A J. B. Were report on the mining group WMC is a sign that financial markets see a direct link between high-quality environmental reporting and high profits. The report, dated June 8 but just released, suggests WMC’s reputation as a leader in communicating to the public about environmental risks of its operations greatly improves its long-term growth potential.
Effective communication of environmental performance, particularly during highly public controversies over leaks, spills and other polluting events, has become a key management task that has direct consequences for earnings. United States-based risk-communication consultant Peter Sandman says strong management in this area requires an understanding of the difference between the way risk is perceived in companies and the way it is perceived by external stakeholders. Through his work advising companies such as Exxon, Intel, Du Pont and Union Carbide, Sandman has developed a management approach that focuses on assuaging public outrage.
Sandman says: “The essence of environmental risk for companies is the hazard itself, which they define in technical terms, where you multiply the magnitude of the problem by the frequency of the problem. For the public, risk is not a technical phenomenon at all. It is influenced by factors like fairness, trust and who has control.”
With Melbourne consulting group Qest, Sandman has created a Windows-based software program to help companies to predict and manage public outrage. The program builds a profile of stakeholders in specific situations and rates managers’ strategies against an “outrage meter.” It then offers approaches to lower the outrage rating. Qest says oil companies BP and Shell and mining groups North Limited and Placer Pacific have bought licences to use the program.
Sandman says that when companies believe that the environmental hazards of their activities are low, they tend to adopt a strategy of ignoring or deflecting public outrage. “Managers do take the hazard seriously – it’s a rare company today that feels safe killing people or damaging ecosystems – but they underestimate the outrage. This makes the public more angry and more frightened, and adds to the controversy. Eventually the pressure builds, the company can’t ignore it any more and ends up over-mitigating the hazard. They might spend millions on a new piece of machinery which they have already concluded isn’t necessary.”
He says the costs of ignoring outrage are not limited to a single aspect of a company. “A Canadian multinational client had a proposal to build a facility in the US that attracted a great deal of controversy. That subsequently cost them a facility in Chile and a licence to operate in Africa. Local managers are no longer just managing a local venture. With the power of media like the Internet ... they are inevitably managing a large part of the company’s reputation as well. If a manager is unable to deal with outrage effectively, the costs spread worldwide.”
Sandman says the best method of managing outrage is to come clean, admit mistakes and invite the public to contribute to solutions. He says that, although most managers are excessively preoccupied with comfort, control and self-esteem, the evidence is strong that approaches that acknowledge past mistakes, that share control, that risk failure and that show the public how little power companies actually have, are effective in diminishing outrage and its costs. However, he says, most managers in these situations do what feels comfortable rather than what makes money.
The diversified Placer Pacific has also recently purchased the software. The company’s manager of public affairs, Ian Williams, says the importance of focusing on public outrage was driven home to management after a tailings spill of 1.6 million cubic metres at the Marcopper mine in the Philippines in 1996. “It’s an area we have overlooked. When crises happen, we have very good technical processes in place to fix problems, but we have fallen down with the local communities.”
Williams says the software will be part of Placer’s broad strategy to become community-focused in managing environmental risks. “Competition for resources is increasing all the time. If we can develop a reputation as being world leaders in sustainable development, we can get advantages as a preferred operator, particularly in the developing world.”
Critics of the “outrage” approach to environmental risk management say it perpetuates environmental hazards for companies, exposing them to greater costs in the long run. In her book on corporate environmental policy, Global Spin, Sharon Beder says: “Rather than substantially changing business practices to earn a better reputation, many companies are turning to public relations professionals to create one for them.”
In response to those who label his approach “greenwashing,” Sandman says that without hazard mitigation, focusing on public outrage is ineffective. “When the hazard is high, trying to cope with outrage alone and ignoring the hazard is certainly unethical and also not very likely to work. If you are doing lots of harm, being nice about it and working hard not to annoy people, it is not going to accomplish a great deal. This is why the tobacco industry has very little to gain from this approach. If you are killing that many people, everything you’ve got to be honest about is awful.”
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