approaching the future: trend analysis

APPROACHING THE FUTURE Trend Analysis

RESEARCH CENTRE OF

GOVERNANCESUSTAINABILITY

AND REPUTATION

In collaboration with

Document Prepared by:

Research Centre of Governance, Sustainability and Reputation

Research Centre of Governance, Sustainability and Reputation is an independent centre aimed to promote collaboration in the

research, analysis and training of reputation risk, governance and sustainability and to study the impact of governance and sustainability

on reputation.

The Centre is supported by Corporate Excellence – Centre for Reputation Leadership and IE Business School, both benchmark

institutions in the field of business intangible assets management.

The current report has been developed together with Canvas Estrategias Sostenibles, a strategic consulting firm specialized on corporate

responsibility and business intangible assets.

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Summary01 Global Trends

1.1 Trust recovers, but there is still a great social gap

1.2 Climate change at a crucial tipping point

02 Sustainability Trends

2.1 Strategic Partnerships: you can’t do it alone

2.2 Connect with aspiring shoppers

2.3 Sustainable investment, growth formulas

2.4 New business models?

03 Reputation Trends

3.1 Three critical reputation risks

3.2 The real impact of reputation

3.3 Investment on eputation growth

3.4 New responsibilities for upper management

3.5 Evolution of metrics

3.6 Gain authority over influencers

04 Corporate Governance Trends

4.1 New Code of Good Corporate Governance in Spain

4.2 Risks of a bad corporate governance

05 Map of Trends and Main Conclusions

06 References

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GlobalTrends1

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GLOBAL TRENDS

In a world that is interconnected and fragmented, trust building is, at the same time, a challenge and the answer. Global bad practices, such as the financial crisis, banks’ abuse of power, corruption or harsh refinancing measures imposed on the most vulnerable countries, have undermined people’s trust, both in companies and institutions.

However, the findings of 2016 Edelman Trust Barometer reveal trust has increased compared to last year. Still, it shows the largest ever trust gap between the informed public and mass population when it comes to trust. This growing inequality has important consequences, such as the rise of populist politicians and a higher demand on governments for further regulations.

Globally, trust in business increases (53 percent) and remains above media (47 percent) and government (42 percent) but continue to lag behind NGOs (55 percent), which remain the most trusted institution.

Most of the participants in 2015 Edelman Trust Barometer claimed that technological advances in companies happen too fast. They also think that firms are more motivated by what they stand to gain than by the common good and demand (80 percent) that companies focus on improving the economic and social conditions in the communities in which they operate. The topics the respondents are more concerned about include education and training, healthcare and well-being, protection and improvement of the environment, support of human rights, income inequality, poverty reduction or creation and maintenance of infrastructure.

Experts, people “like yourself” and employees are still more trusted than government, which, one year later, still presents the lowest trust rates. According to the Barometer, respondents are more likely to rely on employees (52 percent) rather than on the organization they work for. In this sense, the trend is expected to be rising (it grew 4 points compared to 2015). The findings also show that employees are the trustworthiest source, —more than activist, experts, CEOs, managers or academics— when it comes to specific subjects such as the relationship with employees and customers, financial information or business practices in crisis situations. CEO trust has also risen substantially: from 41 to 49 percent in 2016. However, they are still criticised for not focusing enough on job creation (49 percent) or causing a positive long-term impact (57 percent).

Without trust, everything else vanishes. Dov Seidman, author of How: Why HOW We Do Anything Means Everything claims that we should focus on the source of trust, especially in times of uncertainty, that is, we should pay attention to how we do what we do.

Companies shouldn’t replicate a business model strictly based on economic benefit; instead, they should focus on how they obtain that benefit and which values or principles guide their actions. To do so, thinking leaders, such as Christian Felber, author of Economy for the Common Good, claim that the two main rules that guide the behaviour of economic actors, profit motive and competitiveness, need to be replaced by contribution to the common good.

Trust recovers, but there is still a great social gap

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The capitalist crisis brought a democratic crisis and a widening inequality gap. According to recent data, the gap between rich and poor in OECD countries has reached its highest level in thirty years, when data was first collected. Changes brought by this gap can already be seen in politics, for example, with the arrival of new populist approaches asking to rethink our capitalist system.

