Richard Edelman

Biography

RSS Feed 1.0
RSS Feed 2.0

February 3, 2010

A Sober and Reflective Davos

I attended my twelfth World Economic Forum meeting in Davos this past week. In previous years, there were exuberant “dot-com” savants (1999), self-assured US diplomats just before the invasion of Iraq (2003), impressive sovereign wealth funds (2007) and confident private equity barons (2008). In turn, each has been humbled within eighteen to twenty four months. Last year in Davos, the world stood at the precipice, with insolvent financial institutions looking to government as lender of last resort and global trade plummeting as recession gripped the economy. Economic collapse has been averted but this year’s Davos attendees were forced to reconsider such basic assumptions including the role of business in society and the private sector’s relationship with government. One left the ice and snow with a distinct sense of unease. Here are a few observations from WEF 2010 about the priorities of world leaders that may inform your thinking and client counsel:

Government on the front foot: Nicolas Sarkozy, president of France, took a very aggressive position on the future of business, calling for “moral capitalism” in place of the selfish, bonus-addicted behavior that led to the crash of 2008. The president of Korea, Lee Myung-bak, noted that the unprecedented cooperation among G-20 nations had staved off the crisis. He called for strong regulation to “counter pro-cyclical financial institutions” and an end to “too big to fail banks.” Larry Summers, chief economic advisor to President Obama, said, “We were there for the banks, now they need to be there for us and for the country. It is the task of progressive activist leadership not to work against capitalism, but to strengthen the market economy. The system cannot work for the benefit of the limited elite.” A few business leaders pushed back, for example Eckhardt Cordes of Metro Group, who said that government is now too “interventionist,” citing the Opel case in Germany where “there was a private sector solution available.”

Bankers on the back foot: Mr. Profumo, CEO of a large Italian bank, said, “Banks have a huge reputation problem. We need a significant regulatory framework to restore trust.” Howard Davies, former head of the UK’s Financial Services Authority, noted “mounting public anger against the bankers; broad discontent among the people.” Brian Moynihan, CEO of Bank of America (disclosure: a client), said that “pension funds need to have more sober assumptions on investment returns so that they don’t make speculative purchases.” Joe Perella of Perella Weinberg acknowledged that the “incentive system does affect behavior. You cannot have extreme bonuses linked to short term profitability. But the leadership of a firm sets the tone on culture; what are the priorities?” Bob Diamond, CEO of Barclays, took a strong stand against the Volcker plan to limit bank involvement in proprietary trading or hedge funds, saying it will hurt their ability to serve clients.

Business’ endorse stakeholder model: Indra Nooyi, CEO of Pepsico (disclosure: a client) calls it Performance with Purpose. Mr. Caleo, CEO of Vodaphone, calls for “zero tolerance for bad values; lots of rope on operations.” However you characterize it, the consensus of CEOs was in favor of evolving the model away from Milton Friedman (the social responsibility of business is to make profit) toward a more nuanced approach of business’ positive contribution to society. Michael Porter, professor at Harvard Business School, said, “The greatest competitive advantage for business will be social. We used to believe there was a trade-off between profit and social issues. Now we know differently. We thought work place safety and environmental stewardship were expensive, but the highest return on investment comes from zero accidents and reengineering the supply chain to make you more efficient. Companies which understand complex social issues will turn them into competitive advantages.” Tim Flynn, managing partner of KPMG, said that a CEO needs to be explicit and transparent and take a long term point of view on shareholder value.

