Peter Sandman, America’s leading risk-management guru, was parachuted into Hamburg by Deutsche Shell, amid a blitz of firebombs on Shell petrol stations, to douse the flames of public outrage over the planned sinking of the Brent Spar oil storage buoy and to attempt to salvage Shell’s public reputation.
As the Red Adair of the world of corporate reputations, Sandman turned on his hoses and delivered some uncomfortable advice: he told Shell that the problem would not go away, that the company must cut its losses, admit its mistakes and be much more transparent to the public.
“Shell had done its hazard research on its own terms,” says Sandman. “It had worked out the best environmental option – and the technical case for sinking Brent Spar was pretty good. But it had not anticipated the public outrage.”
The essence of risk for most companies – as it was for Shell – is the hazard itself, which is defined in technical terms. For the public, however, risk is not technical at all. It is influenced by factors such as fairness and trust. So problems arise when companies fail to see the gap between their own perception of risk and that of outsiders.
When companies believe that the environmental hazards of their activities are low, they tend to think that they can ignore or deflect public outrage. Many do still underestimate the effect of public anger. This tends to make the public more angry and stokes the controversy further. Eventually pressure builds to the extent that the company cannot ignore public opinion any more and ends up going too far to reduce the hazard, perhaps spending millions on a piece of equipment that it had already decided was not necessary.
Sandman has clearly identified the fact that public outrage can be as real as any other hazard and can have a direct effect on share price. One third of a company’s share price, it is said, is accounted for by its reputation, and this may explain why nine out of ten big companies now have risk managers in place.
Now Sandman has distilled and repackaged his fire-fighting experience into a new reputation risk-management software program to help companies, institutions and government agencies to predict, quantify and manage public reaction to their plans. The program, called Outrage, is interactive and designed to be used in a workshop, tapping into operational, legal, public affairs and other areas of a company where an impact might be felt, building up a picture of external stakeholders and their likely views in specific situations.
The user prepares a quantitative assessment of how much outrage is likely on a 1,000-point scale, and his strategies to deflate opposition are rated against an “outrage meter”. Sandman’s own approach is then given, or a case study example from his own consulting experience. The program is aimed at the oil and gas, mining, pharmaceuticals and chemicals industries, the insurance and financial sector and the regulatory sector, where the public has high expectations of performance.
“The core task of the program is to help companies or organisations to figure out how much outrage is implicit in a situation, to work out where it comes from and what to do about it,” says Sandman. In the case of Shell and Brent Spar, Sandman believes Shell had consulted correctly with everyone it had to legally, but had done little with other interest groups such as the non-governmental agencies.
“The Brent Spar case was actually a relatively low hazard risk and the outraged reaction wasn’t inevitable. But once it had erupted there was nothing they could do. In order to repair their reputation Shell had to develop an accountability mechanism.”
The problem facing many companies in their reputation management is what is called a “decline of deference”. This means that the kind of apathetic but credulous audiences for whom a bit of spin-doctoring might have worked in the past have become more attentive but also more sceptical. Spin-doctoring does not work with attentive but sceptical audiences.
The costs of ignoring outrage or of attempting to spin it away are not limited to a single aspect of a company. “A Canadian multinational client had a proposal to build a facility in the US that attracted a great deal of controversy,” Sandman told Australia’s Business Review Weekly magazine.
“That subsequently cost them a facility in Chile and a licence to operate in Africa. Local managers are no longer just managing a local venture. With the power of media like the Internet . . . they are inevitably managing a large part of the company’s reputation as well. If a manager is unable to deal with outrage effectively, the costs spread worldwide.”
Sandman’s Outrage is the first software approach to risk-management. Big companies, such as ICI, which use a combination of specialist risk managers and public relations consultants, are sceptical about its possibilities. “ICI does its best to get its message across using all media, including the Internet, where our website is updated by the minute,” says ICI’s Geoff Paddock. “But we are interested to see this new system.”
ICI’s environmental performance is constantly under scrutiny and its annual meeting recently was marred by a demonstration by Friends of the Earth in protest at the company’s record on pollution.
Monsanto, likewise, has a serious problem with public perception over the GM foods issue. What would Sandman’s advice be? “A major mea culpa. They’ve got to apologise to the public and move on. I would advise them to withdraw their opposition to labelling and make themselves more transparent and accountable.”
Copyright © 1999 by The London Times
