Starbucks shows you don’t need to please everyone all of the time

Last week coffee giant Starbucks was told it must pay back up to €30million (£22million) in taxes after European tax breaks were ruled illegal. This decision was the latest reputational blow in a long-running and very public debate about the company’s tax affairs. But while some companies would have suffered a wave of customer disquiet and lost sales as a result, Starbucks has emerged relatively unscathed – proving the point that negative headlines don’t necessarily resonate with all stakeholder groups equally.

Despite facing an initial public backlash when rumours of sweetheart deals first appeared in 2013, the coffee chain has gone from strength to strength. In Q2 2015, global sales in established Starbucks stores grew by 7 per cent on the back of a strong increase in customer traffic. Starbucks CEO Howard D. Schultz told The New York Times this increase in sales was equivalent to 23 million new transactions. Customers may care about Starbucks’ tax arrangements, but apparently not enough to stop drinking their coffee.

This trade-off is crucial. For one group of stakeholders – their customers – corporate governance is less important in reputational terms than the value offered by Starbucks’ products and services. The company has invested heavily in new ranges, mobile technology and loyalty schemes that have boosted reputation at a product level and driven customer acquisition. Although other key stakeholders such as investors will be wary of any financial penalties levied against the company, these concerns are likely to be mitigated by increasing profits – up 22 percent on last year due to increased footfall.

Despite appearances to the contrary, Starbucks epitomises the fundamental principles of reputation management: the company knows who its stakeholders are, what issues matter to each group and what impact its reputation in those areas will have on its business.

Emily Dickinson is Senior Marketing and Development Manager at Millward Brown Corporate Practice

All Aboard the Reputation Train

After more than five years of negotiations and with billions of dollars on the line, the Japanese Government finally learned two weeks ago of an unanticipated decision by the Indonesian president to grant Indonesia’s first high speed railway (HSR) contract to China, rather than Japan. [1]

The Japanese railway consortium had been convinced that it would emerge as the clear winner of the project until China entered the bidding race in April this year. [2] Competition between the two countries had been heating up until Indonesian officials finally chose the Chinese proposal on the basis of more flexible financial conditions and a deep bilateral commercial partnership that the Japanese delegation were not willing to offer. [3]

Neither of the two contestants’ triumph should have come as a surprise, as both have been carefully building a reputation for world-class train manufacturing for some time. The Japanese can boast of the safest high-speed rail system in the world, for example, with their network turning 50 this year with zero fatalities. Alternatively, China has a claim to management of the largest high speed railway network in the world, with nearly 10,000 miles of track. [4] Both countries are well placed to lead implementation of HSR technology anywhere in the world and are indeed aspiring to do just that, with the backing of official state policies that place the export of HSR as a key pillar of their commercial and economic growth. [5] [6]

What perhaps is more intriguing is that the length of time the Japanese consortium spent exploring the project, as well as the extraordinarily clean records and the brilliant reputation Japanese HSR systems had, was not enough to tilt the Indonesian Government decision towards the Japanese proposal. A less established Chinese HSR reputation, together with acknowledgement of the Indonesian business environment and the needs of Indonesian businesses, was. China had a better grasp of what was needed locally and went out of its way by offering to work on the proposed project with a significant involvement of local businesses. The business insights the Chinese delegation attained – plus their reputation – provided them with an ultimately better hedge against any Indonesian aversions and won them the battle.

This could have been a relatively small victory, but there are other billions of dollars’ worth of HSR tenders elsewhere in the world [7]. A triumph in each could help strengthen the reputation of either national brands as a byword for HSR, or indeed, any high-level technology. Equally, failure to engage the relevant stakeholders, collect and employ relevant business insights could lead to undermining their brands and reputation. As Warren Buffet once famously said, losing reputation is a far greater sin than losing money [8] – thus, the key goal for national and commercial entities operating within the HSR space is to continuously sustain and nurture their brand and reputation among their key, influential and ultimately limited but hugely influential pool of stakeholders. Done well, it will lead to prosperity and the geopolitical influence of maintaining commercial routes to key economic regions, resources and labour. The question is, who will be ready to claim it?

Kris Smitas is Research Executive at Millward Brown Corporate Practice

The era of reputation; make it work for your business

Reputation currently is a business buzzword, and for good reason. Aon’s 2015 Global Risk Management Survey recently revealed that ‘damage to reputation/brand’ is viewed as the number one risk among risk management professionals. However, in contrast to this, it is believed that the processes, tools and response mechanisms used to manage and react to reputational risk are below par, as Deloitte’s Touche Tohmatsu survey highlighted, when 300 global executives were polled. A gap has been exposed.

Theoretically this should be easily fixable; companies can monitor their reputations and respond swiftly to issues, as and when they arise, but this may be easier said than done.

Firstly, reputation monitoring is not always executed, as the company’s strategy might be to just ensure there are never any mishaps. Seems obvious enough, but could reputation monitoring enable you to see those banana skins before you’ve slipped? We think so.

