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today I'd like to welcome be told tenish and he's a management professor here at
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Wharton and also Cynthiana Darabont Oh who is from New York University and she's also a management professor and
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they're here to talk about their new research thank you for dropping in to chat with us much appreciated and the
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research is about corporations who are interested in limiting reputational damage when they come under attack by a
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protest group or shareholder group I'll let you explain exactly which groups
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companies need to be worried about but what they can do to limit the reputational damage and one of the
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things is to work on your reputation before you come under attack because that that encourages friends and family
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shall we say friendly shareholder groups and community groups to to come in and support you and come to a company's
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defense so let's start I think since Janna with an example of a company that
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may have done it right or done it wrong so viewers can get an idea of exactly what we're talking about so Steve thank
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you very much for for having us here we're always had very happy to talk about about research and this particular
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piece of research this actress so you I think if summarizes really nicely but i do want to point out that we're we're
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asking a fairly straightforward question what happens to companies when when they're faced with with a situation
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where a critical event and it can be a court decision it can be a negative news report sort of from an environmental
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organization what happens to to the company in such moments how do their shareholders response and how their
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circle the response after after after these events you see the single news all the time you see it with uber and i
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would probably use uber as a sort of an example of a company that's trying to
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expand internationally very very quickly and because of the pace of its international expansion it doesn't have
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the time and the resources to engage with every community that it affects and with every government and every
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regulator in every country so every single time there is new story about uber it's usually sort
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of surrounded by a lot of negative reactions from other stakeholders who have something negative to say about
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uber as well as stakeholder reactions who from cyclers who have something positive to say from consumers who are
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very happy with a new product and so on companies that you know companies that do this well you don't see in the news
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as much but there are companies of course I do this well erbium being the indo shared economy space is a good
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example ikea when in the 90s it faced a number of allegations of child labor being used in itself by one of its
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suppliers in india it responded it took its time to work with NGOs and with UNICEF to understand the problem and
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then put in place sort of long-term solutions to to make sure that the children who are you know the
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stakeholders that they cared about whatever they do that is in the best interest of the children so just wanted
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to ask so I believe we're talking about a situation where a company actually is
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doing things to make it right as opposed to just taking a public relations approach where they're just saying the
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right things yeah it's very much about that's what it takes to build up the
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relationship with stakeholders it's not enough just to put out a glossy press
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release to have a pretty sustainability report you have to really engage the stakeholders in fact some other research
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show we were talking about today really gets into the nuts and bolts of how you build up that relationship but it's it's
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a lot more than a press release it's a lot more than a check at some deep long-held interactions so maybe a short
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summary of what the research looked for and what it found would be interesting to hear now well I'll give you the
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nutshell version which is it's worth investing in relationships because once
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you have a strong positive relationship once you have a friend from a stakeholder that friend is going to
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stick up for you so when you're attacked when you're facing a down day when
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someone's coming after you you're not going to be first in front of the microphone ideally your stakeholders
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that I kias say twas Save the Children in ideas case that since he talked about they're the ones defending you against
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the allegations of a human rights abuse the community members are talking about how its are mine it's our factory we
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don't want to shut down so we're getting someone else in front of microphone to
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be what one could call an upstander or an advocate for the company so is the lesson that that you want to do this
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spade work ahead of time I mean I get that that's the lesson but do you talk
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about how to do that spade work or you're just saying you need to do the spadework figure out how to do it in
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this particular paper we we take these relationships as given all right so we're saying we're comparing firms that
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have good relationships with their stakeholders and with firms that don't and we're doing this on the individual
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stakeholder level so we're looking at every single stay cold and the stakeholder can be a local community the
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stakeholder can be an NGO or an activist group it can be a mayor governor a regulatory agency so we're looking where
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we found a way to to measure their perceptions of the company using newspaper report so we essentially coded
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22,000 articles about 26 minds around the world in 20 countries around the world and for each of these minds we
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have a very very detailed timeline of which stakeholders spoke about the firm or took action against the mining firm
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and what exactly they did is it an act of cooperation or is it an act of conflict and using this that timeline we
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show that stakeholders that with with whom the firm has built good relationships in the past or though
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these are the stakeholders that when something bad happens when a negative court decision comes about they're gonna
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you know stand up and speak to defend the firm because they they see this as a good firm whereas the stakeholders with
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whom the firm has a really bad relationship are going to use this as an opportunity to reiterate their
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opposition and before you know it you have sort of a series or a chorus of voices for firms have who have really
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bad relationships with their stakeholders you have a chorus of voices uncoordinated voices but what the public
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hears in the media is this sort of chorus of voices all speaking negatively about the firm and that's how you know
