efforts of others.

02. CLEANING UP SUPPLY CHAINS

As the focus on sustainability increases, supply chains continue to be a problem for many companies – sourcing of resources, labour conditions, air miles. Innovation in packaging also falls under this banner, in that by reducing the use of plastics, businesses are aiming to reduce a harmful by-product of distribution. For Council members, Unilever, Nestlé and Coca-Cola are good examples of businesses focusing on this area.

 03. COMMITTING TO OBJECTIVE TARGETS

Several companies identified by Council members have made commitments that align to external standards. Microsoft, for example, has committed to aligning its operations with the UN’s recommended target of 1.5°C global warming by 2030, a commitment certified by the Science Based Target Initiative (SBTi). Danone is aiming to become a B corporation, thus will be legally required to consider the impact of their decisions on their workers, customers, suppliers, community, and the environment.

04. BECOMING CORPORATE ‘ACTIVISTS’

Some companies are conspicuous in supporting particular external causes. Patagonia is a flag-bearer for this approach, committing a percentage of its revenue to support grass roots climate movements. Though clearly it could not do this if it did not also commit to other behaviours (e.g. clean supply chains). Another example would be Coca-Cola, which directly supports the Global Environment and Technology Foundation’s work in Africa to replenish water sources.

 Each of these approaches does something to incorporate sustainability into strategy or business model, and offers established paths for other companies to start to cross the say-do gap towards shared value. And the greatest value, of course, is likely to be delivered through a combination of these approaches.

KEY PRINCIPLES

COUNCIL MEMBERS IDENTIFY SEVERAL PRINCIPLES THAT UNDERPIN ANY OF THESE STRATEGIES:

“Above all, as one Reputation Council member puts it, the future must be ‘action-leadership’, not just ‘thought-leadership.’”

01. MAKE COMMITMENTS THAT INSPIRE

Commitments need to be fundamentally meaningful, credible and inspiring to a range of stakeholders, including governments, customers, employees and investors. Every business needs to assess what issues it is best placed to address and whether these issues are really the important ones for its stakeholders. And all businesses need to make commitments on climate change. To do these things, they must be prepared to innovate.

02. MEASURE SHARED VALUE

There’s an adage: “what gets measured, gets managed.” Measurement of stakeholder opinion should also inform strategy and communications, while helping provide evidence of the effectiveness of a business’ commitments. Council members see ESG-style measurement as key, in that it links directly to the financial performance of businesses and CEOs.

03. EVIDENCE-BASED COMMUNICATIONS

There is broad agreement that greenwashing is finished. Communications should be evidence-based, and tailored to the priorities of different stakeholder groups. Commitments should be embedded in the corporate narrative that companies tell internally and externally.

IN SUMMARY:

  1. Businesses are facing significant challenges in moving from CSR to creating shared value.
  2. While businesses recognise the long-term importance of shared value, there is a tension for some between this and short-term priorities; this tension underpins the say-do gap.
  3. There are existing paradigms to help companies begin to cross this gap: focusing on sustainable products, cleaning up supply chains, making meaningful commitments or engaging in corporate activism.
For references in this article, please see page 21 in the full report.

The AI Paradox: Businesses must not overlook their responsibility to reputation as investment in this technology grows

Digital technologies, from social media to Artificial Intelligence (AI), have undoubtedly altered peoples’ lives – some for the better, some for the worse. We’ve seen the rise of intelligent assistants like Siri and Alexa, grown reliant on communication platforms to keep in touch with friends and family, and have witnessed the positive impact of wearable technology in healthcare.

According to a 2017 PwC report[1], AI technology could deliver a 10% increase in the UK’s GDP by 2030, provided that different types of AI technologies are invested in. To nurture this potential, in early March the government outlined a plan to position the UK as the global leader of artificial intelligence[2]. The plan incorporates investing in R&D, helping people develop skills for the new age of AI, and supporting sectors in boosting their use of AI and data analytics technologies. The hope is to create resilience among the UK’s workforce as the use of AI becomes widespread across sectors and helps boost the economy.

