Read the United Airlines—Navigating a Social Media Storm (attached – page 20). Then, answer the following:  1. Did these incidents impact the firm’s corporate identity or corporate image, or both, as described in the chapter?

419

law43665_ch19_419-440.indd 419 01/21/19 03:36 PM

C H A P T E R N I N E T E E N

Managing the Public and the Corporate Reputation How the general public perceives a business firm can have a major effect on its performance and its ability to remain in business. Therefore, building a positive public reputation for providing superior products or services is of great importance. Most companies employ many people to help establish and maintain a good reputation. Their job is to formulate a strategy that includes, at a minimum, the careful management of the brand, interaction with the media, managing key issues that may arise, and successfully responding to any unanticipated crises. Ultimately, maintaining a positive public reputation depends on acting in an ethical and socially responsible manner.

This Chapter Focuses on These Key Learning Objectives:

LO 19-1 Recognizing why the general public is an important organizational stakeholder.

LO 19-2 Understanding what constitutes a good corporate reputation and why it is important.

LO 19-3 Knowing the basic elements and activities of a firm’s public relations department.

LO 19-4 Assessing how brand management can best manage a firm’s reputation.

LO 19-5 Evaluating a firm’s crisis management plan as an effective tool for handling an unexpected situation.

LO 19-6 Recognizing tactics that enable businesses to engage with the general public and other stakehold- ers to enhance the firm’s reputation.

Final PDF to printer

420 Part Six Business and Its Stakeholders

law43665_ch19_419-440.indd 420 01/21/19 03:36 PM

In 2017, Pepsi, the 125-year-old beverage company, apologized for a controversial advertise- ment that borrowed imagery from the Black Lives Matter movement. The ad showed young people smiling, laughing, clapping, hugging, and high-fiving while holding generic signs say- ing, “Join the conversation.” In the ad’s climactic scene, a police officer accepts a can of Pepsi from Kendall Jenner, the daughter of television personalities Kris and Caitlyn Jenner and half-sister to Kim, Khloe, and Kourtney Kardashian, setting off loud approval from the young people and an appreciative grin from the police officer. Many people argued that the ad trivi- alized the widespread protests against the killing of black people by police and minimized the danger protesters encounter and the frustration they feel. Marsha P. Johnson, a former Black Lives Matter organizer, said, the ad “plays down the sacrifices people have historically taken in utilizing protests.” A Pepsi spokesperson said, “Pepsi was trying to project a global message of unity, peace and understanding. Clearly, we missed the mark and apologize.”1

21st Century Fox, the parent company of the conservative news show Fox News, encountered multiple sexual harassment scandals. Gretchen Carlson, a former Miss America and anchor of a Fox News show, accused long-time Fox News’s CEO Roger Ailes of publicly making harassing comments about her. Ailes reportedly made negative com- ments about Carlson’s legs and suggested she wear tight-fitting outfits on camera. She tried to ignore him but finally complained to her supervisor. When Ailes heard of her crit- icisms, he responded by calling Carlson a man-hater and killer who “needed to get along with the boys.” After this conversation, Carlson’s role on Fox News diminished, as she was demoted to Fox & Friends, a lower-rated afternoon show. The incident went public and, according to Vanity Fair magazine, which initially broke this story, Fox agreed to pay Carlson $20 million. A year later, a New York Times investigation revealed that Bill O’Reilly, the anchor of Fox’s most popular show, The O’Reilly Factor, and 21st Century Fox had set- tled multiple sexual harassment complaints against O’Reilly, resulting in $13 million in payments to five women. In response, BMW, GlaxoSmithKline, and Allstate Corporation joined a long list of other Fox programs’ advertisers to withdraw their commercials from The Bill O’Reilly Factor show. Shortly thereafter, O’Reilly was fired.2

Both the Pepsi and 21st Century Fox examples illustrate the importance of maintaining a good reputation with the public. In an era when information travels at lightning speed through both conventional channels—television, radio, and newspapers—as well as social media outlets—blogs, websites, Twitter, e-mails, and others—reaching thousands, if not millions, of people, reputations can be lost in an instant. While businesses seek publicity and spend millions of dollars annually to improve their image and reputation, company executives must navigate many minefields as they compete for the hearts and minds of the consuming public. This chapter will define the general public as a stakeholder and present a variety of tools that businesses can use to build and protect their reputations and brands.

