Reputation raters in transtasman trouble

Friday 23rd November 2001

Reputation, wrote US management guru Michael Iapoce, is character minus what you've been caught doing. It's also one of the world's fastest-growing industries.

Lately the ubiquitous public relations firm is being supplemented at the corporate trough by a new breed, the "reputation consultant."

For a modest fee these worthies will advise the busy executive on what today's tree-hugging organic consumer is watching and wearing, which business activities should be emphasised and which kept at the back of the closet, and how to keep the front steps clear of slogan-chanting anti-capitalism protesters.

Down these parts the phenomenon has washed up in the unwelcome form of newspaper publisher John Fairfax Holdings' Good Reputation Index, published earlier this year for the second year running.

Such was the fuss the 2000 index caused that this year 37 of Australia's biggest companies got together by conference call to discuss their concerns.

As the index covers New Zealand companies operating in Australia four of our biggest firms - Air New Zealand (pre-Ansett), Carter Holt Harvey, Lion Nathan and Telecom - were also rated.

The GRI aims to measure and rank corporate reputations by having them rated by "research groups" covering six major "stakeholder" categories - employee relations; environmental performance; social impact; management, ethics and governance; financial performance; and market position.

The companies covered are the top 100 as defined by Business Review Weekly, a Fairfax magazine. The results are published in two of Fairfax' flagship dailies, the Age and the Sydney Morning Herald.

The index is under attack on four main counts, detailed tellingly by the Bulletin's Fred Brenchley in an August 8 article.

Firstly, companies can't be compelled to take part but they'll be included anyway. In what could be interpreted as a form of blackmail, "non-responding" companies are assigned, according to the whim of the researcher, a base, mean or zero score.

The next two points of contention concern perceived conflict of interest.

Companies object to the use of category raters who have an obvious beef with many of the companies being rated. They question, for example, the use of the Australian Council of Trade Unions as one of the four groups used to rate reputations for employee management and Greenpeace's inclusion in the review panel for environmental performance.

A related point of contention is the use to which information participating companies provide may be put. Greenpeace, for instance, says it considers any information it collects as an index researcher to be in the public domain. As many of the Australian companies rated are involved in resource-depletion activities they regard giving information to Greenpeace as sleeping with the enemy.

The role of the index's compiler, consultancy Reputation Measurement, has also been called into question.

Two companies spoken to by the Bulletin - ANZ Bank and mining giant Rio Tinto - reported that during their discussions with RM about participation in the survey RM's representative suggested that their position on the index might be enhanced if they were to employ RM's services as corporate clients.

RM denies it has offered "ranking for patronage" deals, pointing out that the research groups assign scores while its own role is restricted to compiling the index on the basis of the scores assigned.

The negative response to Fairfax's no doubt well-intentioned exercise makes it dubious whether there will be an index next year.

Back here in Godzone the reputation consultancy industry hasn't yet gained any real traction but there are some early warning signs.

The notion of "corporate social responsibility" is hardly new and few if any companies have any problem with it.

The law is a different question. Black-letter law says directors have a responsibility to maximise the wealth of their shareholders - there is nothing in the Companies Act about "stakeholders."

Even so, attacks on a company's reputation can damage shareholders' interests, although the evidence is scanty so far.

So directors and management have to take "triple bottom line" (TBL) reporting - the notion that companies have a duty not only to maximise shareholder value but to manage the environment and the "social impact" of their activities - seriously.

Lately, two of our most promising companies went further than any company has gone before.

Waste Management, often confusedly demonised as the cause of the throwaway society waste problem rather than as its most economically efficient solution, this year commissioned an "environmental progress report" from business-friendly environmental activist Guy Salmon of the Ecologic Foundation.

WAM got a clean bill of health, stacks of advice on how it could improve its environmental track record and a bill many multiples of what it had expected. It took all of them with good grace.

The Warehouse spares no effort to portray itself as our most responsible corporate citizen but has nonetheless copped flak for "hollowing out" regional centres by driving specialist and high street shops out of business.

That criticism has stung so much it has commissioned Social Audit New Zealand, whoever it might be, to study the impact on the local community of each new store it builds.

Old economy financial auditors increasingly face legal liability, scrutiny about conflicts of interest and the threat of government regulation.

Why should the standards set for those who aspire to audit companies' environmental and social performance be any lower?

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