Beware The Coming Corporate Backlash

Dec. 21, 2004
Americans feel corporations have too much power. To steer clear of trouble, companies need to listen closely to stakeholders and the marketplace.

A few years ago, Monsanto Co. had the future in its pocket. The vast life-sciences company promised a revolution in agriculture so profound it would eliminate age-old obstacles to increasing the quality and quantity of the world's food supply. The spread of its genetically modified seeds throughout the U.S., former chairman Robert Shapiro told shareholders, was the most "successful launch of any technology ever, including the plow." But when Monsanto president and CEO Hendrik Verfaillie stood at a podium in Washington last November to deliver "A New Pledge for a New Company," it was a humbling moment. "We are making a new start as a company completely devoted to agriculture," explained Verfaillie. "And we are doing this at a time when a shift in society -- a shift that started perhaps 40 years ago -- is approaching full maturity. That shift has been a movement from a 'trust-me' society to a 'show-me' society." The speech, ostensibly about Monsanto's recent merger with Pharmacia Corp., also was an act of contrition. After intense pressure from environmentalists, shoppers, food retailers, and farmers, and an international furor that hit Monsanto's stock like a hailstorm, the company was forced to concede defeat for what critics called a decade long fight to aggressively force its line of bioengineered agriculture products into world markets. As Verfaillie announced the "New Pledge" -- a set of principles in five key areas outlining Monsanto's policy for the development, use, and stewardship of products of new agricultural technologies -- he explained how the company misread public opinion in the years that led up to that moment. "Monsanto focused so much attention on getting the technology right for our customer -- the grower -- that we didn't fully take into account the issues and concerns it raised for other people," Verfaillie admitted. "We didn't understand that when it comes to a serious public concern, that the more you stand to make a profit in the marketplace, the less credibility you have in the marketplace of ideas. When we tried to explain the benefits, the science, and the safety, we did not understand that our tone -- our very approach -- was seen as arrogant. We were still in the 'trust-me' mode when the expectation was 'show me.' Like Monsanto, more and more companies are being forced to the podium of public accountability -- the result of powerful grass-roots interests that have grown highly suspicious of large corporations. "We've entered a period where the perceived power of business has become overwhelming for many," says Charles Derber, professor of sociology at Boston College and author of Corporation Nation (1998, St. Martins Press). "Average citizens fear they are losing control to a corporate ascendancy unmatched since the Gilded Age of the 19th century. We are on the brink of a powerful anticorporate backlash." Anticorporate sentiment and activism now cut a swath across society, and companies increasingly are finding themselves at the hands of public campaigns to reign in their perceived excesses. Republican Presidential hopeful Sen. John McCain (R, Ariz.) shook up the GOP last year with his anticorporate platform of campaign finance reform and attacks on corporate soft-money donations. And in the final days of his Presidential campaign, Al Gore gained high ratings with his pledge to take on "big tobacco, big oil, big polluters." He lost that race in part due to the anticorporate message of Ralph Nader. The growing suspicion that corporations have grown too large and unaccountable does not bode well for companies that ignore its implications. "The public is predisposed to be critical of corporations and they are ready to believe negative assertions about big business," says longtime pollster and chairman of DYG Inc. Daniel Yankelovich. "Executives haven't had to worry about social issues for a generation, but there's a yellow light flashing now, and they'd better pay attention." High-Profile Campaigns Stakeholders are demanding -- often successfully -- that corporations focus on goals beyond the bottom line. Activist groups have made headlines recently by targeting individual corporations and groups that work for their interests, such as the World Trade Organization. They use sophisticated tactics, employ high-profile campaigns, and are united by a centralizing principle: Corporations have too much power. Recently, protesters descended on Kellogg Co. headquarters in Battle Creek, Mich., demonstrating against the presence of genetically modified organisms in the company's products. Kellogg executives also fielded complaints from parents about the presence of Toucan Sam, the Froot Loops mascot, in a line of children's books about counting. "These are not wild radicals . . . . They are sophisticated groups who can talk eyeball to eyeball with any CFO," says management consultant Allan A. Kennedy, author of The End of Shareholder Value (2000, Perseus Press). "They understand the business world and have an agenda." Furthermore, groups are becoming more effective as they use the Internet to organize, to promote grievances, and to spread the word. In increasing numbers consumers are willing to use their purchasing power to punish corporations with bad track records. A recent study by the Conference Board Inc. revealed that close to 50% of all consumers have refused to buy from companies they considered socially irresponsible. Nike Inc., the global shoe retailer, learned a powerful lesson about consumer backlash when activists successfully associated their brand image with child labor and Third World labor violations. Pressure from groups such as San Francisco-based Global Exchange was instrumental in getting Nike to the negotiating table. The group used tactics such as buying stock in Nike that allowed its members to crash shareholder meetings. And it held press conferences that showcased an Indonesian factory worker who was brought to the U.S. to speak about Nike's sweatshop working conditions abroad. Companies such as Nike and Monsanto learned that activists can quickly reduce years of accumulated, positive brand equity through highly publicized campaigns. Nike eventually conceded to critics in 1998 when it announced that independent organizations would be allowed to inspect the overseas factories that make the company's products, that it would toughen the health and safety standards in the factories, and that it would crack down on the use of child labor. Nike's director