Secondly, who actually owns reputation management? As Nick Helsby of Watson Helsby recently commented, both Schillings’ and Deloitte’s recent reputation studies do not focus on corporate communication teams as the proprietors of their company’s reputation. If this is indeed the case, responding swiftly to issues might not be as easy as first anticipated.

We believe that the management of a company’s, arguably, most valuable asset, should indeed sit within the highest echelons of that company, and for this asset to be linked to business performance. Yet communication functions do need to be fully versed to actively communicate the company’s messages, but also be able to respond quickly to any contentious issues.

In our experience, a better reputation allows your company to go further. Manage. Monitor. Take an interest. React quickly. And you’ll reap the benefits.

Marisa Brockton is Director at Millward Brown Corporate Practice

The more you cut, the more you lose

The International Monetary Fund’s (IMF) forecast for global economic growth in 2015 is once more lower than anticipated.

According to The Financial Times on Tuesday, the reduction to 3.1% from the 3.3% predicted in July places “the growth rate at its lowest since the financial crisis and the recession of 2009 and only on a par with growth in 2008, the year the US investment bank Lehman Brothers failed”. The world economy, it would appear, is stalling.

For businesses, the possibility of dropping below the 3% global growth and slipping back into recession is alarming. Recessions signify dangerous and uncertain times. A loss of jobs, a decline in real income, a slowdown in industrial production and manufacturing and a slump in consumer spending as households reign in their budgets are consequences unlikely to be welcomed by most organisations aiming for steady growth. Prudence suggests that you reduce risk where you can; you cut fixed costs, decrease investment in Research and Development (R&D) and slash your marketing budget. By reducing your outlay you protect your future.

In 2008, Millward Brown joined a host of agencies countering the wisdom of this approach by publishing a point of view which argued instead that if your brand ‘went dark’ your business would be at a greater risk of losing market share. Any short-term gain would be quickly outweighed. Since the 1920s companies that have cut their advertising budgets during a recession have performed worse during that period and in the subsequent years of recovery than those that maintained their spend. From Roland S. Vaile’s 1927 study published in The Harvard Business Review to McGraw-Hill’s analysis of the performance of 600 industrial companies during the 1981-1982 recession – the case for continued investment has been repeatedly made.

For some, increasing marketing investment during a recession is viewed as an opportunity to out-muscle weaker competitors. By increasing your spend while others reduce theirs you will grow your market share. This rationale is, however, too simplistic. It implies causality: that your business can only benefit if others cannot and will not. In fact, during uncertain times marketing cannot be indiscriminate. Recession is a time of risk and people buy from businesses that they trust, brands that they know and can relate to, and organisations that continue to convey strong relevant messages and values. Opportunities don’t die in a downturn, but businesses must be careful not to dilute their message. The biggest risk is becoming irrelevant.

Emily Dickinson is Senior Marketing and Development Manager at Millward Brown Corporate Practice

There’s no such thing as a ‘private’ company – the case of Turing Pharmaceuticals underlines the increased scrutiny privately held companies face in the age of the armchair activist

Private companies have traditionally been considered less vulnerable to reputational damage than their publically quoted siblings. They tend to be smaller, less information is shared publically and this in turn makes them seem less transparent. Importantly, they are only accountable to their private shareholders, rather than the full range of market participants that listed companies have a duty to serve.

Without a share price to protect, it seems like some private companies have less to lose if they choose to operate in politically sensitive regions or engage in practices that would be considered unethical by the market at large.

Occasionally these firms do find themselves as defendant in the court of public opinion. Historically, they have only tended to face risk of exposure through the zealous pursuit of investigative journalists, organised pressure groups and disaffected internal whistle-blowers. Now they must contend with a new threat: the pejoratively termed ‘armchair activist’.

These new creatures in the jungle of corporate reputation have been maligned and mocked in the press – but underestimate them at your peril. The advent of social media has made the dissemination of news much faster and it has also made the participation in current affairs much more immediate. As a barometer of public opinion, contrived political polling now takes a back seat to organic Facebook shares and Twitter retweets. The defamation courts in which the likes of the McLibel case played out over twenty years ago have now given way to this new online arena.

The most striking recent example of this is the backlash faced by Turing Pharmaceutical; a private firm who increased the price of recent acquisition Daraprim, a vital drug, by 5000% overnight. Turing’s CEO Martin Shkreli attracted social media ire on a massive scale with his uncompromising attitude to claims of opportunism and price gouging. In a matter of days Shkreli managed to cement himself as ‘the most hated man in America’, a symbol of ‘everything wrong with capitalism’ and ‘man’s inhumanity to man’. Figures as diverse as Hilary Clinton and Donald Trump united in disdainful criticism as he was pilloried with universal scorn, online abuse and death threats.

Turing has since reneged on its plans for the price hike in what might be seen as a humiliating climb down and the episode serves as a stark warning of the dangers private companies face in pursuing an outmoded approach to corporate reputation. Now more than ever is it vital that firms of all types and structures understand the reputational risks their type of business carries in order to be able to pre-empt and, if necessary, effectively react and mitigate potential fallout from crises. Private companies may not have a share price to protect, but they need to take protecting their corporate reputation incredibly seriously.

Ben Lloyd is Head of Millward Brown Corporate Practice