The Corporate World’s Comeback: Time to Seize the Opportunity

Seize the Opportunity

By Anna Saghabalyan and Paul Argenti

Since the start of the COVID Pandemic, the world’s attention was focused on the calculation of two sets of terrifying data: one was the infection and death rate and the second was the projections of an economic recession, at the time expected to be the worst since World War Two (WW2), and possibly, ever.1

Since the beginning of 2021 the vaccination rate allowed for a cautious prognosis for the end of the health crisis, while the worst predictions for the economic recession never came true. Moreover, the agile adaptation of businesses to the new reality may even support the possibility of a rapid economic recovery. History knows of many examples when after lengthy crises and shock, the economy has revived in unprecedented pace and scale. The quarter century that followed the devastation of WW2, is also known as the Golden Age of economic growth in Europe. Only 2 years after the end of the war, industrial production was back at pre-war levels at least in the victorious powers in Europe.2 Today’s more advanced corporate world with much more sophisticated innovation capacity has even better chances to lead the world to a new economic era after more than a decade of stagnation.

In March, an IMF report on the global economic prospects of 2021 suggested that GDP growth in most countries remains below pre-pandemic figures, however, economic recovery has been faster than expected. The global economy is set to grow 6% as compared to an October 2020 prediction of 5.2%. Among reasons for a better outlook, along with the advancement of vaccinations and fiscal support, the IMF highlights the continued adaptation of economic activity to subdued mobility.3 As we can see, businesses adapted quickly, and that adaptation, apparently has been perceived by the public as a sign of competence. And it looks like this may give the corporate world the public’s indulgence.

vaccine

While most crises that emerged in the 21st century from the Enron scandal in 2001 to the Financial Crisis in 2008, left businesses as the main culprits of the problems in terms of public perception, it looks like the COVID crisis was not only seen as unrelated to the possible impact of business conduct, but according to surveys, businesses emerged as the only institution that best addressed the crisis. The quick development of vaccines by pharmaceutical companies and rapid adoption of new health and safety measures by other industries were well noted and appreciated by society. The COVID crisis that was predicted to kill business, instead offered the corporate world an unexpected opportunity to rebuild what the corporate world seems to have lost decades ago –trust.

RepTrak, a reputation data and insights company revealed in April the results of its Global Scoring on the world’s 100 most reputable corporations, noting that the average reputation score of corporations (on a scale of 1-100) this year was almost 75, the highest since the first RepTrak 11 years ago. The organization notes, that a record number of corporations broke into the top 100 in a year of unprecedented crisis, proving that businesses have rigorously managed their reputation by adequate behavior such as relevance in leading the way in productivity, comfort, and safety, as well as ESG (Environmental, Social, Governance) leadership, as respondents increasingly value sustainability initiatives.4

The COVID crisis that was predicted to kill business, instead offered the corporate world an unexpected opportunity to rebuild what the corporate world seems to have lost decades ago –trust.

This certainly doesn’t mean that businesses now are overwhelmingly seen as the ultimate good, after being accused for decades of greed and the pursuit of profit at the expense of the well-being of society. However, the shift is there and interestingly, those traditionally accusing businesses of misconduct – NGOs, media and Governments, seem to be expected by society to sweep their own door first.

Edelman, a global communications firm that measures trust of four institutions, Businesses, NGOs, Governments and Media, concluded this year that businesses have emerged as the most trusted with an average of 61% of general populations in 27 countries trusting businesses as opposed to only 57% in the case of NGOs. Governments and the media are the least trusted with 53% and 51% respectively.5 In May, Edelman published an update to the January survey and the trend seems to have evolved further. For example, trust towards “my employer CEO” has grown even bigger than towards any other institution in the last 4 months. Since January, on the other hand, NGOs, Media and the Government have lost more trust as spokespeople, when it comes to information about a company, while the most trusted spokespeople remain company experts, followed by academics, peers, and employer CEOs.6

