Feature: Increasing pulling power - Company Law Reform proposals offer PR a unique opportunity to stake its claim to corporate reputation management. Richard Carpenter explains how

You might not know it, but there’s a big deadline looming and it could have a serious affect on your career prospects. Concerned? So you should be. Failure to act will be a missed opportunity for PR to be taken more seriously at board level.

You might not know it, but there’s a big deadline looming and it

could have a serious affect on your career prospects. Concerned? So you

should be. Failure to act will be a missed opportunity for PR to be

taken more seriously at board level.



That’s the view of the IPR, which is busy putting together a response to

the Company Law Reform proposals because it believes that the

legislative changes being discussed could - and should - open up massive

opportunities for PR professionals. On the other hand, the door could be

firmly slammed in the industry’s face as other disciplines grab hold of

work which would seem to be a natural fit for the communications

function. The deadline for submissions on the consultancy document is at

the end of July and the IPR is actively soliciting input from PR

professionals by 18 July in order to collate an industry-wide

submission.



The reforms propose that listed companies should report on their

policies and performance on community, social, ethical and reputation

issues. These will be encompassed in a broader Operating and Financial

Review (OFR) section in company annual reports .



’That is exactly what PR is about,’ says Nigel O’Connor, policy officer

at the IPR. ’The effect that reputation and stakeholder relationships

are having on risk management is beginning to be recognised more widely

across the boardroom. This represents a great opportunity for the PR

industry.’



Many of the proposed reforms emanate from last year’s Turnbull report on

business risk. These have since been incorporated into the London Stock

Exchange’s combined code on corporate governance and require companies

to ensure that they have internal control and risk management processes

in place. Boards of directors must review the effectiveness of these

structures and report on their consideration of the issues. Companies

were supposed to have implemented the necessary procedures last year so

that they can fully report on them for year-ends after this December but

many are not yet up to speed.



The proposals to bring elements of the Turnbull report into company law

should force company directors to pay greater attention to these issues

- at the very least they will be required to report on the structures

they have in place.



Jonathan Barber is managing director of the Safety and Environmental

Risk Management (SERM) Rating Agency. Barber believes the proposals will

force boards into quantifying risk levels - for example, how likely are

we to fall victim to pressure group action? - and their effect on

reputational costs. ’Specialists in communication should definitely be

part of the process,’ he adds.



And, according to Elizabeth Forbes, an independent consultant who has

reviewed the proposals for the IPR, that’s where the opportunity for the

PR industry lies. As it stands, though, the legislation does not stress

the need for PR people to become involved. However, the consultancy

document does suggest that the role of auditors is enhanced to encompass

a review of company reporting on stakeholder and reputational

issues.



Forbes is concerned that auditors will increase their skill sets in this

field and edge PR practitioners out of the equation. She believes it is

fine if auditors are just asked to review consistency, the danger is

that they could be called upon to do more, threatening the standing of

PR.



There is also a possibility of management consultants staking their

claim in providing the relevant reporting services for companies.



Many senior PR practitioners who are au fait with the proposals don’t

seem too phased by auditors being called upon to review the report.

That’s a natural part of the reporting process. But some do echo Forbes’

fear about other professions jumping in and stealing a communications

role.



’Because of the words used in the proposals it could be very easy for

companies just to pass the whole of this over to KPMG, Arthur Andersen,

PricewaterhouseCoopers or whoever else does the audit,’ says Peter

Walker, executive chairman of Pielle Consulting Group.



But he adds: ’Their business is hard outcomes whereas this is about soft

outcomes. The corporate communications head is inevitably going to have

to be involved in this area.’



Those thoughts are partly backed up by Philip Dewhurst, UK Group CEO at

Shandwick International and vice-president of the IPR, but he stresses

that the proposals should be seen as an opportunity for the PR

industry.



’I think we (as an industry) can work side by side with auditors - they

have a very valid role in auditing and measuring,’ he says. ’Any

third-party review is great but the results still have to be

communicated. The fact that social and reputational performance will

have to be reported on is a real breakthrough.’



The opportunity may well be there but what should PR practitioners be

doing about it? First and foremost they should show that they know about

the proposals and their implications, says Forbes. She suggests that

consultants should mention Turnbull and the company law reform proposals

when they are pitching for business, showing a real understanding of

what the proposals mean from a communications perspective. Practitioners

should also show ways of improving the reporting process on these issues

which will appeal to a wider corporate governance trend of transparency

and accountability, with both traditional and internet media.



’Communications people who are aware of what’s going on will be able to

offer better advice on these issues,’ says Neil Mainland, a partner at

Financial Dynamics and chair of the IPR’s City and Financial Group.



He is also pleased with the recognition of communications issues by a

wider audience. ’It’s interesting that people outside the communications

business are saying that reputation is important and can affect the

balance sheet. We should take heart from that.’ Mainland believes PR

professionals should build their own understanding of reputation

management and demonstrate that awareness within their companies or to

their clients.



Seizing the opportunity of higher level recognition for PR by the

boardroom may be easier said than done. Speaking at a recent PRCA

seminar, management consultant William Stancer pointed out how much more

rapidly his profession had been growing over the last five years

compared to PR.



Stancer, who is based in Andersen Consulting’s Prague office, attributes

some of this disparity to the failure of the PR industry to show an

understanding of wider business matters. ’If you’re going to operate at

chief executive level then you need a broader perspective. For example,

you need to be able to talk about globalisation, leadership development,

customer relationship management or sales force effectiveness.’



He also adds that communications directors will have to put in the time

in order to gain adequate understanding of the latest theory and

practice in these areas, and to be able to demonstrate a real knowledge

which senior management cannot ignore.



Peter Walker agrees that the PR industry needs to be ready to learn new

skills. And that could mean a willingness to hire in fresh business

talent.



’We’ve got to get better at promoting and polishing our abilities to

work in these areas,’ says Walker. ’We need to be able to provide and

present information in a sufficiently robust format that satisfies the

criteria of people used to judging a business on hard numbers.’





Copies of the full consultation document are available on-line at

www.dti.gov.uk/cld/review.htm The IPR policy briefing is available at:

www.ipr.org.uk/News/Newsrameset. htm. Submissions should be made to

Nigel O’Connor at the IPR by 18 July (NigelO@ipr.org.uk).





HOW THE OPERATING AND FINANCIAL REVIEW MAY EVOLVE



The Operating and Financial Review has been a recommended section for

inclusion in UK annual reports for several years and many larger

companies already include it in their annual reports. These proposals

would widen its remit and make it mandatory.



The consultation paper talks about current accounting and reporting

guidelines failing to ’provide adequate transparency of qualitative and

forward looking information’ to stakeholders. ’This is particularly

so ... with the growing importance of ’soft’ or intangible assets,

brands, know-how and business relationships,’ says the paper.



The content of the new OFR would include wide-ranging discussion of a

host of communication issues, focusing around a company’s reputation

management and the risks facing its brand. It requires information on

projects and programmes to maintain and enhance those brands as well as

an explanation of corporate governance values and structures.



The proposals suggest ’an account of the company’s key relationships,

with employees, customers, suppliers and others, on which its success

depends.’ Community, social, ethical and reputational issues are

referred to throughout as likely topics for discussion. There is also a

request for coverage of the ongoing dynamics of the business, the

trends, uncertainties and other factors which may substantially affect

its future performance.



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