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The Power of Transparency

Remarks By: David R. Drobis,
Senior Partner/Chairman
Ketchum, 2nd International APECOM Conference March 1, 2002 Lisbon, Portugal

Good morning.

I’m pleased to be here to share my thoughts on the profound changes that are sweeping our world and how public relations can and must play a crucial role in helping to solve some of the most pressing problems of our time.
Today, we live in a very interconnected world – and Portugal offers a good example of what I mean. As a member of the European Union and founding member of the European Free Trade Area, Portugal has access to and benefits from a market of 360 million consumers – exceeding that of the United States. And typical of other developed nations, your economy is fueled by a diverse group of industries and companies representing manufacturing, construction, agriculture, information technology and finance – to name just some. You have active trading partners both within and outside the European Union.

But just as countries and companies benefit from the rising interdependence of our world, so too are they affected by disruptive events and trends that years ago might have been contained in one pocket of the globe. Indeed, in my view there is a great convergence occurring today in terms of the issues, challenges and opportunities that our companies face around the world. The similarities are striking. And this is a direct result of globalization – the globalization of markets, of technology, of cultures and, yes, of terrorism.

For Americans, the idea that we live in a global community wasn’t widely held – until September 11. On that tragic day, people in the U.S. truly realized that they share a world with many others, including people and forces hostile to our values and our way of life. And in the weeks and months that followed people everywhere came to understand that the events of September 11 represented not just a threat to American security, but to global security as well.

The topic “globalization” in all its aspects is more widely discussed and debated today than ever before. As you know, it was the major theme of the ICCO Global Summit, held in San Francisco last November, where we explored the pros and cons of our increasingly global world – or global village, if you like – where oceans become ponds and continents shrink together enabled by amazing advances in information technology.

It is important, I think, to set some context around globalization and to recognize some fundamental truths. We all know that globalization, as a trend, was in peril well before the terrorist attacks. Starting with the riots in Seattle in November 1999 and extending to Genoa last year and more recent venues, it has been clear that globalization is not a forgone conclusion. Some respected observers have suggested that globalization may, in fact, be in its dying days. I, for one, don’t believe this. But there are many such doomsayers.

In an article published in the Financial Times after September 11, Stephen Roach, the chief economist of the investment company Morgan Stanley, advanced the idea that disruption to the international flow of goods and services amounts to a “terrorist tax” that will significantly raise the costs of doing business for multinationals and, combined with anti-globalization sentiment, “may bring about – according to him — the demise of globalization.” In his argument, Mr. Roach makes a comparison to the wave of globalization that occurred during the 1920s, only to be brought to an abrupt end by the Great Depression and a renewed outbreak of war.

The real tragedy in this scenario is that globalization, while flawed in some respects, is largely a force for good, benefiting business and the world at large. As Joseph Nye, dean of Harvard’s Kennedy School of Government, wrote recently: “The cliché that markets always make the rich richer and the poor poorer is simply not true. Globalization, for example, has improved the lot of hundreds of millions of poor people around the world. Economic gaps have diminished, in part, because of global markets. No poor country, meanwhile, has ever become rich by isolating itself from global markets.”

This view was echoed by United Nations’ Secretary-General Kofi Annan in his speech at the World Economic Forum in New York in February. He said: “I believe that globalization, far from being the cause of poverty and other social ills, offers the best hope of overcoming them.” And then he addressed the business leaders directly: “But it is up to you to prove the perceptions wrong.”

What the Secretary-General and other observers, including myself, believe is that the private sector is in a state of crisis, even if many companies aren’t aware of it yet themselves. Talk to the CEOs of the leading global companies and most will tell you that they cannot remember a time when confidence in business was at such a low level. A recent opinion poll conducted in Europe, for example, found that the general public trusts pressure groups such as Amnesty International and Greenpeace far more than they do business, government and the media. The findings of the poll were published widely in such business media as The Financial Times and The Wall Street Journal and upset many business observers.

It’s important to understand more fully what’s behind this crisis in confidence because it has a direct bearing on how we as communications experts should be counseling clients, our companies and, more specifically, on the focus of my presentation – Transparency.

First are the widespread concerns and protests around globalization, which I just mentioned. At the core of the anti-globalization movement is the belief that globalization is a codeword for corporate exploitation. While these claims are largely unfounded, it is true that globalization, while generally a force for good, has had structural problems that have resulted in much of the world being passed over by trade and development. And multinationals, rightly or wrongly, are the obvious target.