The indication that AI is the future is evident among business leaders too. In a recent study by Ipsos, the authoritative Captains of Industry, three in five stated they have already invested in digital technologies such as machine learning and artificial intelligence. Another third plan to invest in the next five years, as businesses prepare for the utilisation of AI technologies, align with government priorities, and foster the potential for economic growth – especially in a post-pandemic world

However, while the benefits that could be reaped from digital technologies are limitless, it doesn’t come without its challenges. In an Ipsos poll published by the World Economic Forum, four in ten adults across the world said they are worried about the use of artificial intelligence, and nearly half of adults globally agree that the use of AI by companies should be regulated more strictly than it currently is[3]. In another poll, less than one in five adults in the UK believe their job will be automated in the next 10 years, and almost four in five feel confident they already have the skills to carry on with their current employment in the future – contrasting senior leaders’ perspective of digital technologies potential.

While government and businesses are working toward unlocking AI’s potential, efforts will need to be put in place to convince employees of AI’s positive societal impact, the need for upskilling, and the benefits it could bring to jobs in the UK. Uplifting the reputation of AI and automation will need to be at the forefront of the government’s transformational strategy – especially as trust in the sector[4] hit an all-time low in 2020, according to the Edelman Trust Barometer.

Companies such as Microsoft have already taken some steps toward convincing the public in their efforts toward responsible technology by publishing six ethical principles to guide the development and use of artificial intelligence[5], with focus on working closely with employees and teams across the company to enable this effort. The government is also taking steps on this by launching an independent Centre for Data Ethics and Innovation that will advise on the ethical use of data, ranging from evaluating its social and economic impacts through to its fair and responsible application across businesses.

These efforts are a step in the right direction. Digital technologies are notorious for their fast evolution, with policies and regulations coming too late to resolve issues that have already left a negative mark on society and employment. Governments, businesses, and industry experts will need to work coherently and transparently when implementing AI, and work toward foreseeing issues with its implementation before they happen.

Building trust with the public will be key, alongside convincing the UK workforce of the benefits for upskilling, with a focus on fully communicating how utilising digital technologies would affect society and employment, both positively and negatively. Turning the UK into a global AI leader will be a challenging endeavour, but as long as we remember that having the capability to create technology is not all it takes for its success, realising all of its social and economic benefits are very much within our grasp.

Article links

[1] https://www.pwc.co.uk/economic-services/assets/ai-uk-report-v2.pdf

[2] https://www.gov.uk/government/news/new-strategy-to-unleash-the-transformational-power-of-artificial-intelligence

[3] https://www.ipsos.com/en-us/wef-artificial-intelligence-press-release

[4] https://www.linkedin.com/news/story/were-losing-our-trust-in-tech-5042340/

[5] https://www.microsoft.com/en-us/ai/responsible-ai?activetab=pivot1:primaryr6

For more information please contact:

Nadya Valkova
Research Manager, Corporate Reputation

Nadya.Valkova@Ipsos.com

What drives judgement of an organisation’s reputation?

An important focus for Ipsos Corporate Reputation is to help our clients understand what drives their reputation, in other words, what are the issues stakeholders think about when they make judgments about companies and organisations. In this article we will show what are the key aspects organisations should be mindful of according to MPs and business journalists who we regularly interview.

What exactly drives reputation will vary from one organisation to another – there isn’t a single, off-the-shelf answer to this. Feeding into an organisation’s reputation will be elements of what it does (for example, product quality and innovation), what it stands for (such as business acumen, ethics, corporate social responsibility and ESG performance), expectations and perceptions of the sector it’s in, expectations of business and industry, and other wider context issues. Furthermore, an organisation’s delivery against its corporate promise needs to match or exceed the expectations it creates.

There will be many tangible benefits that an organisation gets from building reputation value. It will, for example, help ensure your point of view is heard in policy making and regulation, make stakeholders more receptive to communications, build resilience to draw upon during times of crisis, and strengthen your employer brand.

Factors shaping reputation will vary from company to company, as reputation isn’t formed in a vacuum. It is shaped by perceptions of the sector, by the ongoing socioeconomic climate and policy agenda, as well as the behaviour, performance and communications effectiveness of a company. However, MPs and journalists have told us which issues they tend to consider when they from opinions about companies and organisations, which we’ll discuss here.