More than 33,000 participants emphasized two important aspects to build trust: engagement and integrity. Both variables are valued as highly important, but respondents perceive that companies don’t pay enough attention to them (view figure 1). Thus, engagement means listening to customers and communicating —frequently and honestly— about the state of the business. Integrity, on the other side, implies ethical business practices, transparency and taking responsible actions to address a crisis.

To recover trust, organisations need to evolve towards new ways to do, communicate, produce, sell, and distribute. It is true that this journey needs a shared effort, but we must accept that with greater power comes greater responsibility.

Figure 1. Attributes for trust recovery

Integrity• Exhibits highly ethical behaviours• Takes responsible actions to address an issue or crisis• Behaves in a way that is transparent and open

Engagement • Treats employees well• Listens to customer needs and feedback•Placescustomeraheadofprofits• Communicates frequently and honestly

on the state of their company

27

24

Gap 24

Gap 25

Source: Edelman Trust Barometer, 2016

49

51

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During the 2009 Global Humanitarian Forum, Kofi Annan, then Secretary-General of the United Nations, claimed that heat-waves, floods, storms, and forest fires were responsible for 300,000 deaths and projected that climate change will be responsible for as many as 500,000 deaths a year by 2030.

Naomi Klein reported in This Changes Everything what The American Association for the Advancement of Science (AAAS) in 2014: “based on the evidence, about 97% of climate experts have concluded that human-caused climate change is happening now”.

Pope Francis has also joined the fight against climate change with an encyclical about ecology where he puts the blame on big companies and powerful leaders.

However, over the last years, even the most reluctant countries have joined the fight against global warming. In 2015, China and the United States, for example, signed an agreement to reduce their emissions by 2030. More recently, in December 2015, 196 countries met at the Paris Summit to sign the first global agreement to limit their emissions of greenhouse gases. The World Business Council for Sustainable Development, composed by more than 150 multinationals, thinks that “it is a positive text for companies, because it shows a very clear image of long term investments with an ambitious goal of 2°C, even going as far as 1.5°C”.

The documentary Time to Choose, directed by Charles Ferguson, was screened at the Paris summit. The film examines the main factors that contribute to climate change and suggests ways to ease the current crisis. Ferguson argues that we already have the necessary tools and knowledge to fight climate change.

In 2015, GlobeScan and SustainAbility conduc-ted a survey called Leadership on Climate on the factors that a company should have to be considered leader in fighting climate change. The total of mentions are set out below, alternative energy and new technologies/innovation being the most prominent.

Figure 2. Leadership on Climate Change: COP21 & Beyond

Source: GlobeScan and SustainAbility, 2015

Leader in alternative energy

New technologies / Innovation

Targets / strategy

Communication / advocacy

Core strategy / governance

Leadership from top

Committed / real results

Products and services

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12

11

11

10

10

10

10

GLOBAL TRENDS

Climate change at a crucial tipping point

Sustainability Trends2

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In a complex system with limited resources like ours, improving sustainability can’t be an individual success. Anthropologists say that our ability to cooperate is one of the qualities that distinguish us as humans, because it allows us to reach targets that go beyond our personal limitations. Therefore, partnerships between organisations and collectives are essential in order to reach the sustainability goal.

Collaboration between companies to successfully develop a project is nothing new but nowadays it is a crucial need, as defended at the conference Ethical Corporation during the Sustainable Supply Chain Summit Europe 2015. To eradicate child labour from its supply chain, for example, a company should not only count on other companies but also on professional NGO’s on the ground, local authorities, and consumers.

Clothing is one of the most problematic industries in this regard and is one of the most criticized for the abuse of human and labour rights in its value chain. This scrutiny has resulted in a change of management and control strategies in companies, with constant audits sometimes, in order to thoroughly track their supply chain. The industry has therefore being transformed, especially after the tragedy that took place in 2013 in a garment-factory in Bangladesh, which promoted the creation of a five-year initiative called Bangladesh Accord Foundation signed by over 200 companies to implement collapse and fire prevention plans in factories.

In this vein, it is also important to note some initiatives from companies in the textile industry. Mango, for example is a member

of the Accord Foundation, and Inditex has grouped all its CSR Policy under the name Right to Wear in a four-year strategic plan. Outdoor wear brand Patagonia applies the Traceable Down Standard to source down how the feathers used to make its garments are collected. Some of the principles demanded by this standard are: feather must not be removed from live animals or that have been force fed, it and can only be processed if its origin can be fully traceable. Nike started a two year program in 2011 to eliminate toxic components from its supply chain.

