Which comes first, reputation or responsiblity? A paradox for companies and organisation alike.

Introduction

 

This article will discuss, whether an organisation can manage an issue that is critical to its reputation without compromising its position on social responsibility. First the relationship between an organisation and society will be examined. Secondly, contemporary case studies will be outlined to help identify the differing role issue management plays in managing an organisation’s reputation.  Finally, this paper will conclude whether issue management compromises an organisation’s social responsibility.

 

Perspectives

 

Milton Friedman's believes ‘the business of business’ is business. He argues that management's overriding obligation is to increase value for shareholders. If organisations try to pursue the social good directly, they will impoverish society by taking bad decisions.(Citizen, 101) 

 

In contrast, both Peter Drucker and Charles Handy argue that organizations should become "membership communities".(Citizen, 101). By ‘membership communities’, Handy and Drucker mean that organisations should serve in the interests of the community, and in doing so will bring benefits both to society and the organization.

 

There are various types of organisations e.g government, charities, businesses. Society relies on organisations to bring many social, economic and political benefits through their services and products. For example, organisations provide services such as health, education, income and goods such as food, medicine and fuel. In this respect an organisation can be viewed as supplying the demands of society.

 In contemporary times social activism campaigns have targeted organisations to operate socially responsible. Grunig (1992) defines activism as groups of people that act to influence other publics through action. They may include NGO’s, Charities or even QUANGO organisations. (e.g. Green peace, Friends of the Earth, Age Concern, United Nation). The actions that have been used by these groups have included demonstrations, lobbying government to change policy, as well as bringing attention to the media of bad practises that organisations engage in.

Furthermore, organisations operate in a very competitive environment because of new markets and technology.  For example, the UK manufacturing industry is under increased competition from China.

An organisations reputation allows it to differentiate from its competitors but also to gain support with its customers, stakeholders and society as a whole. (Tench, 2006, p541) Therefore, it is critical for an organization to manage its reputation because it is an asset that enables it to survive an increasingly competitive environment. By not managing an issue effectively, an organizations reputation can be tarnished.

 

Burson-Marsteller, defines an issue as being ‘the challenges to an organisations reputation, stability and freedom to operate.’ The consequence of which can lead to  ‘disrupting operations, create media firestorms and lead to crises.’ (www.bm.com) This can then result in pauperising society.

 

To operate Socially responsible “an organisation needs to promote the good of others and avoids the harm of them.” (Moloney, ‘CRS and ethics’, p.1, 2006). Therefore, by managing an issue and protecting its reputation an organisation can be seen to be working in the interest of society. As managing an issue allows an organisation to function properly and meet the demands of society.

 

 

By not managing the issues effectively an organization is acting irresponsibly as can be seen from Northern Rock in 2007. Northern Rock failed to identify the weakening economy in the UK. As a result of the weakening economy, investment banks could not lend money to Northern Rock for mortgages. This resulted in Northern Rock borrowing money from the Bank of England.. (www.economist.com)

 

The issue created panic with Northern Rock customers and caused the share prices to drop by 37% in a single day. Additionally, policies surrounding mortgage lending were made stricter resulting in 1.4 million homeowners facing a sharp jump in loan repayments – “up to 60 per cent in some cases”. As a result, higher repayments for existing mortgage holders and the possibility of people becoming homeless. (www.ft.com, 2007, a).

 

Issue management (‘IM’) is ‘a managerial function’ that identifies ‘potential and emerging issues’ allowing an organization to establish the impact of the issue and co-ordinating and mobilizing organizational resources to ‘strategically influence the course of those issues.’ Meng (1987) (p, 27) (Richard Alan Nelson, (2000)‘Bias Versus Fairness: The Social utility of issue management’)

 

According to Vickers (2007), there are four key practices for effective IM. Firstly, an organization should release all bad news immediately. Secondly, it should apologise, and illustrate contrition. Thirdly, bring in independent advise and finally to cite previous track record.

 

For example, The Labour Party in November 2007 had a major issue relating to third party donations from a wealthy businessman David Abraham, donating a total of £600, 000 pounds. The main concern was Labour party’s failure to register the donation to the Electoral commission.  This consequence of this issue could have led to many crises including the disruption of government operations, the day to day decisions needed to be made on welfare matters and Gordon Brown’s (‘GB’) reputation as Britain’s prime minister could have been undermined. By effectively managing the issue effectively GB prevented any disruptions.

