Current Practice

Current practice is affected by a number of contextual developments. Our digitalised society, ‘a public arena of ongoing constructions of meanings by (self-invented) stakeholders’ (van Ruler 2015: 187) has affected communicators’ ability to control corporate messages. Pressure for ethical practice has been exacerbated by the failures in the financial sector and demands for greater organisational transparency mean that a whole range of stakeholders (including hostile and critical media) scrutinise corporate communications for inconsistencies (Christensen and Cheney 2015). In addition, recent research from New Zealand indicates that that a key future trend is that businesses will pressure governments to legislate for level playing fields in relation to sustainable practice (Roper et al. 2015). However, there is also public outcry at the threat of less transparent decision making resulting from proposed transnational free trade agreements about reducing the regulatory barriers to trade for big business (such as TTIP and Trans Pacific Partnership).

Corporate communication has been defined in a number of different ways – in relation to public relations perhaps the most significant is as the process of establishing trust, social capital and legitimacy.¹ Another popular conceptualisation is the functionalist view that corporate communication is about ‘harmonising’ all communication within an organisation to ensure consistency with corporate missions and objectives – a view that is contested by critical scholars:

Consequently, it is argued here that corporate communication should be seen less as harmonising all communications and more as establishing meaningful values communicated in a way that encourages the organisation (and organisational members) to behave in a way that is consistent (but not homogeneous) with them in order to build social capital and establish legitimacy, thereby encouraging stakeholder support (expressed through local communities being open to corporate plans, employees feeling highly motivated, top performers seeking employment with an organisation, investors wanting to invest and legislators not jumping to introduce punitive legislation, as well as potential consumers being more open to promotional messages aimed at getting them to purchase goods or use services).

Corporate communication is such a multifaceted practice that the use of a case study has been selected here as one of the best ways of illustrating the different dimensions and issues to be considered in attempting to manage these effectively. For anyone wanting to justify the strategic importance of effectively managed corporate communication in commercial terms, the case study used demonstrates the impact that poorly managed communication can have on the bottom line. But it goes further than this and shows the importance of ethical, transparent decision making, of building social capital or trust and relationships with a whole range of stakeholders – and how effective communication with stakeholders other than shareholders/funders is important and can significantly affect an organisation’s image, reputation and consequently its ability to conduct its business. The analysis goes further than providing a functional ‘how to’ guide and points to some of the conceptual frameworks that can be used to guide decision making and practice in this area. It illustrates what can happen if dialogic relationships with key stakeholders are ignored. This case had a real impact on senior thinking about corporate public relations and in the current climate where the impact of failings in the financial sector is being keenly felt, is still very relevant.

Analysis

This case study demonstrates several important aspects of corporate public relations practice. Before moving to consider the strategic elements, it is important to reflect on what this tells us about some of the philosophical ideas that could influence practice, particularly in relation to establishing legitimacy and building trust and social capital.

Stakeholder Approach

In 2008, HBOS made a pre-tax loss of £10.8bn and in 2009 had to be taken over by The Lloyds Banking group to save it from collapse (The Scotsman, 3 December 2009). This was during the dramatic change in the global economy when an era of financial liquidity or ‘easy money’ was replaced by the ‘credit crunch’ leading to an erosion of trust in financial institutions and, indeed, for some a questioning of the very foundations of capitalism. A number of commentators blame the financial crisis on banks’ philosophy and priorities in pursuing profits. The Robertson case illustrates this type of adherence to profit making that sees the shareholder as the most important public and contradicts a stakeholder approach to business, an approach deemed by many to underpin the most effective approach to corporate public relations (although it was eventually forced to adopt a stakeholder approach and ditch the Robertson deal).

The extreme focus on shareholders at the expense of other stakeholders has been construed as short termist and ultimately damaging. At a 2009 forum The Global Financial Crisis: What Happened and Lessons for the Future, Will Hutton blamed the banking crisis on the ‘intellectual and moral failure’ not just of financial institutions, but also of legislators, regulators, business leaders and academics basing their ideas on a ‘narrow ideological theory and consumer culture’ with a business mantra deemed ‘a short termist philosophy and amoral way of doing capitalism’. Hutton reaffirmed his beliefs expressed in The State We’re In (see below) that stakeholder capitalism is the ideology necessary for a sustainable future, and Margaret Curren MSP speculated on the need to return to the ‘third way’.

In his best-selling book, Will Hutton argues for a democratic political economy that relates to the whole of British society. He criticises business for being short-termist and relentless in pursuit of some of the highest financial returns in the world: ‘Companies are the fiefdoms of their Boards and sometimes of just their Chairmen; and companies are run as pure trading operations rather than productive organisations which invest, innovate and develop human capital’ (Hutton 1996: 25).

In contrast to this view of companies being dominated only by the idea of improving returns for shareholders, the concept of stakeholding advocates a democratic approach to business that values relationships with a range of stakeholders.

The term ‘stakeholder’ refers to groups or individuals who have an interest or stake in an entity such as an organisation, community or country. In corporate terms, a company’s stakeholders typically include:

Each of these groups can affect or is affected by the ‘actions, decisions, policies, practices or goals of the organisation’ (Freeman 1984: 25).