Then came the recent scandal involving Enron and Andersen, once two highly respected U.S.-based companies. Shareholders lost billions of dollars and employees most of their pensions when Enron, one of the world’s largest energy companies, filed the largest corporate bankruptcy in U.S. history. Enron had for years been overstating its profits and understating its debts with approval by Andersen, a leading audit firm. The scandal has launched a series of direct investigations into Enron and Andersen, the accounting system in general and even into the White House’s involvement. The U.S. government is all over this one. Moreover, it has had the effect of raising the general level of scrutiny in business and government – everyone is scrutinizing everyone. And the ramifications and implications are being heard around the world.

Reinforcing my earlier point, in years past the Enron scandal might have been an isolated incident and might have gone unnoticed in other parts of the world. Today, however, a business failure of this magnitude can have wide financial repercussions – as this case has shown. Many international companies have been negatively impacted because of ties and business dealings with Enron and Andersen.
But Enron is more than a business failure – it appears to be a failure of business ethics. And the effect has been to amplify the global public’s mistrust of business in general. And that’s bad for companies – everywhere, including Europe and, yes, Portugal.

And once you add in the economic downturns being experienced in the U.S., Europe and elsewhere, you have a very fragile business climate today.
Recognizing the current crisis, the chief executive officers of 36 global companies issued an unprecedented document at the World Economic Forum. It’s called “Global Corporate Citizenship: The Leadership Challenge for CEOs and Boards.” This report, essentially a call to action to business around the world, outlines the strategic imperatives that CEOs, their boards and management teams should pursue to improve their companies’ mark on society and their relationship with stakeholders.
What should be so exciting to people in this room is that one of the areas identified by these business leaders as being a critical success factor is transparency. Their statement reads: “Build confidence by communicating consistently with different stakeholders about the company’s principles, policies and practices in a transparent manner…”

It is amazing to me how many businesses talk about the importance of open communications, but do so little to truly operate in a transparent fashion. And let me be clear – transparency is not about compromising trade secrets or commercial confidentiality. It is about communicating openly, directly, honestly and regularly to a broad range of stakeholders – including employees, investors, business partners, media and the communities in which a business operates.

More than any other time in the history of public relations, we are faced with an unprecedented opportunity – to show the value of what we do. In light of September 11, of Enron, of the new world order, public relations people must take greater responsibility for getting involved in helping to develop and shape the business practices that we also are responsible for communicating.

Public relations is at its greatest value in crisis situations – in critical periods. Corporations nowadays are operating in constant crisis mode. Crisis is routine. Management today is confused, stunned – they’re looking for answers and need solutions.

And of all communications disciplines, we are in the best position. We have the total view of the corporation – and all of its audiences. We understand what motivates them – how they interact. We know their preferred modes of communication – what messages will resonate most effectively with them. It is our responsibility to make sure that we are providing good intelligence to management so they understand what their stakeholders are thinking about — and how they will respond to messages and policies.

Management teams are under unprecedented pressure. Employees are anxious, uncertain, skeptical. Shareholders feel betrayed and are nervous – they don’t trust anything and are questioning everything. Consumers, meanwhile, don’t believe much of what they see and hear. On top of all this, management struggles with downsizings – doing more with less – and tighter budgets.

This is our opportunity to take leadership, to demonstrate the power and value of communications, to show the importance of good messaging based on our understanding of the target audience – what they know and will accept. We need to be the barometer, to provide good information and knowledge and then to measure awareness and attitude changes. We need to provide communications solutions – not just good publicity.

For many years one term has seemed to define the purpose of our industry – “relationship-building.” By working with our clients to build relationships with stakeholders we helped influence opinions and perceptions that, combined with other activities, helped our clients achieve their business objectives.

Today, however, “relationship-building” is simply not enough. The real objective needs to be “trust-building” and, in our view, the basis of trust-building is transparent stakeholder communications. So what are some of the strategies and tactics that organizations should be considering as they evolve into transparent organizations? Let me offer the following recommendations:

First, there needs to be more effective employee communications. The employee is the ambassador for the brand and your corporate reputation. Too often companies neglect to inform and dialogue with their own people – their most important assets. And in the worst cases, employees are the last to learn about important information affecting the company, their work and jobs. We recommend to clients that they establish procedures and forums to communicate with employees, including regular email updates from senior management, quarterly “town-hall meetings” so employees can interact directly with top management; and the use of technologies such as company intranets and community pages to share information. Employees can no longer be ignored as the critical route to the publics at large.