of global issues management Vada Manager admits the company suffered from "arrogance" in the early days, but has since learned it can no longer operate beyond public scrutiny. "There were early warning signs . . . . We should have engaged earlier with activist groups to better understand where they were coming from," says Manager. More companies are following Nike's example, realizing that the best way to reduce public pressure is through dialogue, openness, and accountability. "Now, we try to be respectful to organizations that approach us," says Manager. "We're active in organizations such as the Fair Labor Assn., where we meet with labor groups and other companies to design uniform rules and requirements for monitoring and assessing our overseas factories." Nike implemented Transparency 101, a program that shares the results of internal and external monitoring efforts at Nike factories around the world. "We needed a defense against investigations into our factories from outside forces. It's a way to preempt nongovernmental organizations and the media from playing 'gotcha.' For us, that level of transparency was necessary and appropriate to send the message that we have nothing to hide." Even when the findings are unflattering, Nike says it is not afraid to admit its problems. "We have a huge supply chain. There's no way in any given day that nothing is ever going to go wrong," says Manager. In fact, a recent report paid for by Nike revealed that workers at nine of the company's contract factories in Indonesia have witnessed verbal and physical abuse of workers by supervisors, as well as sexual harassment of female workers, the New York Times reported in February. Global Exchange praised the company for releasing the findings, and Nike has initiated a remediation plan. Campus Strategies Another approach Nike has taken is to enlist colleges, whose students have been some of its severest critics, to develop joint public-education programs. Nike also commissions research with selected colleges on topics related to the corporation's Third World operations. One research program, called Rising Tides, explored wage rates in countries where Nike operates. But the campus strategy has a more far-reaching goal than bridging a generation gap. "Companies live or die by customer loyalty," says Manager. "We want our customers to embrace Nike for generations. Because younger people are concerned about corporate accountability, companies need to send the right message. If they don't, they risk an erosion of their customer base by not paying attention to these issues early on." Experts agree that growing anticorporate sentiment will intensify. With continuing media coverage about alleged corporate wrongdoing, from Bridgestone/Firestone tire recalls to lawsuits against tobacco companies, the willingness of the public to join the fray becomes a growing threat to corporations across all industries. "The more consumers experience, either directly or indirectly, corporate abuses or shortcomings, the more willing they are to support increased regulatory actions," says Yankelovich. "From blackouts in California, to airline delays because of labor disputes, or SUV accidents because of defective tires, these all lend credibility to assertions that corporations are out of control." Most activists claim they are not "anticorporate" and insist they are willing to work with companies that are amenable to addressing their concerns. "We're not antibusiness and we don't want an adversarial relationship if it can be avoided," says Kevin Danaher, cofounder of Global Exchange. "Let's explore our differences and commonalties. Instead of calling in lawyers and PR consultants, corporations should be willing to talk to us." "We're not against corporations per se," agrees Anuradha Mittal, codirector of the Institute for Food and Development Policy, better known as Food First, a nonprofit think tank that has challenged the agriculture industry over biotechnology. "But we want to make sure that there's a set of principles that are adhered to, and we want some say in the creation of those principles." Despite this olive branch, some business leaders take a hard line. "American business holds higher ground than it's been willing to claim in recent years," says Michael Baroody, executive vice president, policy, communications, and public affairs, of the National Assn. of Manufacturers. "In terms of the self-evident contribution business makes not just in the economy but to the society, I think we need to be more aggressive in claiming or reclaiming that higher ground of public opinion." It may be true that corporations need to do a better job of showing the world they deserve credit, but a "no-compromise" stance will only hurt companies in the long run. "Today, consumers want to take pride in companies they do business with," says Manager. "In this age, companies do not exist in a vacuum but have roots that connect to other parts of a consumer's value system." Though large companies tend to be at the most risk for intense public scrutiny, smaller firms also need to pay attention to how this changing public landscape will affect them. "Smaller companies may not face activists, but they will feel the brunt of large companies that are now pushing that pressure back onto them as suppliers," says Peter Schwartz, author of When Good Companies Do Bad Things (1999, John Wiley & Sons). Taking a proactive position by doing a better job of communicating to the public both the financial and nonfinancial aspects of their businesses is an important step smaller companies can take to stem corporate backlash. Reaching out to local communities by creating community advisory committees also can help create goodwill. Integrating good corporate citizenship as a core business strategy also involves creating channels of communication to consumers. Christine Ervin, director of corporate communications for Kellogg, says that the company was able to offset activist pressure by making it easy for customers to contact the company and address their concerns. Kellogg monitors its consumer 800 numbers and works closely with the Grocery Manufacturers of America to address consumer concerns. "We try to keep up to date on the issues. A well-informed company is one of the best things that a consumer can have at [his/her] disposal, and we think that we are well-informed. "We don't necessarily agree with everything our critics say, but we have to pay attention to how it may influence our customers," says Ervin. "Today . . . you really have to keep your finger on the pulse of things and listen to your consumers."

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