The General Public

The general public is broadly defined as an organizational stakeholder comprised of indi- viduals and groups found in society. As described in Chapter 1, the general public does not deal with business organizations through an economic exchange with the firm, but it does affect the firm through its opinions of the firm’s activities or performance. These opinions

1 “Pepsi Pulls Ad Accused of Trivializing Black Lives Matter,” The New York Times, April 5, 2017, www.nytimes.com. 2 “The Revenge of Roger’s Angels,” New York Magazine, September 2016, nymag.com; “BMW, Glaxo and Allstate Join Wave of Advertisers Withdrawing from Bill O’Reilly’s Show,” The Wall Street Journal, April 4, 2017, www.wsj.com; and, “Fox Is Preparing to Cut Ties with Bill O’Reilly,” The Wall Street Journal, April 18, 2017, www.wsj.com.

Final PDF to printer

Chapter 19 Managing the Public and the Corporate Reputation 421

law43665_ch19_419-440.indd 421 01/21/19 03:36 PM

in turn help shape the firm’s public image or reputation, as initially discussed in Chapter 3 and later in this chapter.

The public may utilize its own stakeholder networks—consumer advocacy groups, employee labor unions, or local community action groups—and engage with government agencies, special interest groups, or the media to demand a certain level of performance or to condemn or praise a firm. The public may react strongly against a business firm, even when its intentions are good, as the following story shows.

Parents, consumer advocates, and health professionals called on the Academy of Nutrition and Dietetics, one of the world’s largest groups of health professionals with over 100,000 credentialed practitioners, to address the issue of child obesity and nutrition. They developed the “Kids Eat Right” program to spread the message that children need more calcium and vitamin D in their diets. Kraft Foods, an American producer and marketer of foods products, sponsored the Kids Eat Rights program, and was given permission to print the Kids Eat Right logo on packages of its Kraft American Singles packages. Some supporters of Kids Eat Right were out- raged at the Kraft brand associated with the program. They noted that Kraft Singles is a “pasteurized prepared cheese product” and not a “healthy food” for children. Opponents also pointed out that the Academy and Kraft were in a financial partner- ship, in which Kraft agreed to provide a grant to support research or public educa- tion initiative undertaken by the academy.3

Companies should be aware of how their actions may be portrayed in the media. The media is understood as the collective means of communicating to an audience. It tradition- ally included television, radio, and newspapers, but has grown to include the influential communication networks found on the Internet and through social media. Through the media, the firm can establish its reputation, repair a tarnished image, manage its public relations, address an organizational crisis, or engage with multiple stakeholders in a variety of ways. These topics will be addressed throughout this chapter.

What Is Reputation?

It may seem obvious that business organizations want to cultivate a good reputation. The term corporate reputation refers to desirable or undesirable qualities associated with an orga- nization or its actors that may influence the organization’s relationships with its stakehold- ers. It relies on the collective perceptions of past actions, results, and future prospects.4

The importance of a good reputation is certainly obvious to Warren Buffet, owner of conglomerate Berkshire Hathaway. He reminds his managers each year in a now famous memo that their top priority must be to guard Berkshire’s reputation: “As I’ve said in these memos for more than 25 years,” Buffet wrote, “we can afford to lose money—even a lot of money. But we can’t afford to lose reputation—even a shred of reputation. It takes 20 years to build a reputation and five minutes to ruin it.”5

Scholars have noted that reputation is related to corporate identity and corporate image and that these sometimes reinforce each other. Corporate identity refers to the way in which

3 “‘Eat Right’ Meltdown for Kraft Singles,” The Wall Street Journal, March 23, 2015, www.wsj.com. Also see Eat Right Pro, the website for the Academy of Nutrition and Dietetics, at www.eatrightpro.org. 4 Charles Fombrun and Cees Van Riel, “The Reputational Landscape,” Corporate Reputation Review, 1 (1997), pp. 5–13. 5 “Warren Buffet on Ethics: We Can’t Afford to Lose Reputation,” The Wall Street Journal, May 31, 2011, blogs.wsj.com.

