Oldboy!

I’m sure when I woke up on Saturday morning I had entered into some strange new world where Korean cinema had taken over reality.   My Korean is limited, so I couldn’t quite make out the story, but I had a hunch from the images of the Hanwha Group chairman, interrogation rooms, police chief from Namdaemun and lots of images from a Korean nite club.  I was startled by the hype itself; the news broadcast must have had at least 6 separate but related items.

According to the Korea Herald (latest news) on Tuesday, “the case allegedly involves [Kim Seung-youn, chairman of Korea’s 12th largest conglomerate (chaebol)] and a team of his bodyguards kidnapping and physically assaulting employees of a bar in Seoul on behalf of his 22-year-old son.”  His son reportedly suffered facial injuries that required 11 stitches following a fight with the bar employees.

Analysts from Meritz Securities Co. are saying that the impact is only short term.  However, the incident makes fun of the group’s grand vision for 2007 where the chairman Kim promised that the company “will become the greatest brand of all mankind that improves humanity and the value of life.”  Hmmm.

Keynes once wrote, “Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.”  I think Keynes was exaggerating, but I don’t think, if these allegations are founded, that this would apply to even this most extreme situation.

Putting the incident to the side, Hanwha’s ambitions are unquestioned.  However, can Hanwha deliver on its audacious promise, even whitewashing this recent incident?  Should companies make promises it can’t keep? 

I think we all know the answer to this.

Corporate Social Responsibility (CSR) is a term that is thrown about flippantly.  It is neither philanthropy, volunteerism or ’cause marketing’.  Simply, it’s about businesses doing the right thing within the context of the society in which it operates and provides goods and services.  CSR is achieving commercial success in ways that honor ethical values and respect people, communities and the natural environment.  What’s changing now is that global companies, and ambitious Korean companies, need to adhere to global standards.

To say the least I’m skeptical that Hanwha will achieve its corporate vision as it looks to become a global company.  CSR visions, which I believe the Hanwha statement to be, should not be throw-away-catch-phrases that earn short term admiration and perhaps marginal brand equity.  CSR is a way of doing business and is more about what a company does from between 9 to 5 and how it treats its employees than slogans, donations or other such activities. At its core is reputation management – the stakeholder perception of how a company runs its business.  When a company treats its employees well, there are fewer supply chain or customer disruptions.  Robust environmental management practices result in reduced energy inputs, more efficient production systems, and less waste to manage.

I think Korean companies need to think more carefully when it comes to CSR and growing their reputation in a global context.

To meet expectations, first find out what they are…

The McKinsey Quarterly carries a very interesting article on the disconnect between the extent to which executives believe that companies have a positive impact on society and the extent to which consumers agree with them. Not surprisingly, companies rate corporate contributions higher than do consumers.

The survey indicates, among other things, that the issues that consumers feel are important for companies to address are different from those the companies themselves feel are important. For consumers, the top three issues are the environment, retirement benefits and healthcare. Corporations also rank the environment first but then place offshoring / job losses and data security second and third. The Edelman Trust Barometer offered respodents a different list of issues – poverty alleviation for example – so it’s difficult to directly compare the two sets of data.  However, the interesting parallel is the extent to which consumers believe that ethical treatment of employees should be a priority. This ties in very well with both the EdelmanTrust Barometer and the Asia Pacific Stakeholder Study.

Also, when asked what single thing companies could do to build reputation, the results show a wide disconnect:

“Twenty-seven percent of the consumers say it would be to improve benefits and conditions for employees, 17 percent to tighten safety and environmental procedures, and 14 percent to limit redundancies and the offshoring of jobs. By contrast, executives believe that the most effective actions would be to tighten corporate-governance procedures (25 percent), to increase philanthropy and social investments (20 percent), and to improve benefits and conditions for employees (15 percent).”

(Source: McKinsey Quarterly 2007 No. 2)

Consumers act on their perceptions of a company’s trustworthiness in a number of ways – they don’t buy the products or services of companies they don’t trust, they don’t work for them or invest in them, they encourage other people to boycott them, they complain directly to the company or to third parties.  Clearly, therefore, companies need to be more rigorous in communicating with their stakeholders to assess what their interests really are and tracking that data over time.

 

The trust gap has a real and mesurable impact on corporate reputation and performance.  The only way to close the gap is by opening up to dialogue-rich engagements with stakeholders to assessnot only what issues are out there but also which issues matter most to the stakeholder who drive the business.