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Outrage management for a decentralized global enterprise

· Ethics,Reputation,Enron

Outrage and Risk Communications expert Dr. Peter Sandman comments in part V of our review of Enron with a focus on outrage management for a decentralized global enterprise.

In part IV of this series, I focused on Ethics. If the challenges I outlined in that post weren’t complicated enough, it gets a whole lot more complicated when a business operates across a wide range of countries, each with its own legal standards (or absence of legal standards) and each with its own cultural values and outrage hot buttons.

How can a decentralized multinational corporation with global reach into wildly different countries and cultures police the outrage management practices of its many arms?

This wasn’t a major issue for Enron. Although Enron did have operations in other countries, it was an American-run corporation whose sudden collapse outraged the American public, provoking American criminal prosecutions.

But it is a major issue for many of your clients, as it has been for many of mine. I don’t have a comprehensive answer, a blueprint for global outrage management. But the following four points might be a step toward such an answer.

Keep the outrage management function centralized.

Like many other complex organizations, multinational corporations seem to “restructure” periodically from centralized to decentralized and back again; each new structure has disadvantages that eventually convince management to reshuffle the deck. Clients I have worked with for decades have gone through several restructuring cycles while I watched.

Whatever the pros and cons of centralization versus decentralization, I am convinced that reputation is a core corporate function that needs to be managed from headquarters. And stakeholder outrage is a core determinant of reputation; it is virtually synonymous with “bad reputation,” how hated you are. It follows that outrage management must be centralized.

The reason is very straightforward. The local manager of an individual facility or subsidiary rightly judges that his or her career depends on the success of that single operation. So he or she will understandably do whatever it takes to keep that operation functioning and in the black. All too often, “whatever it takes” includes taking reputational risks that endanger the whole enterprise.

From the local manager’s perspective, that’s entirely rational. If you’re in charge of just one mine in one country, shutting down that mine is your worst case scenario. Arguing with critics, calling the police to arrest protestors, lying about opponents, lying to opponents, betraying promises – none of that is too high a price to pay to keep your mine open. You don’t quite notice that activists are at least as globalized as mining companies, and that your local battles with local stakeholders are fueling controversies around the world, damaging your parent company’s reputation and damaging its bottom line far more than your single mine is worth.

It’s even worse if the mine is a joint venture, diffusing decision-making in ways that are extremely dangerous to corporate reputation. If you’re partnered with an autocratic government that routinely “disappears” its critics, you will rightly share the blame for your partner’s depredations. Ditto if you’re partnered with a company that has nothing to lose because its awful reputation is already a sunk cost, or with a company that has everything to lose because its partnership with you on this one venture is its only possible path to profitability. Neither of these partners will see reputation as a serious issue the way your parent company does (or should), so they will respond to stakeholder outrage without sufficiently considering the reputational implications of their response. A company that establishes individual ventures as legally separate corporations in hopes of avoiding liability if something goes badly wrong is also taking a bigger reputational risk than it may realize. Once again, the top people of each local corporation will prioritize the survival of their little company ahead of the reputation of your big company.

Every sentence in the preceding paragraphs is grounded in real cases – clients that learned to their sorrow how decentralization can undermine reputation. Virtually every “local” controversy of a multinational corporation that I have worked on in recent decades wasn’t really local. Local opponents were in touch with opponents elsewhere, relying on them for tactical advice and substantive ammunition. The parent company’s reputation significantly affected the supposedly local dispute, and how local management handled the dispute significantly affected the parent company’s reputation.

In short, local outrage often doesn’t stay local. So local outrage management shouldn’t stay local either.

And yet implementation has to be local. If somebody attacks your company on Facebook for something local management did yesterday, you can’t refer the problem to some corporate reputation management official on another continent. What’s needed is a quick response from a local person who knows the situation, knows the environment, and ideally knows the author of the attack. And knows the basics of outrage management. And knows that the response may well reverberate around the world and across the years, and therefore needs to be crafted with more than the local controversy in mind. And knows that somebody at headquarters will see the response, assess its impact both locally and globally, and reward or punish the responder accordingly.

