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Peter Sandman
Author, Responding to Community Outrage: Strategies for Effective Risk Communication and creator of the “Hazard + Outrage” formula for risk communication
Keynote speech given at the Annual International Corporate Citizenship Conference on March 30, 2004 in San Francisco
Managing Stakeholder Outrage: Corporate Citizenship on the Dark Side
The overarching premise of this event and of [The Center for Corporate Citizenship] it seems to me, is that being a better corporate citizen is good business. That you can do well by doing good, as – who was that, Tom Lehrer first said that back in the sixties. And intrinsic, I think, to the concept that corporate responsibility, that good corporate citizenship, good corporate behavior is good for business, is the concept of reputation. That is, the notion that underlies the conference, it seems to me, is that if you behave well you'll get a reputation for behaving well, and a reputation for behaving well is fungible. That's something you can sell to your board, you can sell to your top management as an asset.
I'm not planning to dispute that premise. But I am going to talk about something that's quite distinct from that premise. And in order to talk about that I want to point out that reputation management is not one thing. It is at least two quite different things. One of the things that reputation management means, and the one, it seems to me, that preoccupies this conference, is trying to figure out how to be loved. And how to deserve to be loved. I'm not suggesting that you try to be loved without earning it. But the focus of the conference, as I read the materials, is, "What do we do so that people will think we're terrific." I am going to spend the next hour talking about a fairly different topic, which is, "How not to be hated." Which, it strikes me, is also reputation management. It's a different sort of reputation management, and it's the sort that I want to focus on.
And the reason I want to focus on it is because the evidence that a bad reputation hurts your business is considerably stronger than the evidence that a good reputation helps your business. Those of you who have had tried to make the business case for corporate responsibility and for corporate citizenship know that there is evidence that being loved is profitable. But it's fairly weak in some areas, it's ambivalent, there is counter-evidence on the other side. In contrast to that, the evidence that being hated is unprofitable is extremely strong.
If you look at the stock market, for example, it isn't clear, yet, whether or not there's a genuine premium paid for being a much respected, socially responsible corporation. But it is very clear that the socially responsible investment community will punish irresponsible, visibly irresponsible corporations. And much of socially responsible investment turns out to be lists of companies you're not allowed to buy. With a considerable emphasis on what's bad rather than on what's good.
Some people would even argue that being virtuous is a liability. Because it attracts iconoclasts, whether we're looking at activists or we're looking at regulators, or we're looking at plaintiff's attorneys, there is a certain attraction to bringing down someone or some company with a reputation for being superb. If you don't believe me, ask Martha Stewart, who I think is a stunning example of that. But there are certainly other examples of that. I think Shell – those of you who have followed the problems of Shell in recent weeks. Phil Watts, the recently-fired CEO of Shell, who, as far as I can tell, genuinely did some things wrong, but it's relatively clear that much of the reaction to his misbehavior and Shell's misbehavior is attributable to Shell's incredibly good CSR record, which set it up to take a tumble.
So there is a down side to being loved, but there is no up side to being hated. The disadvantages of a bad reputation are overwhelming. They include, of course, morale problems, and recruitment problems vis a vis your employees. They include regulatory relations problems. One of the clearest determinants – I mean, regulators are like everybody else, they have more investment opportunities than they have investment capital. Their investment, of course, is regulatory time, and, like any company, regulators have to pick low-hanging fruit. And for them the low-hanging fruit is either companies that have superb reputations – "let's bring down a biggie" – or companies that have awful reputations – "let's pile on a bad guy."
And companies that have invisible reputations skate, comparatively, in the regulatory arena. So, once again, the same conclusion. It's not clear what the pros and cons are of being loved, but it's very clear that not being hated pays.
And in case it's not obvious, let me emphasize to you that this is two dimensions, not one dimension. That is, if you picture a single scale from being hated at one end to being loved at the other end, with being invisible in the middle, you've got it wrong. Good will and ill will are two completely different dimensions. It's part of why being loved doesn’t give you very much protection when you get hated. When you do something wrong, it's not like, "well, we supported the Little League, so give us a break on our recent accident." Doesn't happen that way, as those of you who do corporate philanthropy know.
And the reason it doesn't happen that way is precisely because how loved you are and how hated you are, are independent dimensions. You can even, sometimes, be high on both. With different publics separately.
So, okay, the question, then, for me is, what should companies do in order to be less hated, and the answer that’s a non-starter is work at being loved, because that's a different issue entirely. And it's worth noticing that corporations are lousy, are profoundly unskilled, at avoiding being hated. And of course it's not an easy task. There are industries in the business of mobilizing anti-corporate fervor. Activists do that, in large measure. Plaintiff's attorneys do that. Some journalists do that. Some regulators do that. Sometimes your competitors do that. There are lots of organizations trying to mobilize anger and animus against your company.