While the attribution to the success of businesses in rebuilding trust during a year of crisis is somewhat clear, the decline in trust towards NGOs may come as a surprise. However, this was something we had warned about in our 2017 research on the social responsibility of NGOs.7

Getting Ahead of the Traditional Rivals

For the last decade businesses have been grilled by NGOs and media, in most cases, for good reasons and quite successfully. The corporate world has been punished by low reputation and declining trust for years of neglect of their ESG conduct and for failing to adequately respond to critical public perceptions. But punishment by low grades is also a teaching method. And businesses in most cases and with the exception of a number of scandals, have learned their lesson to live under close scrutiny, while gaining better crisis management skills. One vivid example may be how quickly the corporate world’s reaction was to the rapidly developing Me Too movement, with more Fortune 500 companies hiring reputation management firms to pro-actively handle a possible issue and adopting robust anti-harassment policies and regulations.8 And those who have not been under the scrutiny of the same scale – NGOs, have lost vigilance.

In an article published more than 4 years ago, “Reputation at Risk: The Social Responsibility of NGOs” we, predicted that NGOs would start losing trust if they continued taking it for granted and if they pursued the “end goal justifies the means” attitude in their fight against businesses. The article covered the inefficiencies of Environmental NGOs in post-communist countries, but some of the recommendations could well refer to NGOs elsewhere.

In 2001, Edelman’s report was headlined “Rising Influence of NGOs” with a number of succeeding years respondents naming NGOs as the most trusted.  For most of the last decade NGOs were seen as the ultimate good, ethical, and trustworthy guardians against the unethical behavior of businesses.

This year Edelman has identified loss of trust towards NGOs in 11 out of 27 countries.

In our article back in 2017 we recommended that NGOs need to stop making statements that cannot be supported by facts and need to invest in learning. Edelman’s 2021 survey suggests businesses have significantly outperformed NGOs and everybody else in competence. Interestingly, businesses have almost reached NGOs in their ethicality. Considering, though that none are seen as highly ethical, NGOs, thus, appear to be in a pretty shaky position, emerging as overall incompetent and just somewhat more ethical than businesses.

Edelman’s 2021 survey suggests businesses have significantly outperformed NGOs and everybody else in competence. Interestingly, businesses have almost reached NGOs in their ethicality.

The decline in trust towards NGOs may be attributed to a number of scandals in recent years. For example, in the beginning of April this year, the UK Government suspended all financial aid for OXFAM in the wake of a sexual allegations scandal as OXFAM revealed it had suspended 2 of its workers in the Democratic Republic of Congo as part of an investigation into the allegations.9 OXFAM had only become eligible to apply for funds in March, after having been suspended for 3 years since the previous scandal in 2018, when OXFAM was accused of not only having had instances of sexual misconduct by employees during aid work in Haiti, but going as far as covering it up.

In another scandal last year, 51 women accused foreign aid workers of sexual abuse during the 2018-2020 Ebola crisis in the Democratic Republic of Congo. The allegations were aimed at seven U.N agencies and a number of NGOs including World Vision, medical NGO ALIMA, OXFAM and Medecins Sans Frontieres.10  But are the sexual scandals the only reason for growing mistrust?

In the search for the answer to the question, on whether NGOs more often help or harm, authors of a 2018 Washington Post article11 refer to their previous study.12 The study of several hundred academic articles on NGOs found that nearly 60 percent of those articles reported solely favorable effects of NGOs on development outcomes, while just 4 percent of articles reported that NGOs had unfavorable effects. The authors note that academic journals are notoriously unwilling to publish null results — those showing that intervention of NGOs had no effect. The authors of the study, however, argue that negative media coverage is due to media attention on negative events, while most interventions studied, nevertheless, provide small, favorable benefits to the communities in which NGOs work.