Assess outrage in ways that are culture-specific. Then consciously decide which culture’s outrage to prioritize.

The core of the problem posed in your comment is that outrage is culture-specific. What one culture sees as an egalitarian approach to gender another sees as impious. What one culture sees as a totally conventional tip that enables a minor government official to support his family another culture sees as a bribe. What one culture sees as free expression another culture sees as moral decay. Major questions like whom you hire and minor questions like what food and drink you serve at an office party are all dependent on where you’re doing business.

So how should you reconcile these conflicts if you’re doing business in lots of places with discrepant values? This is a can of worms, but let me propose five rules-of-thumb that might help a little:

  • Rule One: Think explicitly about these outrage-versus-outrage conflicts. You can’t decide how to reconcile them if you haven’t properly formulated them: “Stakeholders here want us to do this whereas stakeholders over there want us to do that, and they’re both likely to get outraged if we don’t do it their way.” For obvious reasons, headquarters executives tend to assume that the only values in play are the values that characterize the place where the company is headquartered. Local managers wear a different set of blinders; they tend to assume that only local values are in play. Get in the habit of assuming that several sets of values are likely to be in play, that there will be culture-related conflicts. Take it as a given that outrage is culture-specific, rarely universal. When people proclaim a universal value, they usually mean they think it ought to be universal. Even if they imagine or pretend it already is, you need you know it very often isn’t.
  • Rule Two: Most of the time local values and local outrage should preempt distant ones. “When in Rome, do as the Romans do.” That’s the default. You don’t need a reason to defer to local outrage. You need a reason not to. This rule is purely empirical. Offending local values and outraging local stakeholders is usually more costly than offending and outraging people far from the scene. Note, however, that this is becoming less and less true as the world gets smaller and more integrated. If most of your shareholders or most of your most powerful opponents are in Country X, far away from your local operation, then flouting the values of Country X may be more costly than flouting local values.
  • Rule Three: The most common exception to Rule Two arises when local values are unusual and local outrage is likely to seem unjustified everyplace else. This is especially the case when people everyplace else don’t know or don’t care that your particular group of locals have unusual values, when they mistakenly think their own values are universal or fervently think they should be. Deferring to weird local values that the rest of the world is unaware of or disapproves of is likely to arouse too much outrage everyplace else. And the reputational cost of local outrage goes down if people everyplace else admire your courage for refusing to “do as the Romans do.” (Even so, the operational cost of local outrage may be decisive. Imagine Barrick hiring women to drive the ore trucks at the Jabal Sayid mine in Saudi Arabia. Global admiration notwithstanding, the mine would quickly be shut down.)
  • Rule Four: In close calls, favor the side that imagines its values are universal. That’s the side that will get most outraged if its values are flouted.
  • Rule Five: It sometimes helps to share the dilemma – that is, to tell both groups of stakeholders that you’re being hung out to dry between two inconsistent sets of values, and somebody’s going to be outraged whatever you do. That may not do much good with people who think their values are or should be universal. But especially in the democratic West, cultural diversity and cultural relativism are themselves revered values that you can usefully appeal to. You can dilemma-share even after you’ve done something and are getting flak. “We felt we had to do that because….” But it’s more effective to dilemma-share beforehand, and even to seek counsel: “How should we reconcile respect for local values in Country X with the quite different values in our home country? We used to think that our own values were universal, until we got to Country X and found that they see things very differently.”

Assess outrage in ways that are stakeholder-specific. Then consciously decide which stakeholders’ outrage to prioritize.

Virtually every client I’ve ever had maintained a list of its stakeholders. The list might be detailed or sketchy, prioritized or just alphabetized. But there was almost always a list. Even clients who knew next to nothing about outrage management knew that outrage is stakeholder-specific.

Sometimes you can address the outrage of one stakeholder group without needing to think about any of the others. Only the one group is upset about what you did, and you can find ways to satisfy that group that won’t upset some other group. But lots of times you have to choose which group to upset. The most obvious example: What appeals to your supporters usually angers your opponents; what conciliates your opponents probably irritates your supporters.

