Corporate Goverance Practices: Governance units evolving to suit new business needs

After the many corporate scandals of 2002, PR agencies simply could not launch CSR practices quickly enough. Where are they now?

After the many corporate scandals of 2002, PR agencies simply could not launch CSR practices quickly enough. Where are they now?

In the two years since Enron's bankruptcy cast a pall of suspicion across American industry, a number of high-profile PR firms have launched practice areas to shepherd clients through this new age of corporate mistrust. Today, firms continue to counsel corporations in governance, ethics, and social responsibility. But these offerings have evolved to reflect changing realities in today's business environment. Immediately post-Enron, a handful of agencies brought in corporate governance experts to develop these new practice areas. But these days, corporate governance has often been integrated into other practices, such as financial, rather than offered as a standalone specialty area. In 2002, firms such as Golin Harris, Fleishman-Hillard, and Edelman hired new talent to counsel clients on issues like financial disclosure, credibility building, and the regulatory environment. The decision was controversial, with some corporate governance experts bluntly telling PR pros to stay out of the field. "It's a legal and financial matter, not a communications matter. PR firms have expertise on disclosing, publicizing, and discussing with the public," Charles Elson, director at the University of Delaware's Weinberg Center for Corporate Governance, told Investor Relations Business in October 2002. (The Wall Street Journal ran a similar story in July 2002, when several PR firms launched corporate governance practice areas.) Two years later, Edelman brought corporate governance under its financial practice, says Andrew Merrill, global MD of financial communications. And Richard Breeden, the former chairman of the SEC who partnered with Edelman in June 2002 to offer corporate governance consulting, no longer works with the agency. Rather than this being indicative of a trend having passed, such changes are a sign that corporate governance is now an intrinsic part of corporate communications. These days, clients aren't specifically requesting corporate governance services, Merrill notes, adding that agencies are still required to have expertise in this area. "We are nonetheless routinely involved in issues of corporate governance," he says. "Corporate governance is every bit as topical as it was 18 months ago." Still, he adds, there was a greater perceived opportunity to launch separate practice offerings immediately after the Enron bankruptcy. "Post-Enron, corporate governance has become part of the corporate legal DNA," Merrill says, adding that many corporations already implemented permanent governance changes and communicated them to stakeholders. "[Corporate scandals] effected a fair amount of positive change." Fleishman, which started its corporate credibility advisory practice in September 2002, still lists the group as a specialty area on its website. To build the practice, the agency appointed Leon Panetta, the chief of staff to former President Bill Clinton, a former member of Congress, and a member of the board of directors of the New York Stock Exchange, to serve as co-chairman. Practice leader Peter Verrengia, who is also president of the agency's Eastern region, noted in a March interview that issues like executive compensation still require expertise in corporate governance. "The degree to which we get involved in corporate governance has increased meaningfully," says Carolyn Miller, Fleishman SVP. "If anything, it's become more intense. There's a lot more flesh to what the SEC is expecting." Miller adds that one issue that the practice is handling involves whether SEC "quiet periods" are still warranted. CSR field flourishes At Hill & Knowlton, corporate governance issues are addressed within a CSR practice that was launched in June 2003. But the practice also counsels clients on communicating about broader CSR issues, such as cause-related marketing and global citizenship programs. "It's a global practice - it's growing," says Jim Sloan, SVP and US director for CSR. "We have seen in the past couple of years ... the need for a comprehensive model for corporate social responsibility." Its capabilities often extend beyond traditional PR, Sloan says, and might include helping clients partner with nonprofits and NGOs. Corporate reputation is as dependent on corporate governance as CSR, according to a 2004 H&K reputation survey. And CSR has been a growing field, according to many indications. Hewlett-Packard, for instance, has worked with H&K on many projects, including e-inclusion, an effort to introduce the latest information technology in places like sub-Saharan Africa. The agency also worked with HP and Office Depot on a computer-recycling effort at the latter company's 850 stores, which Sloan describes as an "example of a good business practice." Sloan adds that surveys have shown that passively giving money to charity is viewed less favorably than active involvement in a community. CSR has "really moved from the margins into the mainstream," says Bennett Freeman, MD of corporate responsibility, a unit within Burson-Marsteller's corporate and financial practice, which was created in August 2002. Freeman notes that, since his appointment, the practice has taken on more global projects and has done collaborative work with other agency units. It recently helped clothing retailer The Gap introduce its CSR report, a launch that involved the combined efforts of media experts in San Francisco, public affairs experts in London, and CSR experts in Washington, DC. "If you look at these scandals over the past couple of years ... it's put forth corporate conduct as never before," Freeman says. "A lot of what we do is bringing our clients together and [creating a] dialogue." Interest in corporate governance remains strong, according to the H&K study, which found that 66% of 175 executives surveyed indicated that governance, along with transparent disclosure of financials, are a key component of reputation. The study also revealed a strong acknowledgment of CSR as a key element of corporate reputation (though only 9% said that it was the most important element). More than half of respondents indicated that CSR is a C-level responsibility. These findings are no surprise to Freeman. "Our core position is that you can't safeguard your corporate reputation without promotion of corporate responsibility," he says. "They go together increasingly." Agencies continued to launch CSR practices through last year. In August, Golin launched Change to offer CSR, social marketing, and strategic philanthropy. Rob Anderson directs that practice, which counts the American Legacy Foundation and Capital One as clients. Spread into other areas The financial sector has not been alone in its need to enact responsibility programs to build its reputation. Ogilvy PR, for instance, created a separate social marketing practice from its health and medical practice in May. Its current work includes campaigns to raise awareness for AIDS and heart disease. "Behavior change and social marketing have been a part of [pharma PR] for many years," Kate Cronin, MD and co-head of Ogilvy's health and medical practice, said in an October interview. "But now, pharma companies need to do more social marketing than DTC." In July, Edelman launched a health ally development group within its health practice. Public utility companies also coped with lingering issues from the California energy shortage to the summer 2003 power failure that affected much of the Northeast. Dittus Communications launched its energy practice in November 2003 to counsel clients like Alabama Power and the Alliance to Save Energy. Sloan notes that many corporations turned to agencies in 2002 for a quick fix. But he describes CSR as "a longer-term evolutionary trend." On the corporate side, Merrill says, the public generally believes that progress has been made in governance issues. "But whether that can be measured in quantifiable changes [in attitude] ... I don't think we can measure that at this point," he says. "The media is being stingy with the type of credit they're giving to companies for best practices," says Miller.

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