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that's the making of a crisis in in in today's world so are there a follow-on
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it now just in the second part of the paper we show that it's those courses of
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negative opinion that contribute to a collapse and shareholder value so we can look at a similar set of critical events
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160 in total and the ones in which you see this negative course of opinion are the cases and which shareholder value
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collapses the cases where you have the upstanders where you have the stakeholders speaking
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on your behalf the same degree of negative opinion at the onset doesn't translate into a collapse and
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shareholder value so it's not just this is a good thing to have it's a nice to
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have it actually contributes to the protection of shareholder value so that's obviously a key takeaway and as
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you were just giving us another one are there others that that would be sort of bullet point key takeaways from the
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paper that that we could talk about so to me it's really sort of the benefits
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of of stakeholder engagement and doing this in a strategic and systematic way of sort of the same process that the
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firm would apply to managing its relationships with suppliers and employees and customers need to be
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applied to managing much broader set of stakeholders including the local communities the activists and NGOs and
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the government sort of governments a different level so that's one one big big takeaway because you know if you if
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you manage to put in place these Goods take all the relationships you prevent the crisis and the best part of managing
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the crisis is to not have one at all but I think another one that was to me to me
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very interesting is how in today's sort of era of increased transparency or information availability you don't need
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to have explicit coordination among stakeholders to end up with a social movement against the firm and here's
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what I mean by this if you start with a court again- court report these things happen you know things i think the
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things get litigated and there's a decision if there's a negative decision
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against the firm then you might actually have a local protest in the local community you might have the mayor or
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government speak out against the firm you may have broader mobilization by by activists and these different
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stakeholders you know they never coordinate it they never you know they never got on a conference call or using
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an email distribution list what happened actually they were using information available in the public space in the
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media to social media in the soul and the social media force to synchronizer their reactions and these independent
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reactions all started to sort of sound like a concerted voice against against a company and at the same time I imagine
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social media can also be that early warning system the canary in the coal mine right if companies are monitoring
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it and they can see what some problems are that might be brewing the kids I'm a
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chance to go in and fix them not just sort of PR them but to actually say maybe we need to be doing some work in
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this area exactly i think one of the manager will take aways is the need to invest not just in the relationships but
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understanding your stakeholders upfront and so you need to gather that data whether it's i mean in other work we
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argue about the importance of actually meeting and talking and building these relationships within person contact but
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monitoring them on social media and in the print media being aware of what they're saying and what drives their
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behavior is obviously very important so save yourself a headache but more than a
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headache or in addition to a headache save yourself a savior stock from taking a big hit right you know again invest in
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these relationships the same way you invest in physical capital the same way invest in human capital invest in
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relationship capital and you talk in the paper about the value of information signals which i think you've been you're
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sort of talking about here but is there something specific to say about these information signals that that you
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haven't already covered here so they you know they have been in other research by
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other scholars has shown that is our information you know information signals coming from the medium from cycle of
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reactions are important to managers because they can foresee a crises are important to investors because again
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they can foresee some problems to the future cash flow of the firm we show with this paper that they're important
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to two stakeholders to you know to come to synchronize the reaction in the way that doesn't require coordination
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explicit coordination among them but i think you know if we want if if i were to push that to a managerial implication
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i would say to managers and their and their teams it's really important not to
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wait until they see something already kind of coming together and forming like a social movement they should they
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should really understand that again to in today's world almost any and even tiny statement any action can easily
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escalate into something much bigger into a broader crisis because of this time the dynamics that we observe in our
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research i think just to add there are two different ways these negative these critical events can ask
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and and both of them I think catch managers by surprise one is that when you have the allies it's not just that
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your allies discount the negative information they can actually rally to your defense so it's really worthwhile
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having them it's not just that they say oh this doesn't matter I don't believe
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this who are these people making these accusations they'll actually stand up
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and defend you so it's it's more than discounting the information signal it's
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reacting to it positive reinforcement and on the other side negative information is since since it was
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pointing I can really set off this cascade so it can be a lot worse than the initial news story it can blow up
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and spiral out of control when you don't have the relationships what company
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failed in all of this and can you think of a good example where was it went really south and and could have been
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avoided in other words there's one thing if they were doing some things that are
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going to be perceived by the public as negative and there's no way to spin that
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really but but maybe it was really a little bit miss perceived by the public in some way and and they missed the
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opportunity to I think I heard you say as we're chatting ahead of time to the