Copenhagen round moves forward: On the positive side, Copenhagen marked the first international meeting based on a consensus on the science (maximum desirable temperature rise of two degrees Celsius), the aid package from the developed to the developing world and a smaller divide between north and south on emission targets/caps. The negatives include failure to deliver on target amount or period in which to achieve the ‘goal by nation’; absence of private sector involvement; and the lack of capacity of the United Nations in negotiating. A senior minister from India acknowledged that climate change is now linked to trade competitiveness, economic development and politics in each nation; “let’s not trash the multilateral process.” President Calderon of Mexico, who will host the next round in December, 2010 in Cancun, said, “We must reestablish trust among the parties. We have two gaps that threaten us; the rich versus the poor and man versus the environment. Let’s connect the solutions to both problems.” Caio Koch Weser of Deutsche Bank suggested public private partnerships such as that between his institution and the German Government to provide 10% of the country’s power needs from solar projects in the Sahara Desert, with the government agreeing to take the “first loss on equity projects.” Mr. Cameron of the Climate Action Project said we will not have a low carbon economy for at least thirty years—carbon sources will account for at least 70% of supply until 2040. Mr. de Boer of the UN said, “There will be winners and losers. No way China can do 8-9% growth per year and have a low-carbon economy.” Ed Markey of the US Congress, warned that “other nations will not be allowed to exploit the US commitment to better environment because it will cause job losses. We will have tariff protection against those actors.”

Sustainability as a core value: Water needs to move to the center of planning for development. According to Peter Braubeck, chairman of Nestle, “Seventy percent of our use of water is in agriculture and 85% of that is used in less developed nations. We must improve agricultural efficiency and raise the intensity of production. In fact, 20% of our water use is in manufacturing and 10% is for drinking and personal hygiene.” It was suggested that water used in cities could be recycled but that a significant psychological barrier remains. Vindi Banga of Unilever (disclosure: a client) said that the carbon footprint on a typical Unilever product is 2% at the company offices, 25% at the factory, 10% in logistics and 50% when the consumer uses the product. He said that it is a company’s responsibility to educate consumers, to provide enough background so the consumer can make well-informed product choices. Mark Parker, CEO of Nike, said companies should take on the case for the environment. “Consumption has been seen as linear, from ‘Buy to Use to Throw Away. We have to recapture the value in reuse. We have to tell our investors how we are saving money and creating a sustainable business model.”

Education: There are 72 million children who do not go to school, half of whom live in Africa. Queen Rania of Jordan cited the “marginalization of girls and minority groups. We must offer access to all. We should also empower parents in the local environment; they are the best advocates.” Her campaign, 1Goal seeks to raise the $16 billion needed to build schools and hire teachers for those outside of the educational system. Terry McGraw, CEO of McGraw Hill (disclosure: a client) described a program his company is rolling out that “prepares workers seeking re-training over a ten week period to be ready for their next jobs via on-line training modules.” He suggested educating the teachers via broadband, so that they teach critical thinking skills instead of rote instruction.

Chronic disease is preventable: The threat of obesity, tobacco and alcohol abuse to incidence rates of heart disease, cancer and diabetes is now present not just in the West, but in China, India and Africa. George Halvorsen, CEO of Kaiser Permanente, said, “We have intervened aggressively, offering every blue collar worker who is overweight a personal trainer. We have achieved lower rates of back pain, heart disease, absenteeism and diabetes.” He asserted that there is “no deterministic link between rates of obesity and education or income.” The health minister of Tanzania said that 60 years ago, cancer and diabetes were rare in his nation, “now many children have Type I diabetes and cancer kills more of our people than AIDS, tuberculosis and malaria together.” The panel agreed that there should be incentives for people to modify diet and start exercise. There is potential for technology to be used in disease prevention, with weight and blood pressure monitors linked to PCs. I attended a dinner on Altzheimer’s, where Dr. Robert Butler of Mt. Sinai Hospital called for a public-private partnership to fund a massive study on use of drugs in prevention, not treatment of the condition.”You have to get to the patient early, even at age 40 when abnormal proteins begin to be produced in the part of the brain where memory lives. One important discovery is that the disease is not genetic.”

Emerging market consumers: The consumer in the developing world is seeking to trade up, while the consumer in developed markets is trading down, according to a Boston Consulting Group study released at Davos. Consider that the Chinese saving per family is dropping from 26% of income to 13% of income. In the developing world, 85% of purchases are made by women, who go to 3-5 stores as “deal hunters.” The CEO of Carrefour said these women “value affordability, aspiration and availability. They are smart and empowered.” Newly wealthy people in developing nations “have high aspirations. They want high value premium brands.” In fact, China will pass Japan next year as the #2 luxury market in the world. The CEO of tech giant HTC of Taiwan, Ms. Sher, said that companies must move to local production, given the demand for ecological stewardship. “We need much better communication to customers on the provenance of the product.” In a session on media in developing markets, Shekar Gupta of the India Express Co. said that locally produced content does better than global content. Eddy Saramedia of Indonesia’s leading media company said that he buys scripts from Korea and India, then localizes the creative and shoots at home. I met the creator of “99” comics from the Middle East, super heroes of the Batman and Superman vintage, except of Arabic origin. “I make the story lines local. I give my writers a character guide—no romantic scenes allowed.”

