Managing corporate social responsibility & reputational risk
A solid business continuity and crisis response framework provide a place from which to pivot and adapt to any developing situation.
A customer, who happens to have an Instagram following in the tens of thousands, snaps a selfie. In the background are hundreds of cattle packed into a small, muddy enclosure and being fed by a dozen workers wearing tattered clothing. The caption reads, “Bob’s Fast Food imports beef from a factory farm in central Asia where the workers don’t have shoes. You are what you eat, don’t support animal and worker abuse. #humanrights #animalrights #boycottbobs @BobsFastFood”
Within hours, the post has garnered over 1.2 million views and 200,000 shares. The social media frenzy leads to a slot on the evening national news, with footage of picket lines outside one of the largest franchises. Bob’s Fast Food stock has fallen, and there are calls for boycotts across multiple social media platforms. Factory workers at the farms strike and accuse Bob’s of human rights abuses.
There is seemingly no end in sight. Bob’s has already had to close locations across the globe. It will take Bob’s Fast Food years to recover the lost sales, and their social media feeds will be forever filled with negative press.
In an increasingly interconnected world, reputation is, or should be, garnering a much higher quotient on any firm’s risk matrix. If it isn’t, then a critical risk is going unmitigated. Reputation is arguably the most critical intangible asset a company possesses.
The connection between reputation, CSR and risk
Any CEO will say reputation is a top priority. But what does that mean in the context of risk management in a world governed by social media and 24-hour news?
The traditional cornerstone of risk is the quantification of potential financial losses. After all, the easiest way to get the backing of the c-suite in any risk program is to tell them exactly how much a crisis will cost them in lost assets, time and sales.
However, as stakeholders diversify, so do their expectations. In the 21st century, companies are required to become more personable. Customers no longer require the best bargain and often place values such as equity and inclusion, or environmentally friendly practices above the needs of their pocketbook.
Likewise, investors are more interested in companies that match their value system over the highest returns. They will hold onto shares of companies they see as honest and forthright. They also expect the companies they invest in to uphold social values like gender equality and human rights along the supply chain.
Corporate Social Responsibility (CSR) is defined as a self-regulating business model where a company commits not only to making money for its shareholders, but to implementing policies that have an overall positive impact on people and the planet. CSR initiatives would include a company’s diversity, equity and inclusion (DEI) and environmental, social, and governance (ESG) initiatives.
CSR reports point out how their reputation is a critical risk factor, and how the success of their DEI and ESG initiatives are likewise critical to their reputation. These topics are increasingly becoming the driving force behind stakeholder decisions.
If CSR, DEI and ESG are so intertwined with brand reputation, and brand reputation is a critical risk factor for companies, then they must integrate with risk management practices.
Global crises and their effects on reputation
One needs to look no further than the Ukraine-Russia conflict to see a near-perfect analysis of reputational risk and how CSR planning can directly affect how social media helps or hurts during an international crisis.
President Zelenskyy’s masterful use of social media has arguably won him global moral support, and has undoubtedly led to the financial and military backing Ukraine desperately needed. His campaign to utilize social media to disseminate accurate and real-time information also mitigated, although not prevented, the spread of misinformation. Still, the success of his fast and vigilant leveraging of social media is unprecedented in politics.
Major restaurants and retailers came under strict social media scrutiny when they were hesitant to shut down or respond at the beginning of the crisis, which began February 24. McDonald’s and Starbucks, along with others, did not announce closures until March 8, almost three weeks after Russia’s initial invasion, after their share values plummeted over 10%; the largest driver being investor anxiety over boycott hashtags spreading around social media. Despite efforts to redirect both messaging and profits to humanitarian efforts, both McDonald’s and Starbucks have yet to fully rebound several months later.
Juxtapose that against Apple’s early move to close its retail locations on March 1, and its well-defined argument for not shutting down app store access so Russian citizens can access neutral media. Apple’s share values recovered and gained within 30 days of the initial invasion.
Similarly, BP and Shell sold off their interests in Russian oil at the end of February, and have since mostly recovered their share value, or recovered and gained, respectively. BP is a great example of a company that has learned some harsh lessons over the last 20 years regarding reputational risk and is attempting to learn from its mistakes.
Geopolitical crises must be given a high impact rating on a risk assessment. Negative press from social media should be considered high likelihood and high impact, and mitigation efforts need to be incorporated into both risk and CSR planning.
Companies must get ahead of any international crisis that could potentially affect their reputation. They need to strategize far before these crises take hold, and they need to communicate early and often to the general public in a compassionate and authentic way. If a company waits too long to do the right thing, which could be mere days after the competitor, messaging may be interpreted by investors and the general public as too little, too late.
What is the next move?
There are several simple things companies can do now to ensure that when the spotlight of social media falls upon them, they can withstand the pressure and come out on top.
Revamp DEI and ESG initiatives and integrate them into the overall CSR planning. Thought leaders such as Forbes, Investopedia and SHRM all point out how CSR can improve brand image, bolster investor confidence and increase retention. Yet, many public CSR reports are simply re-dated from the year previous with vanilla changes to board and committee structures and a simple swap of photos. This kind of complacency is what leads to loss of investor confidence in times of crisis. For the many small and medium firms with no formal DEI or ESG initiatives, it would serve them well to create those frameworks now.
Think globally, act locally — but, also act globally. Even the smallest company can no longer afford to operate with a disregard or neutral view of the global geopolitical or environmental landscape. Businesses have long taken the “not in my back yard” approach to international events, opting to keep quiet and go about their business. That approach simply will not cut it with the millennial and Gen Z workforce and investor base.
If companies can take a more diverse and transparent approach to any international crisis through compassionate objectivity, they build trust and position themselves as thought leaders for their staff and their investors; and it’s a bonus if companies put their DEI and ESG plans to work and take active measures for humanitarian efforts during a crisis. These measures should be well-integrated into their risk management and communication strategy.
Integrate social media with the company’s value drivers and CSR and risk management framework. Most social media strategy is incorporated by marketing into a calendar for product and asset promotion. It is important to have a socially conscious, forward-thinking and intentional social media plan that considers local and global events, as well as important social issues and aligns them with the company’s mission and vision. It is equally important to ensure that the social media calendar is placed on hold in the event of a crisis or disaster, and utilized wisely as part of the communications strategy in the event of an incident. There is nothing quite so confusing (or tone-deaf) to stakeholders worrying about a crisis as seeing the usual weekly brand awareness posts on social media.
Have a crisis management plan that is tested and updated often. The importance of a relevant and updated crisis management plan cannot be understated. If COVID has not already taught this lesson, a crisis such as the Ukraine-Russia conflict is a perfect example of how political upheaval around the globe can and will affect even the smallest businesses. Large and small companies need to have 21st-century business continuity and crisis planning in place.
No plan can cover all scenarios, but a solid business continuity and crisis response framework, fully integrated at every department and level of the organization, serves as a place from which to pivot and adapt to any developing situation. It is the mechanism by which an organization can ensure all the above measures are implemented appropriately in a time of crisis.
Misti D. Freeland (mfreeland@lowersriskgroup.com) is associate director of risk & litigation consulting at Lowers & Associates. Her background in civil litigation, insurance defense, and corporate governance helps clients navigate their expert witness needs.
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