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time for crisis management is a year before the crisis right can you name names um I would use to example so I
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brought up uber a little bit at the beginning is something that I'm doing in
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in current research ongoing research and I think uber will defame defend the speed of its international expansion
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based on the business model you know they need a lot of drivers on the road in order to make the riders happy they
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need a lot of writers to keep the drivers happy and it's it's that need for support of critical mass on both
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sides that that explains the speed of their expansion and because they're doing things so quickly they don't have
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the time to build this relationship relationships take time right between people as well as between companies and
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their stakeholders and so this is you know this is this Boober is an example of a company that's been banned in a
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number of if in hundreds of cities around the world because they they didn't put themselves in a situation to
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to be defended by by those who have a lot to gain including the drivers who joined uber
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by those who have a lot to and the writers who are happy three years over it as a result their market their
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potential market capitalization i think is really plummeted I mean this is not a
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real impact if you look at what the the estimates were uber was going to be worth more than all the automobile
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companies it was gonna be worth it more than all the airlines that was based on uber being successful in China and India
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and Germany and France and England and it's not happening and so they can no
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longer justify that market cap this is it's really material to future to current owners potential future
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shareholders to the future of this company that it's had these missteps up front would they have been able to so
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developing relationships takes time and if they had invested that and taken the time with what competitors have gotten a
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jump on them I mean it's sort of a you know how do you what can you do your cut
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your kind of going to like take a hit in some way either way if you talk to someone from uber they will always say
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that this was the only way yes right because they needed to be the biggest player on the more in the market and
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they didn't have the time to you know now first mover and all that first mover
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everywhere and the biggest first mover and a result of that hopefully the biggest player in the market I you know
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and because of that I didn't have the time to to build these relationships is
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it going to backfire I think very much so is it likely that that some of the competitors who maybe took things a
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little slower and build these relationships are you know they were second in the market but they are
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understood they observed the problem the problems that uber was having and try to
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address them by lobbying the regulator's a little bit more and talking to the
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taxi drivers who are affecting and seeing how they can actually throw find a solution that works for everybody I
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don't know it's too soon to tell right it's it's with uber it's really true to
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some really interesting I think moving out of the new economy let's look talk
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about energy companies right this boom in the fracking industry that since he's
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also studying in some ongoing research these are companies that made the play to go quickly to expand gas supplies
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here in Pennsylvania and elsewhere around the world and they're all these estimates this is we're going to
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revolutionize the industry but there you know you drive through these towns and you see these protests you see you know
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no fracking here stop fracking don't build this pipeline you see concerns and
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you see reservations well who went slow with some of the alternative energy suppliers whether its
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wind solar and others who are moving more incrementally building relationships with government officials
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building up support for wind farms for solar arrays and I think you're starting
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to see the future of the energy industry change a little bit in terms of what role is fracking in a play versus
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alternative energy one of them was definitely move fast let's own this but now it's worked in a few states in the
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United States hasn't worked elsewhere it's not working in too many other
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countries of the world and alternative energy continues to kind of be the tortoise that's moving steadily ahead
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and we'll see which way it plays out over the next five or ten years oh that's really interesting um I just
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wonder if there were some you know there were some legitimate concerns about that
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industry that that I think maybe when ignored would would you agree with that and where you know I mean environmental
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considerations that that that they either didn't address or or or didn't
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know how to address well I think they could have addressed them through let's
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let's talk to the government's about what a reasonable the standard is for
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water disposal and what has to happen to the water that gets pumped out of the ground what are the standards for it to
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be disposed in the cities what are the standards of treatment that are going to be required and they chose to take a
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little bit more of a cowboy mentality and you know that's the city's problem
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it's not our problem we're following the law we're not giving up any information
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on what's in the water and that raised people's concerns and skepticism it
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would have taken more time to decide what a reasonable water treatment standard would be to build up state
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level and national level regulation it would have created more transparency more oversight I think the industry
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would be a lot healthier today interesting that's that's a very interesting example what misperceptions
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did the study dispel the I think one of the biggest ones this something that I see a lot in the industry is people
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think that building these relationships with the local community or with NGOs there's a symbolic actions right we're
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very limited effects on the compares operations or on the stock price and I think we're really
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providing evidence for the fact that it's really the other way around that these things are incredibly valuable
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both in terms of allowing the operations to go ahead on schedule and on budget and as a result of that also very
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incredibly valuable in serving the industry by looking for the stock price for the company itself for shareholders
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it reminds me of something you said where I mean in the environmental area again maybe an example is what the term