It's also worth noticing that much of the world prefers punishing evil to rewarding virtue. There are plenty of lose-lose people in the world. You've probably noticed that if you're over the age of 13. There are plenty of people who want what's bad for their enemy more than they want what's good for themselves. And will therefore punish with much greater fervor than they will reward.
And in my own venue of risk controversies, you can see that on a wide range of issues. Asbestos, for example, genetically modified foods, a wide range of issues, where publics decide in order to punish the company or the industry that has misbehaved, they are quite willing to punish themselves as well, to deprive themselves of products they want, to deprive themselves of societally valuable things, in order to get even with a company or an industry they have decided is evil.
In fact, I think it's fair to say that there's something like a game of musical chairs going on. People will hate some companies. People will go after some companies. Activists will. Regulators will. There is going to be somebody hated. And what you need is to win the game of musical chairs, you need to be not the one left without a seat when the music stops. Or, to use a different metaphor and one that the field of psychiatry uses a great deal, you need to stay out of the projective field. People are going to project their desire to have enemies, their need to hate somebody, onto some company, and you want it not to be you.
In that context, I often get asked by clients who are in trouble, and all my clients are in trouble, or anticipating that they're going to get into trouble. And they will say, well, isn't this really the fault of the media, or isn't this really the fault of Greenpeace, or the activist group that's trying to attack us? And my answer -- and I share it with you because you may find it of value -- I say, "Look, think of activists, think of investigative reporters, think of your enemies, as vultures." That's not a word you want to use publicly about them, but -- think of them as vultures but remember your natural history. Vultures don't kill anything. Vultures eat dead meat. So if you have a vulture problem, you have a prior problem.
And I think that's profoundly true about activists and journalists. If you do a good job of not being hated, they will still be feasting on somebody's carcass, but it won't be yours. And if you do a poor job of not being hated, then they will feast on your carcass and it's an epistemological error to imagine that it's the vultures' fault that you're dead. It's certainly a sign that you're dead when they start eating you. But it is nonetheless not their fault.
So what I want to offer is kind of a primer on not being hated. On being a less attractive villain than some other villain. And in ways that I hope is obvious, that is a different set of skills than working to be loved.
Risk = Hazard + Outrage
Now I come to this from risk communication. I've done most of my work in risk communication. And for -- it's funny. I used to say for 25 years I have been doing this work in risk communication, but 25 years ago was Three Mile Island and I was there and I was already a veteran in risk communication, so I think I'm going to have to up the number. For 26 years I have been doing this kind of work in the risk venue. I coined the notion that risk is two different phenomena.
And the key fact in risk communication, the thing that's most important in risk communication, is the fact that people are afraid of the wrong risks. That is, those of you who like numbers, this is the only number you're going to get from me this morning. If you make a long list of hazards and you rank order them in order of something like expected annual mortality -- how many people they kill in a good year. And then you take the same list of hazards, and you rank order them in order of how upsetting they are to people. The correlation between the two rank orders is approximately 0.2. Now those of you who have studied statistics may remember you can square a correlation coefficient to get the percentage of variance accounted for. A glorious 4 percent of the variance. Or – and here it is without numbers – the risks that kill people and the risks that upset people are completely different.
By the way, if you replace mortality with morbidity in that calculation, you're no longer killing them, you're just hurting them, the correlation remains 0.2; if you use ecosystem damage, the correlation is still 0.2; if you use economic damage, as Republicans like to do, the correlation is again 0.2. It doesn't seem to matter what your measure of harm is, across a very wide range of risks, the correlation between how much harm that risk does and how upset people get about it is an absurdly low 0.2 correlation.
And I started, 30-odd years ago trying to figure out why the correlation is so low. Why people are completely unreliable, have essentially zero relationship between whether the risk is going to hurt them or kill them or damage the ecosystem or damage the economy on the one hand, and whether they're going to be upset and angry and frightened on the other hand. And in order to make sense out of that, I decided to divide risk in half, and I said, "Okay, let's take the technical side of risk and call it hazard." Hazard is essentially how bad is it, how often does it happen, how many people does it kill in the average year. The technical issue of risk seriousness. Let's call that hazard.
And then let's take the nontechnical side, the things that people are upset about and call that outrage. And I generated the formula that risk is equal to hazard plus outrage. Those of you who like numbers and like formulas, you're looking at this and saying, "Aw, that's not a real formula, that's the kind of formula that an English major would do." So, for the engineers in the room -- and I assume there's not many of you because this is probably already looking too much like math to most of you -- but for the engineers in the room, I have an alternative definition. I would suggest that risk is a function of hazard and outrage: R = f(H,O). If you don't know what that means, that's hazard plus outrage in their code.
Continued...
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