Final PDF to printer

422 Part Six Business and Its Stakeholders

law43665_ch19_419-440.indd 422 01/21/19 03:36 PM

an organization presents itself to an audience, while corporate image refers to the way organizational members believe others see the organization.6 For example, the way an organization presents itself to it stakeholders (identity) may influence the stakeholders’ perceptions of the organization (image). Each of these concepts is important to keep in mind when crafting a reputation-building strategy.

Few companies start with a reputation of distinction, simply because such a reputation must be built over time. Firms may have name recognition—an identity—but that is not the same as having a good reputation. So, firms need a strategy for building a good reputation.

Building a reputation can be thought of as a step-by-step process beginning with the very product(s) or service(s) the firm offers. Therefore, managers must first strive to become a company that is perceived by its stakeholders to offer significantly better products and services than its competitors. This perception is largely based on image. For example, the success of Apple products or Lexus automobiles is based in large part on their reputation for superior performance.7

Next, managers must aim to create and convey an identity: a consistent and compelling story about who the company is and what it stands for. This story needs to grab the atten- tion of the news media, online media, and opinion leaders.

The L.L. Bean company consistently tells the story that its products, designed for the outdoor enthusiast, are durable. Its policy of allowing consumers to return items, indefinitely, helps it uphold that reputational claim. One consumer has been return- ing her L.L. Bean backpacks for two decades whenever a zipper breaks. According to Steve Fuller, L.L. Bean’s chief marketing officer, “If she believes her zippers should last a longer time, we’ll respect that and we’ll refund her money or give her a new product until she’s happy,” he said. Fuller believes that the real value of the pol- icy is in how many times the woman tells people about her backpack returns.8

REI, also a maker of outdoor clothing and gear, had the same policy but noticed that the amount of questionable returns was increasing after people talked about it on social media. In contrast to L.L. Bean, REI thought it was getting a reputation as a sucker. Nicknames like “Rental Equipment Inc.,” “Rent Every Item,” or “Return Every Item” began popping up on Facebook and Twitter. REI decided to change its policy to a one-year limit.9

These two different examples illustrate that a company’s story must be a message that it can uphold and one that echoes the strong ethical values and beliefs of the company.

Why Does Reputation Matter? Academic researchers and practitioners share a consensus that organizations with strong positive reputations, such as L.L. Bean, outperform their competitors. Respected organiza- tions are generally more successful because they (1) receive more opportunities to advance their interests, (2) are given the benefit of the doubt in uncertain circumstances, and (3) are generally more immune to the long-term effects of harsh criticism than their less-respected

6 See Reggy Hooghiemstra, “Corporate Communication and Impression Management: New Perspectives Why Companies Engage in Corporate Social Reporting,” Journal of Business Ethics 27, (2000), pp. 55–68; Cees van Riel and C.B.M. van Riel, Principles of Corporate Communication (Harlow, England: Pearson Education, 1995); and The Reputation Institute at www.reputationinstitute.com. 7 See “Why Is Reputation Important in a Business?” ThriveHive, January 23, 2017, thrivehive.com. 8 “10 Retailers That Will Let You Return Anything,” Business Insider, September 23, 2013, www.businessinsider.com. 9 “REI Return Policy Changes: Items Must be Returned within 1 Year,” The Denver Post, June 4, 2013, blogs.denverpost.com.

Final PDF to printer

Chapter 19 Managing the Public and the Corporate Reputation 423

law43665_ch19_419-440.indd 423 01/21/19 03:36 PM

counterparts. Research also shows that a sound reputation allows firms to charge premium prices; enhance their access to capital markets and investors; and obtain better credit, trust, and social ratings.10 Likewise, stakeholders want to engage with respected companies.