The World Economic Forum experience is akin to being thrust into a blender with the world’s smartest people for four days, then being poured out on the other side. I come away convinced of the necessity of explaining how and why business exists. It is not good enough to generate strong financial returns, outstanding stock price or to have a celebrity CEO. We must demonstrate that business is a change agent, a flexible and fast instrument of social good through employment and better life. Those of us in PR play a vital role in this endeavor.

Posted by Edelman at 4:49 PM | Comments (2) | TrackBack (0) |

January 25, 2010

Edelman Trust Barometer 2010 - A New Mandate for Business

I have just arrived in Davos, ready to present the findings of our tenth annual Edelman Trust Barometer at a breakfast panel co-hosted by the Financial Times tomorrow morning. Here are a few of the important conclusions from this year's 22-country study of opinion formers, who are "media attentive," have more than $75,000 annual income and at least a college degree:

Trust in business has stabilized and is trending upward, with a substantial jump of 18 points in the US (from an all-time low of 36% in 2009 to 54% in 2010). Trust in business falls into three categories (High-Brazil, China, India, Indonesia-at 60-70%; Middle-Canada, Japan, US-at 50-59%; Low-France, Germany, Russia, UK, Korea, -at 35-49%).

Business tends to be more trusted than Government and less trusted than Non-Governmental organizations. Government trust has risen in the US (substantially), France and Germany, falling in Russia and mostly stable elsewhere.

NGO trust has jumped profoundly in China in the past six years, from 31% to 56%, a level comparable to that found in Western Europe, India and the US. About 70% of respondents trust a company more when it partners with an NGO on important social issues.

The most trusted nations for company headquarters continue to be Canada, Germany and Sweden, all of which are social democracies. Trust in US headquartered companies jumped 10 points to 61% this year, most notably in Germany and Russia. The least trusted nations are China and Russia, though China's scores rose from 27% to 34%.

The most trusted industry is still technology, achieving rankings of 80% plus in most countries (leader in 20 of the 22 markets surveyed). The banking industry has suffered a profound fall from grace, with three year declines of up to 39 points in markets ranging from the UK to the US to Germany. Banking remains highly trusted in China and India. Automotive staged a comeback and is very highly ranked in developing markets.

Credibility of chief executives has recovered but remains well below that of academics, financial analysts and NGO representatives. In a reversal of past trend, a "person like myself" has seen a drop in trust and fellow employees has remained stable, now at levels comparable to CEOs.

Business magazines and analyst reports have widened their lead over TV, radio and newspapers as the most trusted sources of information about companies over the past few years. Corporate advertising is the lowest at 14%.

The three leading factors burnishing corporate reputation are now "quality products and services, a company I can trust and transparency of business practices." This stands in stark contrast to 2006 Trust Barometer data for the U.S., where "top ranked leadership and strong financial performance" were two of the three key trust factors along with quality products. Financial results are now the least powerful factor in positive corporate reputation in most regions.

There remains great skepticism about future behavior of business, with almost 70% expecting "a return to business as usual" by companies and financial institutions once the crisis is over. Two-thirds of respondents expect government to have active influence over the financial sector. More than 70% said reducing the gap between senior executive and ordinary employee pay and firing underperforming management was central to restoring trust in companies.

What does it mean for business in the coming year?

Stakeholder society supplants the shareholder society: Companies will need to listen to and engage a wider range of stakeholders than in the past. Business must be ready to change its policies. This is the time for business to demonstrate its ability to deliver both profit and purpose, to prove that capitalism is a force for change and for the common good.