This is where my distinction between “good reputation” and “bad reputation” becomes crucial. Most of my clients take their reputations seriously. And they know they have a multiplicity of stakeholders with competing expectations and values. They know they have to decide whose outrage to prioritize. But I think they’re paying much too much attention to their “good reputation” and much too little to their “bad reputation.” They’re working hard to be more loved (“We’ll build them a park!”), and shrugging off what I consider the more important task: working to be less hated.

Whether or not they explicitly prioritize among stakeholders, my clients almost invariably have an implicit priority order. Financial analysts and shareholders are at the top. Then come customers, regulators, politicians, employees, suppliers, neighbors, and the general public (via the media) – in roughly that order. If activists and critics are on the list at all, they’re usually at the bottom. Surprisingly often they’re omitted entirely.

When I ask clients why they’re giving opponents such short shrift, I get two answers. “Opponents hate us already, so they’re a lost cause” and “it’s more useful to build and sustain support than to try to calm the opposition.” I disagree on both counts.

I won’t reiterate here everything in my “Two Kinds of Reputation Management” column, but let me make one key point. There’s a huge difference between disliking you and deciding to do battle against you. Activists have insufficient resources to go after all the potential targets for their activism. They have to choose – and that’s a competition you don’t want to win. One of the main goals of outrage management is to lessen the odds that opponents will choose to go after you (or to keep going after you) instead of picking a different target.

(I’ve always thought my clients’ real reason for focusing on mobilizing support at the expense of ameliorating opposition was simply that mobilizing support feels better. Plotting with allies is easier on the ego than apologizing to enemies. I can’t argue with that.)

My case that “bad reputation” affects a company’s bottom line more than “good reputation” is strongest in the multinational, multicultural arena. Bad news travels fast. Nobody in Malaysia cares if your company is greatly admired in Italy, and vice-versa. But if opponents in Malaysia or Italy are raising hell about your horrible actions there, activists and maybe even journalists in the other country perk up their ears. It’s arguable that strong support on your home turf does as much good as strong opposition does harm. I don’t think so, but it’s arguable. For sure, strong support in your far-flung outposts matters hardly at all anywhere but there. Strong opposition in a far-flung outpost resonates everywhere.

Don’t neglect the rest of the LEADS mnemonic, especially law and ethics.

As I’ve tried to suggest throughout this response, law, ethics, and outrage are separate, successive sieves through which a wise company filters its plans. You filter out what’s illegal; then you filter out what’s unethical even though it’s legal; then you filter out what’s going to arouse excessive outrage even though it’s legal and ethical.

The legal sieve is paramount. Law trumps outrage, period. If something is illegal in Country X, you can’t do it in Country X – regardless of whether or not there are stakeholders likely to become outraged that you didn’t do it. Saudi Arabia is the only country in the world that doesn’t permit women to drive. In Saudi you don’t hire female drivers.

If obeying the law in Country X is likely to arouse enormous outrage elsewhere, then maybe you shouldn’t be doing business in Country X. Or maybe you can lobby to get the law changed. Or maybe you can take steps to ameliorate the outrage. This last point is worth underlining. Anticipating that some action is going to arouse outrage always means you should reconsider whether it’s good business to take that action. But sometimes after reconsidering you decide to go ahead, ameliorating the outrage as best you can.

What if the law in Country X prohibits your company from taking some action anywhere, even in Country Y where it’s perfectly legal? In the U.S., for example, the Foreign Corrupt Practices Act criminalizes as bribery what is considered in much of the world to be merely “grease” or a “facilitation payment” or a “tip.” This obviously puts U.S. businesses at a competitive disadvantage in those countries. Too bad. They can lobby to change the law, but they would be very foolish indeed to flout the law.