In short, a good reputation can help firms gain a competitive advantage over other com- panies in the same industry. Unfortunately, numerous opinion polls like those conducted by Edelman (Trust Barometer), Fortune (World’s Most Admired Companies), and the Reputation Institute (Rep Trak) indicate that relatively few organizations have a reputation of distinction. Harris Insights and Analytics, the public opinion pollster, annually conducts an evaluation of a company’s reputation quotient, that is, how a company is perceived by the public. The 2018 findings are shown in Figure 19.1. Some businesses—such as Ama- zon, Tesla Motors, Chick-fil-A and Patagonia—earned a high reputation quotient, based on their company’s vision and leadership, social responsibility activities, financial perfor- mance, consumer support and workplace environment.

In a separate poll, conducted by The Reputation Institute and reported in Forbes Magazine, Amazon, the holder of the top position for the past three years, was unseated by the Swiss luxury timepiece producer Rolex. Another top performer in the 2018 list included Lego, which jumped to second place from sixth the previous year. Respondents to the survey, in gauging reputation, were more positive toward some industries than others. Companies that garnered the most respect came from the consumer goods, food and bever- age, transport, and automotive industries. Meanwhile, firms that operated in the financial, health care, telecom, and energy sectors were viewed less favorably.11 The task of building a corporation’s reputation, and protecting it against various risks, is often entrusted to the firm’s public relations department, as discussed next.

10 Reggy Hoogheimstra (2000) and Charles Fombrun and Cees van Riel (1997), ibid. 11 “The World’s Most Reputable Companies in 2017,” Forbes, February 28, 2017, www.forbes.com.

FIGURE 19.1 Select Companies from the 2018 Harris Poll Reputation Quotient Rankings

Source: 2018 Harris Poll Reputation Quotient Rankings. “The company’s ranking is shown in parenthesis.” For an explanation of the methodology of the ranking scores, see theharrispoll.com/reputation-quotient.

0 10 20 30 40

Amazon (1) Tesla Motors (3)

Chick-fil-A (4) Patagonia (9)

Whole Foods (23) Google (28)

Johnson & Johnson (40) eBay (48)

Starbucks (54) McDonald’s (59)

Walmart (69) Uber (76)

ExxonMobil (80) BP (94)

The Trump Organization (96) Wells Fargo (97)

Takata (100)

50 60 70 80 90

Final PDF to printer

424 Part Six Business and Its Stakeholders

law43665_ch19_419-440.indd 424 01/21/19 03:36 PM

The Public Relations Department

Given the importance of the general public to business and the potential for business to significantly benefit or harm the public, firms often create public relations departments, appoint public relations officers, and develop public affairs strategies to manage their relationship with the public. Josh Ong, director of marketing and communications at app developer Cheetah Mobile, explained the importance of developing a strong public rela- tions team in today’s environment:

“The public relations [PR] team has become both the teller and the guardian of a brand’s story; in order for them to fulfill each of these roles successfully, PR practi- tioners must be able to insert themselves into each of the touchpoints going out to the public in a healthy way. This requires thinking holistically about public image, what the brand does and what the brand stands for, among other things, and ensur- ing that these ideas are present in every communiqué that is released.”12

The role of the public relations department is to manage the firm’s public image and, more generally, its relationship with the public. This department may also be called media rela- tions, since much of its work involves interacting with the media. It does so through direct communications with the public (for example, through its website) and indirect communica- tions with them through various media outlets. Most public relations officers have close links with top managers. According to a study by the Foundation for Public Affairs, nearly half of the public affairs executives surveyed report directly to the CEO, chairman of the board of directors, or company president, and another nearly 30 percent report to the company’s general counsel. According to the report, because of this access, public affairs executives have been able to persuade CEOs to become increasingly involved in corporate public affairs activities.13 The specific major activities carried out by public relations managers include advertising, corporate sponsorship, external and internal communications, and publicity.14