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greenwashing right so you have a company that they're really not taking care of
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the environment the way maybe they should or the way that that the community and a lot of other folks think
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they should but they'll do the other have a sustainability officer and they'll plan a few trees and they'll do
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a couple of symbolic things but you're saying that's that's not gonna cut it
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yeah it was really important we're not measuring something that's in you dating
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report whether they have a sustainability report whether they meet some reporting standard we think what's
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important is what stakeholders think about the firm and we're measuring that
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and so the key is not do you have a report do you meet a standard do you get five stars it's are there people will
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understand for the microphone for you when you criticize do you have that network of relationships with community
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leaders NGOs government officials that's what matters that's what we're turning
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draw attention to its not greenwash its substantive real relationships do the right thing in a way do the right thing
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for the right people yeah and to build off that so this is in a mining industry around the world and there's a lot of
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examples particularly in parts of Africa where mining firms which are in the business of building things have build a
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lot of schools and a lot of health clinics they tend to be empty because they don't think you know sufficiently
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forward to stuff them as well and these become targets of community protests they you know on a few occasions have
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actually been bombed the schools that you see you know you know CSR report has been bombed a few years later because
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the community really rejected that particular initiative because it was put in place without their input nobody
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asked them whether they wanted a school whether that this was their sort of their a priority for the community
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nobody asked whether the health clinic would make the biggest difference they were never consulted and this is you
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know one way of having a relationship is to actually start meaningful have a meaningful conversation
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sent to each other try to address each other's concerns and very few companies
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do that you know in a very serious way and what makes your research different from other research in this area there
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been a lot of assertions that building relationships with stakeholders being a responsible company can pay in a time of
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crisis people have talked about the insurance value of reputation this is the first research that we've seen that
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really gets down and shows that that's true that the reason there's a payoff
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when you're under attack the reason your share price doesn't collapse is because
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individual stakeholders rally to your defense we actually show that in our media reports that someone who is sort
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of neutral or slightly positive towards the mine the day after its attacked by the minister or the day after its
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attacked by Greenpeace those neutral or slightly positive stakeholders actually like the mind more in terms of what they
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say to the press and the reason is they themselves feel threatened and when you feel threatened you respond you defend
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it's not just that the people discount the bad news they're actually rallying
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and in favor of the mine and I think showing that effect at the level of the individual stakeholder is really novel
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and it really buttresses this idea that there is an insurance value we're getting under the hood and seeing why it
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happens and how important those individual relationships are so I noticed in your paper that you talked
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about the many other things that you could be looking at next so tell us a little bit about what you might look at
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next or what what's what are some of the more interesting things that this opens
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up for new research so we're continuing this line of research by by having with
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new research that looks at the important sort of the timing of cycle engagements
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so now we've sort of i think we've we've had a couple of pieces where we've
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looked at the impact in terms of financial paying impact and impact on on stakeholders reactions now we're
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actually trying to see how how can you build better relationships with with your stakeholders and we're doing this
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and in a couple of ways i'll mention one so in one we're looking at the benefits
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of doing this proactively i think one of the biggest differences in terms of leaders and loggers in this in in in
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today's world in many many industries is is this timing issue some firms have had
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the better in terms of thinking about their stakeholders as they strategize about
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their operations and trying to understand who they are where they are how they are affected what they care
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about what they might say and and essentially go to the stakeholders we know if it's a local community go to the
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local community and initiate a dialogue hopefully an ongoing dialogue to try to address these issues from day one right
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and if you do that and if you do that well then you're you're likely to be in
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a much better situation down the road right this is this is where you address the crisis here before it happens and
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you're not going to be in the news and if something happens you're going to be
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given a chance either the benefit of the doubt or you'll actually be funded by
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your cycles it'll be given a chance to address every single issue in a way that
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allows you to have a meaningful sort of solution which is probably also color collaborative solution so all right what
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haven't I asked you that would be important for everyone to know I think one of the things people often surprised
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that we study the mining industry and then we're drawing insights on what constitutes good stakeholder engagement
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good corporate social responsibility practices from the mining industry there's a reason for that mining
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industry made some massive mistakes these firms that were studying or firms in the industry wrote off a billion
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dollars a capital and I guess we'd encourage people to try to learn from their mistakes instead of repeating them
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most of the firm's we're studying didn't adopt better practices better processes
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until a disaster occurred and they learn from their mistakes I think the reason we're studying this industry is they
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have learned and other managers should try to learn from their mistakes instead of repeating thank you very much for
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coming in thank you you