The ethical sieve is the weakest. It’s the toughest to implement because it doesn’t have obvious repercussions. Breaking laws or outraging stakeholders does a company obvious harm. Behaving unethically doesn’t (unless it also breaks laws or outrages stakeholders). That’s why societies work so hard to codify consensus ethics into law – and why law enforcement sometimes succumbs to the temptation to punish ethical violations that aren’t actually illegal. And it’s why we all instinctively understand that if we want other people (and companies) to behave in ways we consider ethical, we have to voice our outrage when they don’t.

I’m frankly not convinced that “business ethics” has all that much influence on how businesspeople behave. I have a lot more faith in the power of law and outrage. I have consulted maybe a half-dozen times on the drafting of corporate ethics or values statements. It always seemed to me that most of the specific prohibitions in those statements were things that were already illegal or likely to arouse stakeholder outrage, making the ethical injunctions almost superfluous; the remainder were too-vague-to-be-actionable generalizations.

But I’m not so cynical as to believe that ethics – and even corporate codes of ethics – never add value. And they add the most value in what your comment calls “largely unregulated markets” – that is, countries without effective rule of law.

The corporate manager who is least constrained by law and outrage is the one who’s doing business on the company’s behalf in some far-flung outpost that isn’t on any activists’ radar. In a worst case scenario, rule of law is weak. Local outrage is impotent because the company is in bed with the government. Or local outrage is unlikely because the company keeps quiet and virtually invisible. International outrage is always a possibility, but to a mid-level manager on the periphery, it may seem too unlikely to worry about. Just about the only thing deterring that mid-level manager from cutting corners is the internal chain-of-command enforcing the company’s ethical code and ethical values.

Managers who value their careers pay attention to whether their companies are serious about their ethics statements. They get a clear signal that cutting corners is career suicide or that cutting corners is a good way to get ahead.

Companies that take ethics seriously have little trouble signaling that fact to their middle managers around the world. Middle managers have little trouble picking up the signals. Your comment mentions the problem of countries where “Group Ethics and Conduct Standards cannot be easily enforced.” If a corporate official charged with “enforcing” ethical standards is having a tough time convincing employees that “ethics matter in this company,” my starting hypothesis would be that top management has already signaled otherwise.

One final point: It’s not always easy to tell when a company policy is motivated by ethics, law, or outrage – or a fourth possibility, public relations (“good reputation,” basically). And maybe it’s not important to figure out which it is.

For example, companies sometimes decide to impose worldwide standards on themselves, even though no law requires them to do so. A company might adopt the toughest legal standard of any country in which it operates as its voluntary standard wherever it operates. Or a company might adopt a code promulgated by an internationalNGO, committing itself to obey the code as if it were international law. Some companies have adopted these kinds of worldwide standards governing pollution, safety, corruption, transparency, etc.

Why do many multinational companies impose worldwide standards on themselves when they don’t have to?

  1. In part, they’re seeking the simplicity and efficiency that comes with a one-size-fits-all set of rules.
  2. In part, they’re motivated by considerations of traditional public relations. Companies with tough voluntary standards typically showcase those standards and hope to reap “good reputation” benefits.
  3. In part, they’re in pursuit of a legal safe harbor. Regulators often see a company’s voluntarily adopted standards as a sensible reason to focus their regulatory efforts elsewhere. If a company is holding itself to a set of standards tougher than your country’s laws, why spend a lot of time looking for violations of your laws?
  4. In part they’re truly enforcing their own ethical values – especially about safety. When I talk to certain clients about their tough worldwide safety standards, I really get the feeling their commitment to those standards is heartfelt.
  5. And in part – often the largest part – they’re trying to manage outrage. I have helped clients negotiate agreements to adhere to some code promulgated by an NGO. Usually the companies that were interested in signing up were already under attack or trying to avoid coming under attack.

It’s only in theory that law, ethics, and outrage are separate sieves. In practice they’re often entangled.

If you enjoyed reading this post, read the other posts in this series: 

Part IV: What about Ethics? 

Part III: Legal Punishment for Outrage Offenses

Part II: Illegal versus unethical versus unacceptable

Part I: Enron: Laws versus ethics versus outrage

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