Interestingly, our article published prior to this research, not only highlighted null results but also warned against possible negative results of inefficient or uninformed interventions of NGOs for the communities. While negative media attention may be explained by a number of sex abuse scandals, the fact that NGOs have started to be seen as incompetent, may suggest that the issue is deeper than several sex scandals and may well be the result of longer evidence of inefficiency as perceived by stakeholders.

A mining project in Armenia we referred to in our 2017 article had proposed a joint PPP project to OXFAM Armenia in 2012. While the project was initially agreed upon with the local office, OXFAM headquarters then rejected it on the grounds that cooperation with a mining company, (no matter how ESG compliant), would cause reputation issues for OXFAM. The former Social Development Manager of the company, Nara Ghazaryan, reflects on the almost decade old failed cooperation attempt: “It was disappointing to see that an NGO that signed an agreement to provide much needed health awareness for rural communities, that the company was ready to pay for, canceled the project after a month of its onset, based on an arrogant assumption that there are industries that are just not good enough for cooperation.” Ironic, indeed.

Several windows open for businesses

The COVID crisis, seemingly, opened several other windows of opportunity for businesses. According to the Edelman survey, this year marked a record low in trust in all information sources and the trend even increased from January through May 2021. Employer media emerged as the most trusted source, while owned media is the only information source that gained even more (+3%) trust since January. Societies become more worried about unreliable information and see their own information and science literacy improvement as a significant priority. This opens a new opportunity for business as 53% of the respondents believe that corporations need to fill the information void.

business

The record low trust towards governments, identified by Edelman’s survey both in January and in May, may also be helpful to the corporate world. Interestingly, a McKinsey report on post-Covid recovery suggests businesses see Governments actions as a stumbling block. Overregulation and uncertainty over government actions both rank in the top ten complaints in the US National Federation of Independent Business’s most recent survey.13

Thus, if social and traditional media and NGOs were causing serious problems to the reputation of businesses in the last decades, and businesses see Government inconsistency as one of the main risks, both NGOs and media are now visibly losing credibility and Governments are hugely mistrusted by societies.

This, certainly doesn’t mean that businesses need to relax. For one, because according to the Edelman study, overall trust in societies continues to decline, and the winners of the contest are thus far only relative winners [best ski slope in Holland syndrome]. And secondly, because as we have seen from what happened to the NGOs, loss of credible oversight and scrutiny results in loss of vigilance and, eventually, loss of trust.

Trust is not only a reward but also a burden. While businesses, according to Edelman, are believed to have outperformed governments in addressing almost all aspects of societal challenges during this period, including driving economic growth and guarding information quality, the shift has put additional pressure on businesses. According to the May update of the Edelman survey, expectations for businesses to lead on societal challenges have grown along with trust, with the highest- 60% of respondents in 14 countries believing that their country won’t be able to overcome challenges without the help of businesses.

Businesses will need to carefully manage the growing expectations and to make sure the trust re-gained in a few decades of “bloodshed” with NGOs, media, and the Government is maintained. Here are a few tips on how we think it can be done.

Show care, speak from your heart

Businesses will need to carefully manage the growing expectations and to make sure the trust re-gained in a few decades of “bloodshed” with NGOs, media, and the Government is maintained.

For years businesses were seen as profit-making machines with no empathy towards societal needs. The COVID crisis seems to have somewhat smoothed these perceptions. Society has appreciated business’s effort to accommodate the needs of its stakeholders.  This should continue after the crisis. Deliver not just what is expected but what has long been unexpected from corporations- empathy and care. Be passionate. That’s a space that has long been occupied by NGOs and here’s a chance to take it over. Moreover, businesses need to think and communicate like an NGO, showing care and acting to prove that they actually do. An example of such a communications approach may be Blackrock asset management firm’s CEO Larry Fink’s “letter to CEOs’, where he called for more action on behalf of businesses on climate change. The letter was perceived as an example of passion and purpose driven leadership.14  Businesses, however, need to be alert on not just following the trendy talk but to make sure the debate is deep and informed, challenging the myths, not exacerbating those. Societies expect not just passion but also competence from businesses.