Public Relations in the Internet and Social Media Age Historically, public relations officers worked mostly through contact with traditional media outlets. An organization worked to enhance its public image by seeking positive coverage in news reports and feature stories, or by paid advertisements via television, radio, maga- zines, newspapers, or billboards. Public relations may still utilize these interactions, but as technologies have evolved, the variety of available channels of communication has grown dramatically. More and more people are finding their news, marketing, or other public rela- tions information through Internet-related vehicles, such as blogs, e-mails, social networks, podcasts, and other technology-based communication sources. A study of about 50,000 peo- ple across 26 European counties reported that 18- to 24-year-olds used social media sites as their main news source, compared with 24 percent who used television.15 As shown in Figure 19.2, most Americans acquired their news from cable, local or network nightly news television, but more and more, especially people under 50 years of age, were turning to online sources, such as social media websites or apps on their laptop, computer, or cellphones.

Coupled with the growing trend by younger generations to access information via social media or other new technology, businesses have turned to social media influencers to get

12 “PR’s Role in the Company: Chief Storyteller,” Forbes, July 6, 2017, www.forbes.com. 13 See the Foundation for Public Affairs at pac.org. 14 “Public Relations Activities,” MediaMiser, www.mediamiser.com. 15 “Social Media ‘Outstrips TV’ as News Source for Young People,” BBC News, June 15, 2016, www.bbc.com.

Final PDF to printer

Chapter 19 Managing the Public and the Corporate Reputation 425

law43665_ch19_419-440.indd 425 01/21/19 03:36 PM

their message out to the public. A social media influencer is a user on social media who has established credibility in a specific industry. This individual has access to a large audi- ence and can persuade others by virtue of their authenticity and reach. A company’s public relations strategy that relies on social media influencers can identify topics of influence that speak to the company’s target stakeholders, vet influencers who are a good contextual fit with the company’s message, encourage social media influencers to build mutually ben- eficial relationships with target stakeholders, and enable the company to measure the impact their social media influencers and decide if they should be retained or select differ- ent influencers moving forward.16

Many firms, from chocolate makers to pharmaceuticals, are using social networking to connect with their past or potential customers, prospective employees, and others in the communities where they operate as shown in this example.

The state of Bahia in Brazil had a blood shortage and needed to change consumer attitudes to inspire more people to become blood donors. The Hemoba Foundation (Blood Foundation) in Brazil decided to make a brand connection between giving blood and a passion shared by vast numbers of people—football. The Hemoba Foundation collaborated with the leading football club of the region—Esporte Clube Vitoria—to run a campaign called “My Blood is Red and Black.” The club removed the red color from their iconic shirts and only added the red color back as the volume of blood donations increased. The campaign reached 130 million peo- ple and recorded a 46 percent increase in blood donations. Fans were encouraged to post on social media when they had donated blood and to post photos as each new stripe of red color was added back to the football team’s shirt. The campaign captured the attention of all media channels. There were 935 minutes of television exposure and significant print news coverage.17

16 “Social Media Influencers,” GroupHigh, www.grouphigh.com. 17 “Four Integrated PR Campaigns that Really Worked,” WorldCom Public Relations Group, n.d., worldcomgroup.com.

FIGURE 19.2 Public’s Access to the News by Platform

Source: “Pathways to News,” Pew Research Center, July 7, 2016, www.journalism.org.

Television (cable, local,

network nightly)

Online (social media,

web sites/apps)

Radio

Print newspapers

All Ages

18–29

30–49

50–64

65+

0 20% 40% 60% 80% 100%

Final PDF to printer

426 Part Six Business and Its Stakeholders

law43665_ch19_419-440.indd 426 01/21/19 03:36 PM

Public relations strategies increasingly assume a global focus, since business interac- tions with the public through media channels frequently transcend national boundaries. Therefore, many businesses have extended their public relations strategies globally, as shown in the following example.

