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today I'd like to welcome be told tenish
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and he's a management professor here at
00:00:05
Wharton and also Cynthiana Darabont Oh
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who is from New York University and
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she's also a management professor and
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they're here to talk about their new
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research thank you for dropping in to
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chat with us much appreciated and the
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research is about corporations who are
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interested in limiting reputational
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damage when they come under attack by a
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protest group or shareholder group I'll
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let you explain exactly which groups
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companies need to be worried about but
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what they can do to limit the
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reputational damage and one of the
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things is to work on your reputation
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before you come under attack because
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that that encourages friends and family
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shall we say friendly shareholder groups
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and community groups to to come in and
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support you and come to a company's
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defense so let's start I think since
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Janna with an example of a company that
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may have done it right or done it wrong
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so viewers can get an idea of exactly
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what we're talking about so Steve thank
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you very much for for having us here
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we're always had very happy to talk
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about about research and this particular
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piece of research this actress so you I
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think if summarizes really nicely but i
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do want to point out that we're we're
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asking a fairly straightforward question
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what happens to companies when when
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they're faced with with a situation
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where a critical event and it can be a
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court decision it can be a negative news
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report sort of from an environmental
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organization what happens to to the
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company in such moments how do their
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shareholders response and how their
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circle the response after after after
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these events you see the single news all
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the time you see it with uber and i
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would probably use uber as a sort of an
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example of a company that's trying to
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expand internationally very very quickly
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and because of the pace of its
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international expansion it doesn't have
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the time and the resources to engage
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with every community that it affects and
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with every government and every
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regulator in every country so every
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single time there is
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new story about uber it's usually sort
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of surrounded by a lot of negative
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reactions from other stakeholders who
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have something negative to say about
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uber as well as stakeholder reactions
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who from cyclers who have something
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positive to say from consumers who are
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very happy with a new product and so on
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companies that you know companies that
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do this well you don't see in the news
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as much but there are companies of
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course I do this well erbium being the
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indo shared economy space is a good
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example ikea when in the 90s it faced a
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number of allegations of child labor
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being used in itself by one of its
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suppliers in india it responded it took
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its time to work with NGOs and with
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UNICEF to understand the problem and
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then put in place sort of long-term
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solutions to to make sure that the
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children who are you know the
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stakeholders that they cared about
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whatever they do that is in the best