In fair trade, Nespresso stands out thanks to its initiative Ecollaboration committed to sourcing 80% of its coffee from the AAA Sustainable Quality™ Program.

Figure 3. Progress of the factories tracked by The Bangladesh Accord Foundation

Source: Bangladesh Accord Foundation

30-1

1-20

14

19678

603

4869

14206

28-0

2-20

14

21128

1836

4379

14913

30-1

1-20

14

18989

43

3255

15619

28-0

2-20

15

19209

521

3010

15678

30-1

1-20

14

13938TOTAL TOTAL TOTAL

CORRECTED

IN PROGRESS

PENDINGVERIFICATION

136

2124

11678

28-0

2-20

15

14095

222

2252

11621

SUSTAINABILITY TRENDS

Strategic Partnerships: you can’t do it alone

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Companies need to “attract and, ultimately, free the power and influence of aspiring shoppers”, as stated by one of the speakers at Sustainable Brands 2015. Consumers are increasingly demanding sustainable companies and aspiring shoppers, in turn, advocate the brands with which they feel identified. According to the study The Sustainability Imperative. New Insights on Consumer Expectations prepared by Nielsen in 2015, 60% of consumers say they would be willing to pay more for sustainable brands. Consumers want products that are affordable, healthy, practical, and environment-friendly, and their purchase decision is often motivated by accessibility, convenience, brand recognition, and novelty.

Another research developed by Nielsen in 2014, showed that 67% of respondents would rather work in socially responsible companies; 55% would pay more for products and services from companies with a positive social and environmental impact; 52% had purchased from one or more socially responsible companies during the last six months; another 52% had checked the packaging of the products to ensure that it has a sustainable impact; a 49% had volunteered or donated money to organisations committed to social or environmental programs, with the highest percentage being in Africa/Middle East (59%), Asia-Pacific (58%) and Latin America (46%), compared to North-America (40%) and Europe (33%).

According to this research, the causes respondents are more concerned about are: access to clean drinking water, improving

health facilities, eradication of extreme poverty and hunger, combatting diseases, ensuring environmental sustainability, and reducing child mortality. Nielsen claims that family and friends also influence sustainable purchase decisions: 47% of respondents trust their personal circle before choosing a brand to guarantee it has ecological features or a positive social impact. In Africa/Middle East and Asia-Pacific, the influence of friends and family is stronger than in Latin America, North America, and Europe.

Amy Fenton, global leader of the research Public Development and Sustainability (Nielsen, 2014), claims that a significant percentage of consumers are willing to participate in socially responsible actions. The research also shows that success depends on the ability to effectively connect sustainable profits with the consumer’s desires and wallets and, to do so, companies need to clearly communicate their brand positioning.

The total number of aspiring shoppers amounts to 37%, according to the US consultancy BBMG and GlobeScan. Companies are actively interested on discovering these potential brand partners and consider that managing this group of stakeholders is a powerful asset, according to Tensie Whelan, president of the NGO Rainforest Alliance.

Aspirational segmentation explores the relationship between consumers’ needs, desires, and purchase behaviours with their social and environmental beliefs, values, and priorities. Aspiring shoppers buy responsibly and trust brands that act in the interest of


Connect with aspiring shoppers

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society. Aspiring shoppers are the largest segment of consumers globally and they bring together materialism, sustainability, values and cultural influence, becoming a critical audience to build markets (BBMG and GlobeScan, 2015).

Requiring companies to be more sustainable, coherent and closer to their stakeholders is one of the demands of “millennials”, people born between 1980 and 1990. The Global Millennial Survey 2013, developed by Telefonica involving 12.000 young people of 27 countries, showed that the main concerns of this new generation are job market integration (80%) and the economy (80%). Three out of four millennials surveyed stated their readiness to pay more for sustainable products. In 2015 this percentage has doubled from the previous year (Nielsen, 2015). Millennials demand innovation, flexibility, and empowerment (Corporate Excellence, 2015).

Another segment to take into account when talking about aspiring shoppers is the so-called “Z Generation”, people born from 1994 and raised during the crisis that, according to Daniel Verdú, columnist in El País, “are regaining social awareness, which is confusing for brands”. However, this specific statement on companies is not owned by one generation or another, it is not a matter of age but attitude and cultural perception.

