A company’s reputation and brand image are never more important than in an economic downturn—and never more vulnerable than when an unforeseen event captivates the media.
While many companies appropriately tout their corporate responsibility (CR) efforts to help strengthen reputation and brand loyalty, a growing number of companies across a spectrum of industries are facing a steady drumbeat of negative press in connection with lawsuits filed in U.S. courts alleging corporate complicity in human rights abuses. That trend underscores a vital need for close coordination between corporate responsibility and compliance initiatives, and between communications and legal professionals.
CONSUMERS AND INVESTORS IN THE DOWNTURN
When budgets are tight, consumers and investors closely consider how to spend their money. In a true Darwinian sense, stronger brands survive and even grow, while weaker ones may not last.
A company’s perceived commitment to social good can now be wielded as a reputational differentiator. As numerous studies confirm, whether from a sense of responsibility or because it simply makes us feel good, a company’s perceived social commitment is critical to retaining existing customers, investors and attracting new ones. This remains true even as the vast majority of consumers across socioeconomic classes are making substantial cuts in spending.
A positive social reputation is particularly significant for public companies. Analyses have validated the importance of corporate reputation to sophisticated investors and the impact of reputation on gaps between a company’s book value and market capitalization. Indeed, despite the downturn, socially conscious investment funds, which have grown fifteenfold in the last decade, continue to thrive.
In short, public awareness of corporate responsibility initiatives is vital to a company’s ability to maintain market edge, reputation and, perhaps, even its survival.
THE LITIGATION BOOM
The recent proliferation of high-profile, multimillion dollar human rights cases against multinational corporations is a particularly acute threat in this challenging atmosphere. Most have been filed in U.S. courts under the Alien Tort Statute (ATS)—a law on the books for 200 years that permits civil lawsuits in U.S. federal courts for serious breaches of international laws.
Largely ignored for two centuries, the ATS has been rediscovered and invoked against corporate defendants in roughly 125 cases, most of which were filed in the last 10 years. Targeted businesses span a variety of industries, from transportation and food and beverage to apparel and industrial chemicals; extractive and financial companies are most often targeted. Allegations of corporate participation in killings, torture, environmental destruction and other grave working conditions are the norm.
The potential legal damages and litigation expenses in these highly charged cases are, obviously, substantial. Of equal risk is the dramatic reputational harm of these lawsuits. Even where the company prevails in court there is a significant cost, as favorable decisions often take years to obtain and the interim publicity can ruin a corporate reputation and drive away investors and consumers. In other words, even companies that win in U.S. courts may suffer in the court of public opinion.
WHAT YOU CAN DO
What this litigation trend underscores is the need to view corporate responsibility as part of a critical legal and compliance tool, in addition to being an example of philanthropic largesse. A strong corporation is one that uses corporate responsibility initiatives to enforce what that company fundamentally believes in and stands for. Therefore, CR should be integrated into every element of overseas operations, especially compliance efforts. By doing so, you will ultimately limit exposure and create a road map to address unforeseen events.
Following are four ways to keep self-proclaimed socially responsible corporations true to their word.
1. Conduct a thorough legal and communication risk analysis to determine your threat matrix. Your employees, consumers and those impacted by your operations have the right to be protected from harm, which demands preemptive measures to reasonably control risks.
Understand and identify the issues that can potentially lead to human rights litigation, and measure them against tensions that may exist with the community or other stakeholders. That frequently includes environmental, labor, health and safety issues. Ascertain the highest and the lowest risk areas and, working with legal counsel, chart these to allow for precise and tailored mitigation approaches.
2. Utilizing your threat matrix, build a framework to effectively limit litigation exposure, manage resources and protect reputation. Once a company understands its threats, it is critical to direct corporate responsibility and other stakeholder initiatives to address those risks and ease the tensions that contribute to them.
At a minimum, a company must engage with community and local leaders, relevant NGOs, government officials and media to establish an ongoing dialogue and to foster greater understanding of your operating environment.
Companies should invest in training individuals—too often overlooked for subsidiaries and suppliers—to ensure they share your commitment and understand how to identify and address problems. When problems do arise, there must be protocols in place to ensure appropriate reporting and investigations, as well as appropriate remediation alternatives.
3. Produce an ongoing capability to determine the scope and comprehensive risk of a problem. It is not enough to simply build a framework. The framework must be maintained, honed and continually updated to address an ever changing operating environment. Working with legal, communications and on-site personnel, companies need to test their systems, conduct periodic audits and prepare for risks both identified and unidentified.
4. Build a rapid response infrastructure to match your risks. Human rights problems can emerge quickly, allowing no room for error or delayed decision-making. By having a familiar plan in place coordinated between legal and communications personnel in headquarters and on-site team members, company leadership is provided with the best and most current information to make critical decisions. By appointing a core team, companies are able to ensure all pieces move in concert, which will help to minimize potential exposure.
When a problem appears on the horizon or a serious injury occurs, there should be clear guidelines for immediate escalation and notification requirements for the core group. The core group also should remain involved in any internal or external investigation and follow-up measures.
Unfortunately, taking these steps will not fully eliminate the threat of a lawsuit that may undo the positive effects of a company’s responsibility initiatives and harm your brand. But by combining these risk mitigation tools with an active compliance program as well as coordinated input from legal and communications professionals, you can reduce your risks, minimize your exposure and perhaps contain problems that do arise. PRN
CONTACTS:
This article was written by Jonathan Drimmer, a partner of Steptoe and Johnson L.L.P, and Jennifer Millerwise Dyck, a VP of APCO Worldwide.They can be reached at [email protected] and [email protected].