Be the adult in the room

During the COVID crisis as people were getting frustrated by the inconsistent messages and policy changes coming from governments, businesses performed far better in providing information and reliable data to stakeholders. Capitalize on the trust gained. People are hungry for reliable information and scientific data. Media has failed to improve the quality of information even in the period of January-May 2021, while the mistrust towards governments has even deepened. Become the adult in the room, show guidance to your communities and stakeholders in matters that you have expertise in. Support vaccination advancement, provide data, and as people are consistently worried about their science literacy, help navigate in the ocean of confusing information. Bill Gates’s persistence in promoting the vaccination agenda, despite a backlash from anti-vaxxers may be a good example, as the world advances rapidly on vaccination and death toll decreases in most-vaccinated countries. Moreover, the anti-vaccine and anti-Gates conspiracies have even been mocked by young social media influencers and comedians.15

Lead the ESG debate

ESG

People are increasingly worried not only about their jobs and health issues but also about global threats like climate change that appeared to be on the top list of fears according to the surveys. While ESG becomes increasingly important on stakeholders’ radar, people trust businesses more than governments, NGOs, and media to provide competent guidance. Businesses have the unique opportunity to shape the agenda. However, businesses have to show courage to lead a sincere dialogue. There is increasing evidence of bigger challenges on the road to a ‘net zero’ goal than expected by NGOs, climate activists, and media. This includes growing skepticism of the efficiency of quick divesting from fossil fuels16,17, the challenges with the supply of metals and minerals needed for green energy18 as well as criticism of the Governments of European countries of hypocrisy in setting unrealistic decarbonization targets, only to export their emissions abroad.19,20 Businesses need to be proactive in managing unrealistic expectations instead of giving in to a temptation of setting trendy goals and raising expectations even higher. A recent example is a court ruling in the Netherlands against Shell, where the court decided that Shell, that previously committed to ambitious net zero emissions by 2050 should cut its emissions by 45% as early as by 2030.21  Shell is set to appeal the ruling against the company upon charges brought in by a number of NGOs. Businesses need to team up with scientists and communicate more openly on the need to separate trendy delusions from realistic goals. This is not to say that they do not need to set ambitious goals to tackle climate change. But the declining trust towards NGOs, media and the Governments, who have already over-promised on the “green transition” goals, puts additional pressure on businesses. They need to provide reliable data and commit to achievable goals in the fight against climate change. Being proactive and sincere in voicing the problem and offering a sober solution, rather than waiting to act upon NGO noise or Government regulation, will keep businesses ahead of both the noise and the regulation and gain more trust as a bonus. 

As a Conclusion: Play in a Team

Last December, the CEO of Innovex, an oil and gas company, wanted to offer a Christmas gift to company employees and ordered 400 jackets from North Face (an American outdoor apparel company), with an Innovex logo on them. North Face was ready to sell the jackets but refused to put the logo of an oil and gas company on its product. The obvious explanation was- it would negatively affect the apparel company’s reputation. The CEO of Innovex hit back, with a public letter to the North Face CEO where he named North Face’s own products made from petroleum. The letter went viral, with other oil industry related and unrelated entities and individuals pointing to the hypocrisy of the apparel company selling, for example, expensive ski equipment to consumers who would then use fossil fueled transportation to fly to expensive ski resorts. The carbon footprint of North Face looked quite impressive under this unexpected backlash campaign.22