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interest of the children so just wanted
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to ask so I believe we're talking about
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a situation where a company actually is
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doing things to make it right as opposed
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to just taking a public relations
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approach where they're just saying the
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right things yeah it's very much about
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that's what it takes to build up the
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relationship with stakeholders it's not
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enough just to put out a glossy press
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release to have a pretty sustainability
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report you have to really engage the
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stakeholders in fact some other research
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show we were talking about today really
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gets into the nuts and bolts of how you
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build up that relationship but it's it's
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a lot more than a press release it's a
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lot more than a check at some deep
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long-held interactions so maybe a short
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summary of what the research looked for
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and what it found would be interesting
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to hear now well I'll give you the
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nutshell version which is it's worth
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investing in relationships because once
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you have a strong positive relationship
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once you have a friend from a
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stakeholder that friend is going to
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stick up for you so when you're attacked
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when you're facing a down day when
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someone's coming after you you're not
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going to be first in front of the
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microphone ideally your stakeholders
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that I kias say twas Save the Children
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in ideas case that since he talked about
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they're the ones defending you against
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the allegations of a human rights abuse
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the community members are talking about
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how its are mine it's our factory we
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don't want to shut down so we're getting
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someone else in front of microphone to
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be
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what one could call an upstander or an
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advocate for the company so is the
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lesson that that you want to do this
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spade work ahead of time I mean I get
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that that's the lesson but do you talk
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about how to do that spade work or
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you're just saying you need to do the
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spadework figure out how to do it in
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this particular paper we we take these
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relationships as given all right so
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we're saying we're comparing firms that
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have good relationships with their
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stakeholders and with firms that don't
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and we're doing this on the individual
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stakeholder level so we're looking at
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every single stay cold and the
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stakeholder can be a local community the
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stakeholder can be an NGO or an activist
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group it can be a mayor governor a
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regulatory agency so we're looking where
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we found a way to to measure their
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perceptions of the company using
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newspaper report so we essentially coded
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22,000 articles about 26 minds around
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the world in 20 countries around the
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world and for each of these minds we
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have a very very detailed timeline of
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which stakeholders spoke about the firm
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or took action against the mining firm
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and what exactly they did is it an act
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of cooperation or is it an act of
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conflict and using this that timeline we
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show that stakeholders that with with
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whom the firm has built good
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relationships in the past or though
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these are the stakeholders that when
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something bad happens when a negative
00:05:45