From an organisational perspective, stakeholderism is linked to notions such as ‘death of deference’, whereby people no longer automatically defer to professionals or large organisations but can feel more powerful in granting a ‘licence to operate’ – consequently, to be successful, organisations must maintain public confidence in the legitimacy of their operations and business conduct.

Figure 6.1 Various forces in the external environment combine to influence a company’s licence to operate

Source: RSA inquiry (1995). Used by permission of the RSA

There is no firm consensus on the meaning of stakeholder theory.² It has been described variously as being based on Keynesian economics (Hutton 1996), communitarianism (rights matched by responsibilities) (Burkitt and Ashton 1996) and the Kantian notion of duty (as opposed to utilitarianism) (Etzioni 1988 in Burkitt and Ashton 1996; see also Chapter 9).

In political terms, stakeholder theory is premised on the interrelation of state, society and the economy as opposed to a ‘free market’ approach (where the market is not primarily concerned with notions of social responsibility and regulates itself through supply and demand rather than through state intervention). In the UK, the free market approach was advocated by Margaret Thatcher and the New Right, whereas stakeholder theory has been associated with New Labour’s philosophy of social inclusion, a philosophy labelled ‘the third way’ by a number of political thinkers including, perhaps most notably, sociologist and advisor to Tony Blair, Antony Giddens, who sees the third way as:

As the Labour party battles in the UK to determine its future philosophy, this framework provides a useful barometer.

Both stakeholder capital, and the third way are closely connected to the concept of social capital (Franklin 2003).

Stakeholder management

Hutton’s argument for an end to short-termism in the financial community could be seen to resonate with a number of public relations scholars and practitioners’ calls for public relations practitioners to take a long-term view in managing organisational relationships with a range of stakeholders and publics (Ledingham and Bruning 2000; Grunig and Huang 2000; Grunig et al. 2002; Ledingham 2003, 2006a, 2006b; Jo et al. 2004; Welch 2006; Jahansoozi 2006; Kia and Shin 2006; Hung 2007; Scott 2007; Szondi 2010; Ki and Hon 2012; Kang 2013).

They argue that practitioners do not wait until publics are actively campaigning before communicating with them. Effective public relations strategists are involved in organisational decision making (see Chapter 4). Before decisions are made they would draw a stakeholder map identifying their stakeholders and anticipating the ways in which they may be affected by organisational decisions and how they would react to them. A number of stakeholder mapping models are particularly problematic in their corporate centric approach to determining who should be communicated with and who should be ignored. Many matrix approaches only take account of criteria such as power and interest and not of who actually has a legitimate voice. Consequently, this author prefers Mitchell, Agle and Wood’s (1997) approach using the criteria of legitimacy and urgency in addition to power.

If the BoS used this type of strategic approach it is difficult to understand why it did not either actively manage its stakeholder relationships or ‘moderate their consequences’ on its stakeholders by deciding not to venture into a relationship with Robertson in the first place. It is important to note that the process outlined above advocates organisations adjusting their goals to accommodate stakeholder views. This is the key to public relations people implementing a stakeholder approach, and a lack of this type of symmetrical activity could be seen as the basis for accusations of the bastardisation of term. Some approaches have stripped away the philosophical context to focus on a purely functionalist approach as illustrated in one of the perspectives considered by Carroll and Buchholtz (2009: 92): ‘Let us approach stakeholder management with the idea that managers can become successful stewards of their stakeholders’ resources by gaining knowledge about stakeholders and using this knowledge to predict and take care of their actions.’ Critical scholars debate the basis for this type of managerial approach, which can be identified as an ‘almost exclusive analysis of stakeholders from the perspective of the organisation’ (Friedman and Miles 2002: 1), an approach that they argue ‘hampers’ stakeholder theory:

Generally stakeholder theory has been approached from the point of view of business ethics, corporate governance and/or corporate social performance. This puts the organisation at the centre of the analysis and discourages consideration of stakeholders in their own right as well as discouraging balanced viewing of the organisation/stakeholder relation.

(Friedman and Miles 2002: 2)

Figure 6.2 The strategic management of public relations

Source: Grunig and Repper (1992: 124). Used by permission

Corporate Social Responsibility

Stakeholderism is inextricably linked to broader concepts of corporate social responsibility (CSR) and the role of public relations in relation to democracy. CSR is covered in depth in Chapter 9 but the application of some of these ideas is important to highlight here. Amnesty International’s Peter Frankental believes certain paradoxes evident in organisations’ application of CSR suggest that far from embracing a real duty to society, CSR has become a ‘PR invention’. He argues that CSR can only have:

In other words, these ideas must not only influence the language chosen by PR practitioners to communicate with publics, as a way of spinning an organisation’s activities, but must permeate thinking at all levels of strategic decision making and implementation. And the buck does not stop with organisations – government and other regulators must guarantee a regulatory framework that forces organisations to comply with these ideas. Frankental endorses the call for auditing according to a triple bottom line that is ‘financial, environmental and social’ (Frankental 2001: 19). Annual social reports must be more than gloss or spin. In a properly regulated world ‘the terms of reference will be more comprehensive, standard methodologies will be developed and issues of definition, measurement, monitoring and verification will be … addressed. (Frankental 2001: 20)

Clearly though, it is significant to note the criteria of measurement of corporate social responsibility.