The moral, here, we believe, is broader than the hypocrisy or successful communications response from Innovex. Businesses will continue to be under close scrutiny of society. While climate change is clearly expected to dominate the agenda for the coming decades, the pressure on the corporations from governments, NGOs and media will clearly continue to grow. To manage these expectations successfully and to be able to maintain the promising achievements on the trust regained, corporations will need to team up and support each other in leading a meaningful debate. There is hardly any industry whose carbon footprint wouldn’t look gigantic if traced all the way down the supply or up the consumption chain. But so is society’s as a whole, with the over-consumption of the world’s richest countries responsible for the lion’s share of GHG emissions.23 While honestly addressing the responsibility of the corporate world’s share, corporations are in a unique position to push for holistic and meaningful solutions. Remember, that right now, at least, society thinks corporations are far more competent than governments, media and NGOs, that have thus far driven the debate. Businesses need to carry this precious gift from society with utmost responsibility and with the benevolence society has generously attributed to businesses.

About the Authors

Anna Saghabalyan

Anna Saghabalyan was Director of Communications for a Canadian mining company working in Armenia from 2012-2020. Prior to that she was Head of Communications for an Armenia-based NGO, The Civilitas Foundation. She spent 10 years as  senior correspondent and editor at RFE/RL (1998-2008). She holds a Masters in Corporate Communications from the Rotterdam School of Management. Her thesis on the impact of NGOs in post-communist countries won the Shell Netherlands Award in 2014.

Paul Argenti

Paul Argenti is Professor of Corporate Communication at the Tuck School of Business at Dartmouth where he teaches Corporate Communication, Corporate Responsibility, and General Management.

References

  1. https://www.worldbank.org/en/news/press-release/2020/06/08/covid-19-to-plunge-global-economy-into-worst-recession-since-world-war-ii
  2. https://voxeu.org/article/recovery-and-reconstruction-europe-after-wwii
  3. https://www.imf.org/en/Publications/WEO/Issues/2021/03/23/world-economic-outlook-april-2021
  4. https://www.reptrak.com/news/2021-global-reptrak-100-corporate-reputations-esg-brand/
  5. https://www.edelman.com/trust/2021-trust-barometer/press-release
  6. https://www.edelman.com/sites/g/files/aatuss191/files/2021-05/2021%20Edelman%20Trust%20Barometer%20Spring%20Updat.pdf
  7. https://link.springer.com/article/10.1057/s41299-017-0013-8
  8. https://www.cnbc.com/2019/01/29/fearing-metoo-allegations-companies-turn-to-reputation-managers.html
  9. https://www.bbc.com/news/health-56670162
  10. https://www.reuters.com/article/us-congo-ebola-sexcrimes-unitednations-idUSKBN26M3ZY
  11. https://www.washingtonpost.com/news/monkey-cage/wp/2018/12/04/a-few-ngos-are-getting-a-lot-of-bad-press-whats-the-overall-track-record/
  12. https://www.sciencedirect.com/science/article/abs/pii/S0305750X18302456
  13. https://www.mckinsey.com/industries/public-and-social-sector/our-insights/america-2021-rebuilding-lives-and-livelihoods-after-covid-19
  14. https://www.csrwire.com/press_releases/719731-key-insights-blackrocks-annual-letter-ceos
  15. https://www.newsweek.com/king-bach-raises-bill-gates-vaccine-conspiracy-again-comedy-skit-1590027
  16. https://www.bloombergquint.com/wealth/bill-gates-in-new-climate-book-talks-about-finally-divesting-from-oil
  17. https://www.reuters.com/business/energy/unlike-iea-rystad-energy-sees-need-hundreds-new-oilfields-2021-05-28/
  18. https://www.bbc.com/news/science-environment-57234610
  19. https://environment.leeds.ac.uk/see/news/article/5316/nearly-half-uk-carbon-footprint-is-from-overseas-emissions
  20. https://www.dw.com/en/opinion-germanys-climate-activism-is-full-of-hypocrisy/a-48292725
  21. https://www.reuters.com/business/sustainable-business/dutch-court-orders-shell-set-tougher-climate-targets-2021-05-26/
  22. https://www.newsweek.com/true-face-north-face-1576659
  23. https://www.bbc.com/news/science-environment-56723560

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