On the external side, an important area for strategic focus is public reporting. Some of the most established global companies have been criticized for publishing earnings reports, annual reports and other public documents that are difficult to read, incomplete and, in the worst cases, contain misinformation. This area presents enormous opportunities for companies to convey their messages and build trust among stakeholders. Some of you may be familiar with the new Global Reporting Initiative whereby companies are creating comprehensive reports that go beyond their financial performance to include activities and progress related to community work, philanthropy, the environment and other areas.

A third area for strategic counsel is media relations. A mistake that many companies make is to view media relations as a crisis-management tool, to be used only in a crisis, or as publicity platform. Media relations must be seen a strategic management tool. Also, I would like to challenge the long-held belief in our profession that media only represent a conduit to audiences. While that’s mostly true, media should also be considered a target in their own right. Viewed this way, companies will begin to build on-going, trusting relationships with key media, sharing both good news and bad. And I’d like to offer a tactical recommendation here – editorial board meetings, in our view, are an extremely effective way of reaching the media and sharing information.

Many companies have little understanding of how editorial board meetings work. While there are some regional differences, what we tell our clients is that more and more media around the world are open to a visit to their editorial offices by the senior management teams of companies. Typically, the media outlet will be represented by several key editors and reporters, providing a great forum for companies. The presentation or discussion should focus on critical business and even socio-economic issues, particularly those that the media has shown an interest in. It will keep the presentations from being self-serving. This is a great way for us to strengthen our relationships with the key media that affect our organization’s interests.

A fourth area for focus is integrated investor relations. In too many organizations, corporate communications and marketing communications are separated from investor relations. This means that oftentimes the financial community is not receiving critical corporate and brand messages and, conversely, corporate communications may be not be delivering consistent financial messages. Counsel your clients and companies on integrating these and other communications functions, including government affairs and community relations. Communications must be integrated and consistent across the organization.

Lastly, there is now increasing pressure on companies to dialogue with non-governmental organizations and activist groups, which, as I mentioned, have considerable credibility and clout nowadays. The NGO community has even become an important seal of approval for companies and brands. As the Financial Times noted in recent article: “A new type of relationship is emerging between companies and NGOs, one where NGOs act as certification bodies, verifying, and in many cases permitting the use of their logos, showing that products and services are being produced in socially responsible and environmentally friendly ways.” Among the NGOs that are engaged in such partnerships are Greenpeace and the World Wildlife Fund.

Think of ways that your organizations and clients might open up the channels of communication with relevant NGO groups to build understanding. These might include collaborating on research projects, convening forums to discuss critical issues, or appointing NGO representatives to company advisory panels – something that more and more U.S. companies are doing. Perhaps start with a vulnerability analysis and audit prior to drafting a strategic plan.

At Ketchum we’re taking our role in helping to build global transparency very seriously. And not just with the private sector. Last year, for example, we were named the official communications consultant to the United Nation’s Global Compact – a corporate citizenship initiative launched by Secretary-General Kofi Annan to build partnerships and transparency between business, NGOs and government. We’re also advising the U.N. in other areas. Later this month, for example, we will be counseling the U.N. on raising awareness and understanding around an international summit — Financing for Development, taking place in Monterrey, Mexico. Finally, just last month, we announced the official launch of our global Corporate Social Responsibility specialty area, which will counsel clients on corporate social responsibility and good corporate citizenship. We believe strongly that in today’s and tomorrow’s world, the successful global companies will be those that recognize that financial and commercial success are driven by respect for ethical values, people, communities and the environment. In this way, corporate social responsibility is not an optional add-on, it is an essential driver of business success. On Monday, I will be in Madrid to announce that we will be setting up a corporate social responsibility specialty area in that office, believing that it is an issue of critical importance to European corporations who are looking for ways to distinguish their organizations.

My objective today was to present what we believe are the most important changes under way in today’s world and how public relations is powerfully positioned to take a leadership role. I hope I have accomplished what I set out to do and, in the process, stimulated some of your thinking. And in the spirit of transparency, I would be delighted to take questions.

Thank you.