Sponsorship has always been about buying audience reach via association, and brands have traditionally courted strange bedfellows to find new customers. Recently a number of hard-nosed corporations better known for their pursuit of profit, have sought alliances with the ethical fringe to win the hearts, minds and wallets of the new green consumer.
Grocery retailers who once shunned the organic movement as a niche premium sector outside the mainstream, now embrace Soil Association credentials. Nestle, once a pariah corporation on account of its powdered milk arrogance, now enjoys Fair Trade endorsement for its Partners Blend coffee, having seen the sales of ethical coffee take off. Now we learn that even Wal-Mart, the owner of Asda, is seeking endorsement from the Marine Stewardship Council for stocking only non-endangered fish species. Wal-Mart unashamedly declared this 'very good for the environment and also very good for business.'
Why do major corporations seek endorsements from ethical pressure groups, and who really benefits? Reputation is at risk on both sides: a corporation in association with a worthy cause may gain access to a new audience, but the negative risk is that financial stakeholders will see the alliance as peripheral to the core business. Conversely, while the benefit to the NGO is that its values have been appreciated by the corporate sponsor and that a David has moved a Goliath, the negative risk is that its own supporters may think that it has sold out to the values of its partner.
Reputation risk
The trend for commercial organisations to court NGO partners is such that last year a report on an international standard for NGO-business partnerships was drawn up by the Human Rights consultancy, TwentyFifty. Interviews were carried out among 34 NGOs and 13 large corporations to find out how far their partnerships had met their expectations. Corporations and NGOs can both learn from this study, as it highlights the pitfalls of aligning the aspirations of two culturally diverse organisations. Reputation risk is not fully understood by everyone, and indeed may be the last consideration in an operations-led partnership.
An explanation of what constitutes reputation risk is helpful: a person, place or organisation can have a reputation, and this is perception of character, an expectation of probable future behaviour. When the person or organisation fails to meet this expectation, there is scope for reputation damage due to the surprise this creates. The surprise will be expressed as disappointment, concern, disgust or outrage and can result in terminal loss of trust. Commonly, the risk is held to lie in a good reputation being devalued, but conversely a poor reputation can be redeemed. Reputation can be an asset or a liability: the risk to it therefore has two sides.
An organisation with diverse stakeholder groups can have more than one reputation. Typically a large grocery retailer might enjoy a good reputation with its customers for its low priced goods, but a bad reputation with its suppliers if it treats them with scorn as it drives down costs. Some companies have a bad reputation among their own employees: everything depends on how an organisation values different stakeholders. Commercial organisations traditionally aim to have a good reputation with investors seeking profit and growth. Engaging in socially responsible practices may not affect this group, but will appeal to other stakeholders, such as suppliers and employees, not to mention managers of ethical funds.
Studies in reputation risk damage carried out at the Centre for Risk Research at Southampton University, identify two main causes of reputation risk and five categories of damage. The main cause of reputation damage is self-inflicted and can be controlled by the owner. It arises from a failure either in people, product, processes or policies. Process failure in governance can lead to outrage, as with Enron or Barings. Product failure can require recalls, as happened with Perrier water. Policy failure can result in reputation damage as with Equitable Life. People error can occur where an individual inflicts damage, as with Ratners.
Reputation damage can also be caused by partnership or association with a third party recognised as having different values, and this risk is only partially controllable. Damage by association most commonly occurs where the third party is a sub contractor or outsource facility, typically selected on the basis of cost control. One thinks here of BA and Gate Gourmet, when the catering contractor managed to damage the reputation of 'the world's favourite airline'. Equally, many organisations outsource customer handling to call centres, with little regard to customer satisfaction and the ensuing risk to brand reputation.
The NGO-business relationship is a risk in itself, not just on the basis of values, but because each party may have different agendas and aspirations. What do the charities and pressure groups get out this unholy alliance? At best their standards are seen to be an authority, a benchmark of fairness and ethical values. At worst they will appear to have compromised the moral high ground for commercial benefit. An NGO must be sure of the business partner's motives. Corporations may seek partnerships with NGOs to signal a shift in boardroom philosophy, but they may just want a fig leaf of respectability for their commercial operations.
Cynics say it is more likely that the global corporation is looking for a quick win, a PR coup to attract new customers, rather than declaring a wholesale change in its culture. Yet, judging by the Wal-Mart example, there is a growing realisation at board level that things have to change to deliver sustainable policies. This pre-supposes that the commercial partner really has bought the moral argument and not seen a quick way to boost its own reputation.
- Garry Honey is a senior fellow at the Centre for Risk Research, Southampton University, E-mail: g.honey@soton.ac.uk
