King III – Pushing for Trust and Transparency

By Tim Shier on 2010/03/08

Trust and Transparency. Two words relevant to anybody who has anything to do with a brand’s stakeholders – which is everybody. Corporates and SMMEs alike are striving for this Holy Grail of the 21st Century and with good cause. 

A recent study by Edelman found that 83% of stakeholders believe that transparency and honest practices have the greatest single impact on their purchasing decisions (with trust following at close 2nd). This makes it the single biggest driver of business, ranking well ahead of both quality of service and product (which now comes in 3rd). Stakeholders are climbing Maslow’s hierarchy of consumer needs and they want more – much, much more! Great products and services are simply no longer enough. 

Stakeholders have found their voice in the form of online conversation. Brands are built and ruined on a daily basis based entirely on what people are saying about them online. As James Smith (CEO of Aurora Foods) put it “Brands don't die, people kill them, if they're [brands] kept modern and relevant, they'll continue to grow”. Don’t get me wrong, there are many other factors at play here, but with the Internet rapidly saturating our lives - its highly connected nature, its instant (and global) distribution and the strength of online referral networks, it has become suicidal to ignore this frothing pot of opinion, fact and continuous conversation. 

78% of consumers are impacted by what others say online and brands are quickly finding themselves in trouble. Competing with the sheer volume of conversation is impossible (as so eloquently argued by Clay Shirkey in his recent TED talk). It’s now a game of numbers and finding a mechanism of getting your consumers on your brand’s side is now vital to almost any brand’s success. On the upside, companies which fulfil the brand promise are richly rewarded with strong communities of support (as is the case with Harley Davidson among many others). 

The power of the stakeholder has become so overbearing that stakeholder reputation management has even found its way into the recently launched King III Corporate Governance best practice guide with an entire chapter (1 of only 9) dedicated to the topic. 

Brands are fast realising the power which stakeholders have. As far back as 2006, the American Journal of Marketing has linked reputation to share price. The reputation crises in 2009 alone strongly demonstrate what brands stand to lose in this environment. Consider Apple for a moment, they lost 10% market capital in 11 minutes due to one blog post, a whopping R100 billion. Further research is now finding that a brand’s reputation amounts to approximately 20% of the total company value. It is fast becoming the largest market differentiator available to any company. 

What does King III have to say? 

Within the King III Report are 4 main points which relate directly to the management of the conversation online. These include: 

The board should appreciate that stakeholders’ perceptions affect a company’s reputation. Stakeholder’s interests and expectations, even if not considered warranted or legitimate, should be dealt with.

Social Media has introduced a whole new dimension to this. There are over 500 000 new content producers joining Social Networks daily (across just Facebook, LinkedIn, MySpace, Twitter and blogs). This, combined with news, company comparison and consumer review sites appearing all over the Internet means that stakeholders are increasingly informed and empowered to comment and ultimately define the brand themselves.   

The board should delegate to management the ability to proactively deal with stakeholder relationships.

Stakeholders are increasingly cynical and today, more than ever, are choosing their referral networks with care. People are very sceptical of commentary coming from the CEO with research indicating that trust is sitting at 40% (Edelman Trust Barometer 2010). A Neilson ‘Trust in Advertising Report’ concurs with this research, noting that 78% of individuals trust the recommendations of other consumers before the company itself.      

Transparent and effective communication with stakeholders is essential for building and maintaining their trust and confidence.

The age old adage, “people buy from people they trust”, still rings true. The recent Ask Africa Report stated that, “The link between reputation, trust and CEOs are clear, considering that winning companies have winning CEOs and executives”. The trend of complete transparency to your stakeholders (as has been successful with Dell’s Idea Storm and General Motors’ new business strategy among many others) demonstrates a need for companies to re-earn the trust of their consumers. The use of online stakeholders as an ongoing research sample and unrelenting reputation tracking and engagement, provides companies with high-level strategic inputs, proactive brand integration. Ultimately, this provides an opportunity to build an honest relationship with stakeholders. More importantly, it arms companies with the information necessary to fulfil their brand promises. Critically, stakeholders can find any information they desire online and companies which embrace transparency claim first mover advantage and stay ahead of this curve. 

The brand should ensure disputes are resolved as effectively, efficiently and expeditiously as possible.

Warren Buffet said it succinctly, “It takes 20 years to build a reputation, and 5 minutes to ruin it. If you think about that, you will do things differently.”Online stakeholders tend to gravitate towards a champion (an influencer with a strong point of view) of the cause. Resolving the problem before this champion rises up is a sure-fire way to save face and keep the share price on a stable footing – for this,  ongoing reputation management is required. 

It need not be all doom and gloom and engaging with the online conversation need not be a painful experience. There are daily opportunities to demonstrate transparency and build trust in this space. Brands which engage do far better when facing a reputation crisis. There are many services (such as our own BrandsEye) which make this very simple to monitor, measure, manage and maximise the conversation taking place online. 

Ultimately, the measurement and subsequent management of online reputation provides the key insights to know where, when and how to manage a brand’s corporate reputation. This ensures the company is continually narrowing the gap between perception, performance and the brand promise to ensure longevity and sustainable profits. 

Feeling the stakeholder pressure? Contact the BrandsEye team today and get your reputation on track.