BOS’s key performance indicators for ‘contribution to society’ very much focus on Frankental’s ‘financial’ and ‘environmental’ impact but only seem to encompass the ‘social’ if this is interpreted as wealth creation and providing tax revenue to the government to spend on social infrastructures. They were:

The case can be seen as evidence to substantiate an argument that CSR or CSR(S) Corporate Social Responsibility and Sustainability, is not about corporate development of policies or activities designed to build a socially responsible image or to help achieve predetermined strategically important objectives; but is about the process of understanding an organisation’s impact on a broad range of stakeholders, relates to social capital and is located in a broader social context (Beckmann et al. 2006: 26).

Reputation

The aims outlined in the BoS’s corporate statement reflect an understanding of this approach to reputation-building. However, its actions or behaviour (teaming up with Robertson and defending the deal by attempting to distinguish between the ethics of commercial decisions and the personal views of business partners) is not congruent with the core values its statement expresses. Its problems could be judged to have stemmed from its failure to ‘integrate economic and social considerations’.

A consideration of the bank’s withdrawal from the deal also provides a useful insight into this perspective of reputation building. The bank stood to make tens of millions of pounds’ profit as a result of the Robertson deal, which would have resulted in the opening of millions of new accounts by American customers. At the time it withdrew from the venture, only 500 accounts had been closed by British customers (compared with more than 21,500 opened during the same period) (The Guardian, 16 June 1999). Clearly the potential gains would vastly outweigh the losses. An analysis of the bank’s early statements and subsequent apology seems to indicate that it did not abandon the deal because of ethical considerations. The motivation for the decision can be interpreted as stemming from concern that direct action from key stakeholders might escalate, irreparably damaging its British business (and profits). Clearly, the bank recognised its long-term reputation as being more valuable than the short-term profits it could have made as a result of going ahead with the venture.

The case not only illustrates how a reputation is earned (and damaged) but also its value and the relationship between a good reputation and profits. As Fombrun (1996: 81) explains:

Impact on Share Price

Advocates of a stakeholder approach to business do not disregard the shareholder as a vitally important stakeholder, based on the argument that by adopting a stakeholder approach an organization will be well managed and therefore able to deliver greater value to its shareholders. In contrast, ‘organisations that continue to act as if shareholders are the only important group will colour the financial community’s view of the quality of management and endanger the interests of the very group they seek to satisfy’ (RSA 1995: 1). The effect of the Robertson venture on the BoS share price seems to bear this out. When the deal was first announced the share price rallied, but when public outcry emerged, it fluctuated – falling significantly following the publicity surrounding Robertson’s ‘dark land’ comments.

Opinion Formers

An analysis of the people and organisations that influenced the bank’s decision is useful in identifying the range of opinion formers public relations practitioners should communicate with. Council leaders, MSPs, church leaders, individual shareholders, the unions, pressure groups and civil rights leaders’ views were all reported in the press.

Communication Technology and Globalisation

The internet played an important role in the case. Not only did it enable pressure groups to mobilise public pressure, it also facilitated fast and effective access to information about the American preacher. For example, while Robertson complained about being misquoted, The Scotsman printed instructions for readers to download real-time video footage of the programme in which Robertson denounced Scotland as a ‘dark land’ (2 June 1999).

These developments are also significant in the process of globalisation (and antiglobalisation movements) and multiculturalism. Indeed, Starck and Kruckenberg (quoted in Heath 2001a: 52) identify ‘communication/transportation technology, multiculturalism and globalisation’ as the ‘three phenomena that promise incalculable continuing effects on human kind’ resulting in ‘immense societal changes’. They identify communication as the ‘indispensable component’ in negotiating this ‘increasingly globalised, diversified and multicultural world’ (quoted in Heath 2001a: 57). See Chapter 19 for further discussion of these concepts and Holmstrom (2010).

Environmental Scanning

At the AGM, Sir John Shaw was reported as saying:

Critics could argue that in a global economy, geographical boundaries do not operate in the way Sir John had anticipated.

Effective public relations input at board level should have forewarned the bank that Robertson would be a controversial figure, particularly in the current business environment where discussions of ethical practice and social responsibility are prevalent on business and political agendas. The case serves as an effective argument that public relations expertise should be included in the strategic planning process and should be able to influence dominant coalition decision making (see Chapter 4).

Ethics

Final thoughts could be given to the locus of ethical decision making in this case. Conventional wisdom may refer to a ‘business case’ approach where ethical decision making is driven by what is commercially sensible for the long-term interests of the organisation. However, in relation to corporate communication it is also interesting to think about the communication practitioner’s own role in this. Holtzhausen and Voto’s (2002: 64) view is that:

And, more recently, the theory of virtue ethics provides an interesting lens offering ‘a useful approach that focuses on the importance of individuals’ moral character in driving virtuous business conduct as well as fostering an ethical corporate and social climate’ (Wang et al. 2015).