A recent research published by 21 Gramos together with Canvas Estrategias Sostenibles called Marcas con valores —which could be translated as Brands with Values—, shows that 71% of the participants want to achieve a responsible consumption, while 22% say they already do it. The document also points out that 90% of the respondents consider that brands need to “take responsibility” and “talk” with consumers. “Trust”, “honesty” and “transparency” are the most important

values companies should have,

according to consumers. The requirement for companies to develop an ethical behaviour continues to grow.

This demand can also be applied when looking for a job. According to Deloitte Milennial Survey 2015, 77% of millennials claim to have chosen their company because of its social vision. They all agree to require more social and environmental responsible companies —47% thinks that the main goal of a company should be improve its impact on both fields.

Figure 4. Social trends: segmentation of the population

Source: BBMG y GlobeScan (2015)

MAT

ERIA

LISM

SOCIAL & ENVIRONMENTAL VALUES

25%Practicals

39%Aspirational

26%Advocates10%

Indi�erents

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Despite the global crisis, partly caused by bad practices in the financial sector, and although over the last years big companies are making progress in this regard, sustainable investment is still struggling to be considered a profitable option.

Chris McKnett, vice president of ESG Investing at State Street Global (one of the largest asset managers in the United States with a portfolio of more than $1.4 trillion), argued at a Ted Talk in 2013 that it is necessary to invest in sustainable assets and companies. He also underscored how his department manages $60 thousand million on sustainable investment using the formula Sustainable Investing ESG + financial.

In June 2015, Merrill Lynch announced that they were including in their Investment Portfolio a pack of sustainable assets for customers wishing to invest considering the social and environmental impact of their shares. The company also committed itself to train its 14,000 financial agents to help customers understand the impact of their investments.

In a context that challenges the financial sustainability of the health system or social collectives such as pensioners, many experts

argue that Socially Responsible Investing (SRI) is of low volatility, which is becoming more important for the long-term investor, claims made during the SRI week at Spainsif 2015.

Furthermore, the new Codes of Good Governance promoted by regulatory bodies and governments —discussed in further depth later in this document— demand companies a more exhaustive control of their accounts and require them to develop a strategic approach focused on long-term investors.

Companies should also pay attention to the development of the Sustainability Accounting Standards Board (SASB), aimed to develop and disseminate accounting standards to make it easier for companies to give investors relevant and useful information.

Fuente: Bangladesh Accord Foundation


Sustainable investment, growth formulas

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Sustainability needs new business models and formulas inspired on responsible innovation and collaboration, which are likely to save resources and consider environmental management, as stated by SustainAbility, leader of the project Identifying Business Model Innovations for Sustainability. This study identifies 20 innovative business models, classified in different categories according to their environmental and social impact, financial innovation, removal of inequalities (base of the pyramid) and impact on diversity.

This proposal considers value creation around two axes: value for society and value for business. To maximize value creation in these two axes it is necessary to innovate with the business model. Thus, the 20 models presented aim to reach the highest value to society and business at the same time.

A recent example of this transition towards more sustainable business models is BBVA, which has reformulated its inner structure and created, among other things, the unit Responsible Business, aimed to place all elements related to responsible banking at the centre of the business and manage the relationship with all stakeholders. BBVA sets financial education as one of its priorities, so that customers can make informed choices, along with the development of products with a high social impact. In December 2015, the European Commission adopted an ambitious set of measures about circular economy to boost competitiveness, generate employment, and create sustainable growth. The actions proposed will help “close the circle” of a product’s life because they encourage recycling and recovery to favour the environment, economy, and society; extracting maximum value of all raw materials, products, and waste, and promoting energy savings and reducing greenhouse gas emissions.

Proposals of the European Commission in this regard cover the full life cycle: from production and consumption to waste management and secondary raw materials market. The key measures adopted, to be applied during the current Commission’s mandate, include €650 million funding for Horizon 2020 and €5,500 million for structural funds; measures to halve food waste before 2030; drafting of quality standards for secondary raw materials that reinforce trust of stakeholders in the domestic market; measures to promote durability, reparability and recyclability of products and their energy efficiency to make it easier to

Figure 5. Innovation Framework

Value of SocietyWays of doing business:

Value to Business

ProcessesProducts/Services

BusinessModels

e.g. closed loop; shared economy;product as service

Better producgs:recycled content; concentratedlaundry detergents; energy-e�cient appliances

Better internal systems:supply chain certi�cations;renewable energy sourcin;transparency; high performancebuildings

Source: SustainAbility Model Behaviour: 20 Business Model Innovations for Sustainability


New business models?