court decision comes about they're gonna
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you know stand up and speak to defend
00:05:50
the firm because they they see this as a
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good firm whereas the stakeholders with
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whom the firm has a really bad
00:05:55
relationship are going to use this as an
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opportunity to reiterate their
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opposition and before you know it you
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have sort of a series or a chorus of
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voices for firms have who have really
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bad relationships with their
00:06:08
stakeholders you have a chorus of voices
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uncoordinated voices but what the public
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hears in the media is this sort of
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chorus of voices all speaking negatively
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about the firm and that's how you know
00:06:18
that's the making of a crisis in in in
00:06:20
today's world so are there a follow-on
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it now just in the second part of the
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paper we show that it's those courses of
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negative opinion that contribute to a
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collapse and shareholder value so we can
00:06:29
look at a similar set of critical events
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160 in total and the ones in which you
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see this negative course of opinion are
00:06:37
the cases and which shareholder value
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collapses
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the cases where you have the upstanders
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where you have the stakeholders speaking
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on your behalf the same degree of
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negative opinion at the onset doesn't
00:06:48
translate into a collapse and
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shareholder value so it's not just this
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is a good thing to have it's a nice to
00:06:53
have it actually contributes to the
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protection of shareholder value so
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that's obviously a key takeaway and as
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you were just giving us another one are
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there others that that would be sort of
00:07:03
bullet point key takeaways from the
00:07:05
paper that that we could talk about so
00:07:09
to me it's really sort of the benefits
00:07:11
of of stakeholder engagement and doing
00:07:13
this in a strategic and systematic way
00:07:15
of sort of the same process that the
00:07:17
firm would apply to managing its
00:07:19
relationships with suppliers and
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employees and customers need to be
00:07:23
applied to managing much broader set of
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stakeholders including the local
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communities the activists and NGOs and
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the government sort of governments a
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different level so that's one one big
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big takeaway because you know if you if
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you manage to put in place these Goods
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take all the relationships you prevent
00:07:38
the crisis and the best part of managing
00:07:40
the crisis is to not have one at all but
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I think another one that was to me to me
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very interesting is how in today's sort
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of era of increased transparency or
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information availability you don't need
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to have explicit coordination among
00:07:56
stakeholders to end up with a social
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movement against the firm and here's
00:08:01
what I mean by this if you start with a
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court again- court report these things
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happen you know things i think the
00:08:06
things get litigated and there's a
00:08:08
decision if there's a negative decision
00:08:10
against the firm then you might actually
00:08:11
have a local protest in the local
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community you might have the mayor or
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government speak out against the firm
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you may have broader mobilization by by
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activists and these different
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stakeholders you know they never
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coordinate it they never you know they
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never got on a conference call or using
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an email distribution list what happened
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actually they were using information
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available in the public space in the
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media to social media in the soul and
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the social media force to synchronizer
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their reactions and these independent
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reactions all started to sort of sound
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like a concerted voice against against a
00:08:47
company and at the same time I imagine
00:08:50
social media can also be that early
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warning system the canary in the coal
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mine right if companies are monitoring
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it and they can see what some problems