P&G (formerly Procter & Gamble), based in Cincinnati, Ohio, is the largest con- sumer packaged goods company in the world. P&G created a comprehensive, yet unified network of public affairs departments to address the flow of information from the company to and from its stakeholders around the world. At P&G, public affairs is broken down into functions (corporate communications, global marketing and consumer and marketing knowledge, corporate digital communications, and global business services); product lines, with each major product line having its own “brand newsroom” media team (Bounty, Braun, Charmin, Gillette, Old Spice, Pampers, Puffs, and Tide); and geographical regions, with a “corporate” media team in different locations around the world (United States, United Kingdom, France, Germany, Spain, and Switzerland). Each contact point has its own set of contact information directing you to a person, location, office telephone number, mobile telephone number, and e-mail address.18

When public relations strategies take on a global perspective, new challenges emerge. For example, public relations managers must be sensitive to cultural disparities, as well as similarities, in crafting press releases and interactions with the media. The impact of the organization’s public relations program could vary country to country given the culture, social mores, political system, or history. A public relations manager must be able to com- municate with local media and other stakeholder groups in their native language and avoid embarrassing or misleading communication due to poor translations. All basic public rela- tions tasks are more complex in an international business environment.19 Some businesses decentralize their global public relations programs and establish officers in each of the locations where they have operations. This helps to ensure that the local public relations strategy is in tune with local customs and emerging issues.

Brand Management

Managers are very aware how important and how difficult it is to create a widely recog- nized brand; typically, the focus of the marketing team. Brand management uses tech- niques to increase the perceived value of a product line or brand over time.

Well-established brands must be managed as part of maintaining the firm’s reputation. All brands have to re-establish themselves continually. Even luxury brands have begun to tout the number of their Facebook fans and Twitter followers. The Brand Directory pub- lishes the value of the largest worldwide brands. In 2018, the U.S.–based Amazon brand was valued at more than $150 billion, followed by the Apple brand at $146 billion, and the Google brand at nearly $121 billion. Korea’s Samsung brand was valued at $92 billion, and Chinese banking institution, ICBC, was estimated to be worth $59 billion.20

A recognizable brand is one that can immediately signal to stakeholders how the com- pany is different from its rivals. For example, the company 3M communicates innovation.

18 See P&G’s website at news.pg.com/media_contacts and additional information acquired through private communication. 19 For a thorough discussion of these issues, see Craig S. Fleisher, “The Development of Competencies in International Public Affairs,” Journal of Public Affairs 3, no. 3 (March 2003), pp. 76–82, and “8 Reasons Why Companies Don’t Succeed at Global RP,” PR Daily, February 14, 2014, www.prdaily.com. 20 “Global 500 2018—The World’s Most Valuable Brands,” Brand Directory, branddirectory.com.

Final PDF to printer

427

law43665_ch19_419-440.indd 427 01/21/19 03:36 PM

But increasingly, a truly iconic brand fosters an emotional appeal that creates loyalty, even love, of the brand. Brand consultants’ say that it is this emotional attachment that gives brands their market power. For example, the Apple brand (and its creator Steve Jobs) instilled such a strong emotional appeal that fans were moved to place hundreds of cards and flowers at numerous Apple stores around the world upon hearing of Jobs’s death in 2012. Similarly, Harley-Davidson riders tattoo the brand name on their bodies. It is diffi- cult to think of another brand that people would be willing to tattoo on themselves.

A corporation’s reputation is captured in a recognized and trusted name. The company’s name and logo act as its signature, a sign that says they can be trusted to deliver excep- tional value to customers. Often, brand management involves conveying what the product or service offers—the benefits, solutions to problems, or simply an experience. This can be challenging, because the experience may not be an obvious feature of the product. Charles Revson, the founder of the Revlon cosmetics company, commented that “in the factory we make cosmetics; in the drugstore we sell hope.”

When a company fails to meet the public’s expectations, people can retaliate by ascrib- ing a new meaning to a company’s name, with devastating results for its reputation. Some examples of some unflattering corporate nicknames are shown in Exhibit 19.A.

Crisis Managemen