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recognize organic fertilizers based on waste re-utilization and reinforce the importance of bio-nutrients; a plastic strategy that considers recyclability and biodiversity problems, as well as the presence of dangerous substances and water recycling.

In first place, the common goal established by the EU is to recycle 65% of municipal waste and 75% of packaging waste before 2030. Secondly, we have a binding target to reduce

landfill disposal to a maximum of 10% of total waste before 2030 and to develop measures to promote re-utilization and boost industrial symbiosis.

Figure 6. Examples of sustainable business models

Source: SustainAbility Model Behaviour: 20 Business Model Innovations for Sustainability

ENVIRONMENTAL IMPACT

Model: Closed Loop Production

Features: It suggests a closed production system that minimises consumption of natural resources.

Example: Aluminium producer Novellis.

INNOVATIVE FUNDING

Model: Crowdfunding

Features: voluntary and collective funds.

Example: Kickstarter is the biggest platform in the word to �nance creative projects.

VARYING IMPACTS

Model: Behavioural change

Features: This is a relatively new model that promotes change towards a more sustaina-ble consumer behaviour.

Example: Opower rewards those customers that have been more "energy e�cient".

Model: On-demand production

Example: Threadless only produces the most popular designs.

SOCIAL IMPACT

Model: Buy One, Give One

Features: For every product or service sold by a company, part of the pro�ts is used to donate a similar product or service to the needy.

Example: 2Degrees, a company that sells nutrition bars, donates a meal to children who are at risk of malnutrition for each bar sold.

BASE OF PYRAMID

Model: Innovative product funding

Features: It uses a leasing formula for pro-ducts that are not a�ordable.

Example: Simpa Networks provides energy solutions on a progressive purchase model.

Reputation Trends3

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Reputation risk is considered a “top” risk by CEOs and directors around the world. Improving reputation is now a great strategic opportunity. According to the 2014 Global Survey on Reputation Risk developed by Deloitte, customers are the most important stakeholder to take into account when managing reputation risks. In a world increasingly influenced by social networks and global instant communication, managing the expectations and perceptions of the customer is crucial for success. Besides, it has been proven that reputation issues have greater impact on incomes and brand value.

Being able to value in advance the potential risks of a certain corporate behaviour is essential in a very competitive and increasingly demanding context. From the analysis carried out by experts and academics, some trends in risk reputation can be outlined:

• Perceived tax evasion. Companies like Starbucks, Amazon, Google, and Apple were at the centre of the discussion about positive contribution of companies in the United Kingdom. This was also the starting point at the Tax Reputation Conference, held by Oxford University in

Figure 7. Main drivers in reputation risk

Source: Deloitte, 2014

55%43%45%

52%55%38%

54%51%38%

64%48%40%

48%48%40%

62%52%45%

52%47%47%

61%35%46%

52%47%42%

Total Respondents

TOP THREE REPUTATION RISK DRIVERS OF CONCERN

Financial Services

Americas

Consumer &Industrial Products

Life Science &Health Care

Technology, Media& Telecom

Enerty &Resources

Europe, MiddleEast & Africa

Asia Paci�c

Ethics/Integrity(fraud, bribery,corruption)

Product/Services (productsafety or services issue,health/environmental,controversial products)

Security (physicaland/or cyber)

Financial (reporting/accounting Issue,credit rating)

REPUTATION TRENDS

Three critical reputation risks

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2013 to address the consequences of tax evasion perceived by stakeholders. Lots of entrepreneurs reunited at the event to discuss, among other aspects, the impact of negative publicity on taxes and how companies should address this issue. Conclusion was that the pressure exerted by consumers, which was traditionally the tenth reason considered by companies to improve their positive contribution, ranks now fourth.