The most common consideration for business journalists when judging an organisation tends to be its financial performance. Often, this is seen to be a hygiene factor which an organisation needs before it can start to credibly engage with other issues. As one national business journalist states;

“If you haven't got that [financial performance] you can't do anything else. If you're not a viable business nothing else really matters. You can be as nice as you like to everyone else but if you're going to go bust, there's no point.”

Other common considerations today among business journalists include quality of management, treatment of customers, treatment of employees, and how it engages with journalists.

Journalists tell us that there are three key benefits for an organisation from engaging well with them; it allows journalists to get an organisation’s message across in the pieces they write, it could position an organisation in a more favourable light, and it helps journalist to report more accurately and less one-sided. As a regional business journalist explains;

“You're never going to stop bad headlines if things go badly but engagement on a number of specific issues such as remuneration, climate change, you know if I have a full understanding of a company's policy and why it's doing something, I'm much less likely to shot from the hip. If I have a full understanding of that company's strategy and why something has happened, I'm probably going to have a more holistic, a fuller appreciation of what that is rather than just writing "This is a bloody disaster"”

Indeed, between 2015 and 2017 we saw that engagement with journalists rose in importance as an important factor (see illustration below), and it has maintained its importance ever since. It’s also interesting to note how treatment of employees has become an increasingly important factor for journalists; as Covid-19 lockdown restrictions start to ease and companies announce their plans for their employees (a return to office working or a continuation of remote, flexible or hybrid working), companies need to be mindful of how their demands of employees might be perceived and how this might impact on their reputations.

Meanwhile, the factors that MPs most commonly consider when judging organisations are treatment of employees, track record, financial performance, social responsibility and environmental responsibility.

When asked to rate each aspect in terms of importance, treatment of employees has over time continuously been rated as an important attribute by MPs, while social and environmental responsibility is becoming increasingly important:

However, which aspects are of most importance does to some extent depend on which side of the House an MP sits on.

For Conservative MPs, a company’s track record and financial performance are the key considerations – and financial performance is far more commonly mentioned by Conservative MPs than Labour MPs. As one Conservative Backbencher states;

“Longevity is important, successful track record in either financial terms or stuff they sell or market. The reality is you don't really know about their CSR. The brand reputation is hugely important.”

Meanwhile, the key aspect for Labour MPs is treatment of employees (a far greater consideration among Labour MPs than Conservatives), followed by social responsibility. As one Labour Shadow Minister sates, the way a company treats their employees can be seen to be a reflection of the wider ethos of a company;

“First and foremost, in terms of the management and the whole ethos, the way they treat their employees… how employees are treated is very important to me, are they on proper contracts, are they paid properly, do they have security of employment, do they have things like pensions.”

In line with the views of Labour MPs, our most recent wave of the Reputation Council showed that corporate communicators commonly view employees as a stakeholder group which is increasingly influential on company reputations (legislators, such as MPs, are also seen to be increasingly influential by corporate communicators). Employees are no longer an afterthought for corporate communicators and are increasingly treated “much more seriously as a sophisticated stakeholder audience” and a trusted and credible source of information about a company.

Once organisations understand how key stakeholders form their opinions of them and their competitors, and how they perform against these criteria, they can then put plans in place to target communications more effectively – as well as identifying how (and if) an organisation needs to ‘course correct’ to deliver against stakeholder expectations. In terms of planning a communications strategy, further insight on how best to engage with MPs can be found in our recent post: Creating relevant and engaging comms with MPs for effective corporate planning.

Ipsos MORI can help you better understand what drives opinions about your organisation among various stakeholder groups, and the steps you need to take to bolster the way you are perceived to perform on those key attributes. We provide tailored advice through bespoke research and/or through our syndicated stakeholder surveys among legislators, journalists, business leaders and investors.

Want to know more about our MPs and Business Journalists syndicated surveys (or our wider bespoke surveys)? Get in touch with Ipsos MORI….

For more information please contact:

Guto Hunkin
Associate Director, Corporate Reputation

Guto.Hunkin@Ipsos.com