Practice private sector diplomacy by partnering with government and NGOs: The relationship between business and government is very fluid, with populism likely to flare up around issues of compensation, employment and trade. The power of NGOs is enhanced by the new emphasis on sustainable consumption and supply chain; partnership will be necessary on important societal issues.

Be transparent and communicate frequently across all channels: There is no longer a single/small group of credible sources of information. The new influencers--from bloggers to consumer enthusiasts--will continue to gain share-of-voice from traditional media. Cultivate a wide circle of spokespeople with substantial expertise and participate in conversation in real time across every channel, because people need to hear or read something five times in different places in order to achieve belief.

Prominent CEO Leadership: Today, transparency and trust are more central aspects of reputation. The chief executive officer needs to be visible and communicative, especially with his employees. They will take the story forward in their own way to friends and family. Academics and other experts will provide added credibility.

Posted by Edelman at 12:39 PM | Comments (4) | TrackBack (0) |

January 19, 2010

Breaking Media -- The Vertical Play

I had lunch with my old friend, Jonah Bloom, until recently the editor of Advertising Age and now the CEO of Breaking Media, a collection of vertical professional sites launched over the past four years. Jonah helped expand Advertising Age’s-- a must-read for us-- focus on the broader communications industry, and report the most compelling ground breaking work as well as the big campaigns and brands. The media brands under the Breaking Media umbrella include Fashionista (fashion), Dealbreaker (M&A), Above the Law (legal) and Going Concern (accounting). Here are the highlights from our conversation:

The editor of each site has a celebrity borne of subject mastery and provocative content. Bess Levin of Dealbreaker and Lauren Sherman of Fashionista lead from the front, not the traditional editors who assign reporters to stories, then massage the content.

The best reporters are often those with professional credentials in the given field. At Above the Law material is generated by three former attorneys turned journalists.

The goal of each site is to get “the community to gather around news that they really want; a good example is salary levels at law firms or investment banks,” said Bloom. “This is a fundamentally different experience than Facebook or Linkedin. We aim to offer insight and conversation.” The look and feel of Fashionista is a hybrid of Facebook and a mainstream media digital site.

The business model for Breaking Views includes vendor advertising (LexisNexis on Above the Law), conferences, recruitment advertising, and data analysis in verticals. There is quite specific actionable connection to advertisers (Lateral Link, the recruiting firm, has a job of the week listing—and earns a success fee from the employer).

The stories are enriched from consumer generated content, particularly on Fashionista, with photos and commentary from fashion events around the world.

The four brands practice “open garden journalism” in that they are constantly posting links to the best sources on the web or MSM content, then adding their own short form commentary. Above the Law teams with Law Shucks on layoffs and with the 10th Justice on possible court appointments. This enables broader coverage than the 5-8 person internal staffs can achieve on their own.

The dispersion of media continues apace with significant implications for PR firms. We have conflicting pressures, with many more media outlets and ever more time-pressured reporters, while procurement officers seek discounts in our hourly rates. We need to employ better software that enables sharing of media lists (preferences, experiences with reporters) while enhancing our training efforts for staff. The second key point is that the nature of influence has been altered, with specialist blogs often the first point of call for decision makers. This is corroborated by a recent study by Edelman’s Public Affairs unit on legislative assistants in Brussels, London, Paris and Washington, in which more than half (55%) polled said they read online sources even before mainstream media. On matters of category-specific interest which lend themselves to discussion, we should counsel clients to break the news on vertical social media.

According to our study:

One in five staffers have changed a policy position based on online sources

39% of capital staffers use blogs to monitor policy news and opinion

64% of staffers are using facebook as proxy for face-to-face meetings

The first source of information checked in the morning—aside from email--is the still the leading local media – Washington Post in DC; Spiegel in Germany; BBC.com in the US

Posted by Edelman at 9:44 AM | Comments (3) | TrackBack (0) |

January 12, 2010

Without Boundaries

I went to a luncheon at the Metropolitan Museum of Art in New York City yesterday in honor of the late Eunice Johnson, who died last week at age 93. Eunice and her husband John were co-founders of Johnson Publishing Company, which owns Ebony (1.2 million circulation) and Jet (900,000 circulation) magazines, trailblazers in Black media and still among the leading media for the African-American community. The Johnsons were close friends of my parents in Chicago; here are my observations about this unique success story from 35 years of acquaintance.