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are that might be brewing the kids I'm a
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chance to go in and fix them not just
00:09:04
sort of PR them but to actually say
00:09:07
maybe we need to be doing some work in
00:09:10
this area exactly i think one of the
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manager will take aways is the need to
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invest not just in the relationships but
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understanding your stakeholders upfront
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and so you need to gather that data
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whether it's i mean in other work we
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argue about the importance of actually
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meeting and talking and building these
00:09:24
relationships within person contact but
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monitoring them on social media and in
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the print media being aware of what
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they're saying and what drives their
00:09:31
behavior is obviously very important so
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save yourself a headache but more than a
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headache or in addition to a headache
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save yourself a savior stock from taking
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a big hit right you know again invest in
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these relationships the same way you
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invest in physical capital the same way
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invest in human capital invest in
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relationship capital and you talk in the
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paper about the value of information
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signals which i think you've been you're
00:09:54
sort of talking about here but is there
00:09:56
something specific to say about these
00:09:58
information signals that that you
00:10:01
haven't already covered here so they you
00:10:04
know they have been in other research by
00:10:07
other scholars has shown that is our
00:10:10
information you know information signals
00:10:12
coming from the medium from cycle of
00:10:13
reactions are important to managers
00:10:15
because they can foresee a crises are
00:10:17
important to investors because again
00:10:19
they can foresee some problems to the
00:10:20
future cash flow of the firm we show
00:10:22
with this paper that they're important
00:10:24
to two stakeholders to you know to come
00:10:26
to synchronize the reaction in the way
00:10:28
that doesn't require coordination
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explicit coordination among them but i
00:10:32
think you know if we want if if i were
00:10:35
to push that to a managerial implication
00:10:36
i would say to managers and their and
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their teams it's really important not to
00:10:40
wait until they see something already
00:10:43
kind of coming together and forming like
00:10:45
a social movement they should they
00:10:47
should really understand that again to
00:10:49
in today's world almost any and even
00:10:52
tiny statement any action can easily
00:10:55
escalate into something much bigger into
00:10:57
a broader crisis because of this time
00:10:59
the dynamics that we observe in our
00:11:01
research i think just to add there are
00:11:03
two different ways these negative these
00:11:04
critical events can ask
00:11:06
and and both of them I think catch
00:11:07
managers by surprise one is that when
00:11:10
you have the allies it's not just that
00:11:12
your allies discount the negative
00:11:13
information they can actually rally to
00:11:15
your defense so it's really worthwhile
00:11:16
having them it's not just that they say
00:11:18
oh this doesn't matter I don't believe
00:11:20
this who are these people making these
00:11:22
accusations they'll actually stand up
00:11:24
and defend you so it's it's more than
00:11:26
discounting the information signal it's
00:11:27
reacting to it positive reinforcement
00:11:29
and on the other side negative
00:11:31
information is since since it was
00:11:33
pointing I can really set off this
00:11:34
cascade so it can be a lot worse than
00:11:36
the initial news story it can blow up
00:11:37
and spiral out of control when you don't
00:11:39
have the relationships what company
00:11:43
failed in all of this and can you think
00:11:46
of a good example where was it went
00:11:47
really south and and could have been
00:11:49
avoided in other words there's one thing
00:11:50
if they were doing some things that are
00:11:53
going to be perceived by the public as
00:11:55
negative and there's no way to spin that
00:11:57
really but but maybe it was really a
00:12:01
little bit miss perceived by the public
00:12:04
in some way and and they missed the
00:12:07
opportunity to I think I heard you say
00:12:09
as we're chatting ahead of time to the
00:12:11
time for crisis management is a year
00:12:14
before the crisis right can you name
00:12:18
names um I would use to example so I
00:12:23
brought up uber a little bit at the
00:12:25
beginning is something that I'm doing in
00:12:27
in current research ongoing research and
00:12:29
I think uber will defame defend the
00:12:31
speed of its international expansion
00:12:33
based on the business model you know
00:12:35
they need a lot of drivers on the road
00:12:36
in order to make the riders happy they
00:12:39
need a lot of writers to keep the
00:12:40
drivers happy and it's it's that need
00:12:42
for support of critical mass on both
00:12:45
sides that that explains the speed of
00:12:48
their expansion and because they're
00:12:50
doing things so quickly they don't have
00:12:52
the time to build this relationship
00:12:53
relationships take time right between
00:12:55
people as well as between companies and
00:12:58
their stakeholders and so this is you
00:13:01
know this is this Boober is an example
00:13:03
of a company that's been banned in a
00:13:05
number of if in hundreds of cities
00:13:07
around the world because they they
00:13:09
didn't put themselves in a situation to
00:13:11
to be defended by by those who have a
00:13:15
lot to gain including the drivers who
00:13:16
joined uber
00:13:18
by those who have a lot to and the
00:13:19
writers who are happy three years over
00:13:20
it as a result their market their
00:13:22
potential market capitalization i think
00:13:23
is really plummeted I mean this is not a
00:13:24
real impact if you look at what the the
00:13:26
estimates were uber was going to be
00:13:28