 

GB was able to limit the damage caused by the donation scandal, firstly, announcing all the bad information at the beginning. Most information was communicated through various mediums including TV, Radio and the internet. Gordon Brown was able to communicate the facts to the public and prevented any further information from being leaked and wrongly advocated.

 

Secondly, in the House of Commons Gordon Brown acknowledged the donation was given to the labour party, however it was a mistake to accept the money. This portrayed he understood the fustration and worries of the public preventing panic in government and the country.

 

Thirdly, GB announced a full investigation in to the matter by the Electoral commission. This allowed the opportunity to offer rationale comments and discussion to occur. This illustrates that issue management can also act as a tool to encourage the freedom of information. (Richard Alan Nelson, ‘issue management: An overview’, p.4)

 

Finally, GB reminded the people that the Labour Government introduced the legislation relating to party funding. (http://icwales.icnetwork.co.uk/) By doing this it allowed GB to

establish his credibility as the prime minister, by establishing that although this was a mistake, ultimately he exists for good of the country.

 

IM also helped to identify the problem with party funding and as a result a full investigation looking in to reforming the political funding system. Furthermore, IM enabled Gordon Brown to take day-to-day decisions during the issue and preventing any disruption in the running of government.

 

 

 

 

IM has three essential functions. Firstly, IM integrates public policy with the organisations strategic business plan and management. This allows an organization to meet its own interests i.e. profit, without conflicting the public interest. As the business plan takes into consideration of issues concerning the public. For example, Dutch Shell recognizes the issue surrounding oil refineries and has developed in to its business model investing in to researching in to renewable energies.

 

The second function of IM is to communicate issues to key stakeholders of an organisation. By communicating the issue helps maintain confidence with the organizations key stakeholders. It illustrates the organization has recognized an issue exists and is not trying to hide the facts. This prevents information to be sensationalized by the media that can cause panic among the public. Which can then result in to a crises. For example, The Virgin Train crash in Cumbria, Richard Branson made an announcement on national TV about the crash, this illustrated to the stakeholders of the organization that the company recognizes that an issue, preventing any bad publicity and panic. Furthermore, by Richard Branson announcing the incident suggests Virgin Train Company is taking the matter seriously. As a result , the share price of the company was unaffected and the reputation of the company was maintained.

 

Finally it involves, monitoring and analysis of the issue so that an organisation can meet the changing standards of Corporate social responsibility (‘CSR’). By monitoring the issue, the organization is able to understand the concerns of the public and its stakeholders and develop policy that meets the public needs. It also enables an organization to engage in CSR. 

 

“CSR is the commitment by business to behave ethically and contribute to economic development and also to improve the quality of life of the workforce and their families as well as of the local community and society at large”. (Raymond Ewing, ‘Issue Management: An overview’, p.4) By “monitoring” an issue, an organization is able to identify what is considered to be ethically acceptable and then able to contribute in resolving the issue and as a result benefiting the community. For example, 

 

 

IM brings many benefits to society and can be used to help organizations to understand the needs of society and as a result protect its reputation.

 

However, IM benefits can be seen to be a tool that fundamentally protects the interest of the organization. For example, the amount of money invested by Shell in to renewable energy is millions of pounds in comparison to the billions on refining oil. This suggests that Shell is interested in making profit rather than actually resolving the issue highlighted by activist groups such as Green Peace and Friends of the Earth. Instead IM enables Shell prevent activist groups from taking further action and prevent any damage to its operations.

 

Instead, It could be argued that IM is used as a veil to enable an organization to engage in to practices that would otherwise be considered not socially responsible. IM can be seen to be as a form Sophistury.

Furthermore, IM best practices suggested by Vickers (2007) can help manage an issue. However, by following these practisies does not mean an organization can protect its reputation. For example, even though GB managed the issue according to the best practices, the issue still affected his ratings in polls. Furthermore, it impacted upon his reputation as prime minister and may have an adverse affect at the next general election.

 

By implementing a CSR program it allows an organization to dampen the real issue. So instead of managing an issue, IM could be seen as a tool to divert attention. Additionally, if pressure groups such as Green peace or Friends of the Earth did not exist whether Shell would introduce any CSR initiative is questionable.

Furthermore, measuring the success of IM practise is not very easy. Even though there are best practices, these do not necessarily mean that an organization can successfully deal with an issue and prevent an issue from effecting an organizations reputation.