The Johnsons operated as partners, with John running the publishing group and Eunice the Ebony Fashion Fair, the traveling tour that brought high fashion to local communities. They had deep commitment to both their marriage and their business. As in our family, it was always hard to see where one part started and the other ended.

They both had stories of perseverance about the early days of the company, when segregation was the standard in America. John told me that he was asked to take the back elevator at the Waldorf Astoria Hotel to get to his room. He doggedly pursued advertising from brands such as Colgate or Seagram, pounding the pavement, through sheer force of will, persuading companies to take the chance. He told me that African Americans are incredibly loyal to companies who ask for their business.

The family was very aggressive about providing new opportunities where few had been before. The Ebony Fashion Fair was the original platform for such notable models as Pat Cleveland, Judy Pace and Terri Springer, plus black designers such as Lenora Levon and L’Amour. John told me that he employed people even if they had less experience in a given area such as marketing because they would learn the business.

Both the publishing and Fashion Fair units were agents of empowerment. As their daughter, CEO and Chairman, Linda Johnson Rice said yesterday, “We showed ourselves in living brown color. You deserve to wear these clothes. Dark-skinned models wearing pinks, yellows and reds….sometimes over the top flamboyant and at other times quite practical..we have been the unique laboratory.”

The Johnsons worked until the end of their days. President Bill Clinton said they had an ageless vitality. “As long as you are doing good, you can be forever young.” He added, “They changed forever how the rest of America sees African Americans and how African Americans see themselves.”

They gave back to the society. The Ebony Fashion Fair raised $55 million for the United Negro College Fund, hospitals and community centers.

When people question the ability of private enterprise to make positive societal change, I will cite the Johnson family. By employing and training, by imagining and pushing, by reinvesting in their community, they have left a proud legacy. I am fortunate to have known them.

Posted by Edelman at 4:40 PM | Comments (2) | TrackBack (0) |

January 8, 2010

Losing the News

Alex Jones, who runs the Shorenstein Center on Press, Politics and Public Policy at the JFK School of Government at Harvard, has written a book called, Losing the News. In it he chronicles the shrinking of the “iron core” of authority news. He contends that 85% of authoritative content is published in newspapers, while local TV, radio and bloggers are generally “piggy-backing” onto the investigative or accountability news. He acknowledges that “part of the news crisis is finding a solution that will pay the significant costs of generating accountability news that is essential to our democracy and still allow an acceptable profit.”

Jones has very important views on public relations. In a phone call yesterday, Jones made the case for PR, but in its role as supporting excellence in journalism. “PR people should not try to circumvent the journalists; of all professions, PR has the most to gain from a vibrant media.” He writes, “Good and honorable PR people facilitate good reporting and the best ones know that their clients’ best interests lie in adherence to the truth.” He goes on to blast the video news release as a “stealth bomb of journalistic dishonesty…crafted to look like objective journalism….this is a subversion.”

He argues for “genuine objectivity” in which journalists arrive at a story with bias, but the bias must be tested, arriving at a “practical truth.” To the extent that PR people provide sources that make this process more complete, we are providing an important service.

I asked Jones about the notion that every company can be a media company. He acknowledged the value of a company contributing to the conversation based on its expertise (J&J on baby care as example). He noted the higher standard for content is required. “I would expect both good and bad to be presented in the material. I would demand third party sourcing. I would want a level of objectivity and professionalism in the writing.”

I was at USA Today yesterday with clients. The two reporters conducting the interview talked about how they were being compelled to change their game, to write shorter form content for the web, to append video and photo supporting material. For all of our bravado about how public relations is reinventing communications, let’s be clear-- we need the media to be the credible source of information. We need to play our part by helping reporters--challenged by headcount reductions and diminished travel budgets-- to deliver compelling stories that help to shape the public discussion.

Posted by Edelman at 5:44 PM | Comments (0) | TrackBack (0) |