worth more than all the automobile
00:13:29
companies it was gonna be worth it more
00:13:31
than all the airlines that was based on
00:13:32
uber being successful in China and India
00:13:35
and Germany and France and England and
00:13:37
it's not happening and so they can no
00:13:39
longer justify that market cap this is
00:13:42
it's really material to future to
00:13:45
current owners potential future
00:13:46
shareholders to the future of this
00:13:47
company that it's had these missteps up
00:13:50
front would they have been able to so
00:13:53
developing relationships takes time and
00:13:55
if they had invested that and taken the
00:13:58
time with what competitors have gotten a
00:14:00
jump on them I mean it's sort of a you
00:14:03
know how do you what can you do your cut
00:14:06
your kind of going to like take a hit in
00:14:07
some way either way if you talk to
00:14:10
someone from uber they will always say
00:14:11
that this was the only way yes right
00:14:13
because they needed to be the biggest
00:14:14
player on the more in the market and
00:14:15
they didn't have the time to you know
00:14:17
now first mover and all that first mover
00:14:20
everywhere and the biggest first mover
00:14:22
and a result of that hopefully the
00:14:24
biggest player in the market I you know
00:14:26
and because of that I didn't have the
00:14:28
time to to build these relationships is
00:14:30
it going to backfire I think very much
00:14:32
so is it likely that that some of the
00:14:36
competitors who maybe took things a
00:14:38
little slower and build these
00:14:41
relationships are you know they were
00:14:42
second in the market but they are
00:14:43
understood they observed the problem the
00:14:45
problems that uber was having and try to
00:14:46
address them by lobbying the regulator's
00:14:49
a little bit more and talking to the
00:14:51
taxi drivers who are affecting and
00:14:53
seeing how they can actually throw find
00:14:55
a solution that works for everybody I
00:14:56
don't know it's too soon to tell right
00:14:58
it's it's with uber it's really true to
00:15:00
some really interesting I think moving
00:15:02
out of the new economy let's look talk
00:15:04
about energy companies right this boom
00:15:07
in the fracking industry that since he's
00:15:09
also studying in some ongoing research
00:15:10
these are companies that made the play
00:15:13
to go quickly to expand gas supplies
00:15:15
here in Pennsylvania and elsewhere
00:15:17
around the world and they're all these
00:15:19
estimates this is we're going to
00:15:20
revolutionize the industry but there you
00:15:22
know you drive through these towns and
00:15:23
you see these protests you see you know
00:15:25
no fracking here stop fracking don't
00:15:27
build this pipeline you see concerns and
00:15:30
you see reservations
00:15:31
well who went slow with some of the
00:15:33
alternative energy suppliers whether its
00:15:35
wind solar and others who are moving
00:15:37
more incrementally building
00:15:39
relationships with government officials
00:15:40
building up support for wind farms for
00:15:44
solar arrays and I think you're starting
00:15:46
to see the future of the energy industry
00:15:48
change a little bit in terms of what
00:15:50
role is fracking in a play versus
00:15:51
alternative energy one of them was
00:15:53
definitely move fast let's own this but
00:15:56
now it's worked in a few states in the
00:15:58
United States hasn't worked elsewhere
00:15:59
it's not working in too many other
00:16:00
countries of the world and alternative
00:16:02
energy continues to kind of be the
00:16:04
tortoise that's moving steadily ahead
00:16:05
and we'll see which way it plays out
00:16:08
over the next five or ten years oh
00:16:10
that's really interesting um I just
00:16:13
wonder if there were some you know there
00:16:15
were some legitimate concerns about that
00:16:18
industry that that I think maybe when
00:16:21
ignored would would you agree with that
00:16:23
and where you know I mean environmental
00:16:25
considerations that that that they
00:16:28
either didn't address or or or didn't
00:16:30
know how to address well I think they
00:16:31
could have addressed them through let's
00:16:33
let's talk to the government's about
00:16:35
what a reasonable the standard is for
00:16:36
water disposal and what has to happen to
00:16:38
the water that gets pumped out of the
00:16:39
ground what are the standards for it to
00:16:41
be disposed in the cities what are the
00:16:43
standards of treatment that are going to
00:16:44
be required and they chose to take a
00:16:48
little bit more of a cowboy mentality
00:16:49
and you know that's the city's problem
00:16:51
it's not our problem we're following the
00:16:53
law we're not giving up any information
00:16:55
on what's in the water and that raised
00:16:56
people's concerns and skepticism it
00:16:58
would have taken more time to decide
00:17:00
what a reasonable water treatment
00:17:02
standard would be to build up state
00:17:04
level and national level regulation it
00:17:06
would have created more transparency
00:17:07
more oversight I think the industry
00:17:09
would be a lot healthier today
00:17:10
interesting that's that's a very
00:17:12
interesting example what misperceptions
00:17:16
did the study dispel the I think one of
00:17:21
the biggest ones this something that I
00:17:25
see a lot in the industry is people
00:17:28
think that building these relationships
00:17:30
with the local community or with NGOs
00:17:33
there's a symbolic actions right we're
00:17:36
very limited
00:17:38
effects on the compares operations or on
00:17:41
the stock price and I think we're really
00:17:44
providing evidence for the fact that
00:17:46
it's really the other way around that
00:17:47
these things are incredibly valuable
00:17:49
both in terms of allowing the operations
00:17:52
to go ahead on schedule and on budget
00:17:55
and as a result of that also very
00:17:57
incredibly valuable in serving the
00:17:59
industry by looking for the stock price
00:18:00
for the company itself for shareholders
00:18:02
it reminds me of something you said
00:18:03
where I mean in the environmental area
00:18:06
again maybe an example is what the term
00:18:09
greenwashing right so you have a company
00:18:11
that they're really not taking care of
00:18:13
the environment the way maybe they
00:18:15
should or the way that that the
00:18:16
community and a lot of other folks think
00:18:18
they should but they'll do the other
00:18:20
have a sustainability officer and
00:18:22
they'll plan a few trees and they'll do
00:18:24
a couple of symbolic things but you're
00:18:26
saying that's that's not gonna cut it
00:18:28
yeah it was really important we're not
00:18:29
measuring something that's in you dating
00:18:31
report whether they have a
00:18:32
sustainability report whether they meet
00:18:33
some reporting standard we think what's
00:18:35
important is what stakeholders think
00:18:37
about the firm and we're measuring that
00:18:38
and so the key is not do you have a
00:18:40
report do you meet a standard do you get
00:18:42
five stars it's are there people will
00:18:45
understand for the microphone for you
00:18:46
when you criticize do you have that
00:18:47
network of relationships with community
00:18:49
leaders NGOs government officials that's
00:18:52
what matters that's what we're turning
00:18:53
draw attention to its not greenwash its
00:18:55
substantive real relationships do the
00:18:58
right thing in a way do the right thing
00:19:00
for the right people yeah and to build
00:19:02
off that so this is in a mining industry
00:19:04
around the world and there's a lot of
00:19:05
examples particularly in parts of Africa
00:19:08
where mining firms which are in the
00:19:11
business of building things have build a
00:19:13
lot of schools and a lot of health
00:19:14
clinics they tend to be empty because
00:19:15
they don't think you know sufficiently
00:19:17
forward to stuff them as well and these
00:19:19
become targets of community protests
00:19:22
they you know on a few occasions have
00:19:24
actually been bombed the schools that
00:19:26
you see you know you know CSR report has
00:19:29
been bombed a few years later because
00:19:30
the community really rejected that
00:19:32
particular initiative because it was put
00:19:34
in place without their input nobody
00:19:36
asked them whether they wanted a school
00:19:38
whether that this was their sort of
00:19:40
their a priority for the community
00:19:41
nobody asked whether the health clinic
00:19:43
would make the biggest difference they
00:19:44
were never consulted and this is you
00:19:46
know one way of having a relationship is
00:19:48
to actually start meaningful have a
00:19:51
meaningful conversation
00:19:52
sent to each other try to address each
00:19:54
other's concerns and very few companies
00:19:56
do that you know in a very serious way
00:19:58
and what makes your research different
00:20:01
from other research in this area there
00:20:04
been a lot of assertions that building
00:20:06
relationships with stakeholders being a
00:20:08
responsible company can pay in a time of
00:20:10
crisis people have talked about the
00:20:12
insurance value of reputation this is
00:20:14
the first research that we've seen that
00:20:17
really gets down and shows that that's
00:20:18
true that the reason there's a payoff
00:20:20
when you're under attack the reason your
00:20:22
share price doesn't collapse is because
00:20:25
individual stakeholders rally to your
00:20:26
defense we actually show that in our
00:20:28
media reports that someone who is sort
00:20:30
of neutral or slightly positive towards
00:20:33
the mine the day after its attacked by
00:20:35
the minister or the day after its
00:20:36
attacked by Greenpeace those neutral or
00:20:39
slightly positive stakeholders actually
00:20:41
like the mind more in terms of what they
00:20:43
say to the press and the reason is they
00:20:45
themselves feel threatened and when you
00:20:47
feel threatened you respond you defend
00:20:49
it's not just that the people discount
00:20:52
the bad news they're actually rallying
00:20:54
and in favor of the mine and I think
00:20:56
showing that effect at the level of the
00:20:59
individual stakeholder is really novel
00:21:01
and it really buttresses this idea that
00:21:03
there is an insurance value we're
00:21:04
getting under the hood and seeing why it
00:21:05
happens and how important those
00:21:07
individual relationships are so I
00:21:09
noticed in your paper that you talked
00:21:11
about the many other things that you
00:21:13
could be looking at next so tell us a
00:21:16
little bit about what you might look at
00:21:17
next or what what's what are some of the
00:21:19
more interesting things that this opens
00:21:21
up for new research so we're continuing
00:21:24
this line of research by by having with
00:21:27
new research that looks at the important
00:21:29
sort of the timing of cycle engagements
00:21:32
so now we've sort of i think we've we've
00:21:35
had a couple of pieces where we've
00:21:36
looked at the impact in terms of
00:21:37
financial paying impact and impact on on
00:21:40
stakeholders reactions now we're
00:21:41
actually trying to see how how can you
00:21:44
build better relationships with with
00:21:47
your stakeholders and we're doing this
00:21:49
and in a couple of ways i'll mention one
00:21:51
so in one we're looking at the benefits
00:21:53
of doing this proactively i think one of
00:21:55
the biggest differences in terms of
00:21:56
leaders and loggers in this in in in
00:21:59
today's world in many many industries is
00:22:01
is this timing issue some firms have had
00:22:05
the
00:22:05
better in terms of thinking about their
00:22:09
stakeholders as they strategize about
00:22:11
their operations and trying to
00:22:13
understand who they are where they are
00:22:15
how they are affected what they care
00:22:18
about what they might say and and
00:22:20
essentially go to the stakeholders we
00:22:23
know if it's a local community go to the
00:22:24
local community and initiate a dialogue
00:22:27
hopefully an ongoing dialogue to try to
00:22:30
address these issues from day one right
00:22:33
and if you do that and if you do that
00:22:35
well then you're you're likely to be in
00:22:38
a much better situation down the road
00:22:39
right this is this is where you address
00:22:41
the crisis here before it happens and
00:22:44
you're not going to be in the news and
00:22:45
if something happens you're going to be
00:22:47
given a chance either the benefit of the
00:22:49
doubt or you'll actually be funded by
00:22:50
your cycles it'll be given a chance to
00:22:52
address every single issue in a way that
00:22:55
allows you to have a meaningful sort of
00:22:58
solution which is probably also color
00:23:00
collaborative solution so all right what
00:23:03
haven't I asked you that would be
00:23:05
important for everyone to know I think
00:23:09
one of the things people often surprised
00:23:10
that we study the mining industry and
00:23:12
then we're drawing insights on what
00:23:13
constitutes good stakeholder engagement
00:23:15
good corporate social responsibility
00:23:17
practices from the mining industry
00:23:18
there's a reason for that mining
00:23:21
industry made some massive mistakes
00:23:23
these firms that were studying or firms
00:23:26
in the industry wrote off a billion
00:23:27
dollars a capital and I guess we'd
00:23:29
encourage people to try to learn from
00:23:30
their mistakes instead of repeating them
00:23:32
most of the firm's we're studying didn't
00:23:34
adopt better practices better processes
00:23:37
until a disaster occurred and they learn
00:23:40
from their mistakes I think the reason
00:23:42
we're studying this industry is they
00:23:43
have learned and other managers should
00:23:45
try to learn from their mistakes instead
00:23:46
of repeating thank you very much for
00:23:49
coming in thank you
00:24:07
you