• Excessive pay. Deborah Hargreaves, director of the High Pay Centre, claims that criticism against “excessive pays” of top managers has shifted from outside actors to business insiders; now, criticism comes from shareholders, employees, and providers. According to Hargreaves, “it was not the G20 protests or the Occupy movement that had caused the most damage to the reputation of business and free market but the greed of those who demand and secure rewards for failure in far too many of our large corporations”. Public indignation about these excessive share awards is worsened by a wider gap between directors’ salaries and every other employee’s, which, in words of Hargreaves, was the last straw in the context of the current crisis. Andrea Bonime-Blanc, Jorge Cachinero, and Beatriz Herranz, authors of The 21st Century Reputation Risk Hit Parade agree with Hargreaves with a wider approach called “leadership risks”. The report puts the blame on the banking system and recalls that former senior executives “ are still solving their social, commercial, and criminal liabilities because

of how they behaved as leaders”. We can clearly see how reputation risks linked to the behaviour of many directors “have completely transformed the industry” ca organisations have disappeared because of this.

• Market value. William Lawes and his researchers in Freshfield analysed the crisis’ impact on the market value of 78 companies, between 2007 and 2012. They determined that reputation crises have a long term effect in share. One year after the crisis, share prices weren’t at the level of previous years in more than a half of the companies analysed. The research identifies variations in share prices in the short and long term based on the type of crisis —internal or external— and shows that “in the long term, the market is more lenient towards companies damaged by an external crisis”.

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We should question whether the consequences of a reputation loss are devastating for a company or industry, or whether they have a relative impact. Now, the question is even more pressing after the failures trying to approach reputation. Several authors defend that after the crisis, reputation will be one of the most valued intangible assets.

Jonathan Macey, author of The Death of Corporate Reputation: How Integrity Has Been Destroyed on Wall Street, suggests that reputation needs to be placed again at the centre of corporate relationships in order to avoid the collapse of the sector.

As Macey defends, intermediaries (auditors, rating agencies) in the financial sector were essential to guide investors when purchasing products and to justify the reliability of the company’s accounts. Reputation was the only guarantee of those intermediaries. However, when companies were legally forced to obtain rating, audit their accounts, etc. intermediaries no longer needed to take care of their reputation and thus allowed less strict audits to reduce costs. Macey’s book also includes some other bad practices, such as teams that work exclusively for a customer and seek maximum profit from that relationship or law firms, investment banks, accounts auditors and directors that jump from one company to another because reputation of individuals is no further linked to the reputation of their companies. According to the author, this is caused by the separation between the company’s ownership and its management.

Nevertheless, reputation recovered its importance after the crisis and Macey claims that “either the financial sector collapses and

disappears or the intermediates start taking care of their reputation if they want to make business with any company”.

If this is how it is, why are there companies that prefer not to change their practices and risk damaging their reputation? Sociologist Polo Campana brings an example of this on his analysis of the Parmalat case published in Reputation Magazine, the magazine of Oxford Saïd Business School. Campana wonders how can blatant cases such as Parmalat’s —a family company that hid a huge financial black hole for years— occur, where the threat of a bad reputation is not enough to curb top manager’s bad behaviour. It is often assumed that reputation is a very valuable asset, but Campana doubts that it has any real weight or can work as a deterrent to bad behaviour. Alternatively, he suggests including management measures that benefit directors and seek balance between incentives and control.

Another expert, Stephen Brammer, questions in that same publication what he calls “sustained orthodoxies over time”, such as considering share price an indicator of reputation. He thinks that “corporate irresponsibility” only damages reputation in a significant way when it directly affects the consumer. Jonathan Doh adds that the higher the expectations about the responsibility of a company, the bigger the impact on corporate reputation.

In this field, if we consider reputation as a more solid value, particular attention should be drawn to family companies, which enjoy greater reputation stability with their stakeholders. According to Peter Jaskiewicz

REPUTATION TRENDS

The real impact of reputation

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and David Deephouse, strong values such as cohesion and a fighting spirit are more often linked to family companies than other organisations.

Ángel Alloza, CEO at Corporate Excellence, tested Pulse’s metric equivalent in his PhD thesis and proved that organisations can have a single global reputation index with metric equivalent regardless of gender, age, educational level, and cultural differences (general population from different countries) of the respondents evaluating an organisation and regardless of the company’s field.

Having a global reputation metric is an essential requirement for companies to be able to include in their high-level scorecards a single reputation indicator. This shows that Pulse has proven to be capable of not only measuring global reputation and its evolution over time but also of comparing it to other organisations, in different segments of population, stakeholders, industries, and countries.

According to Reputation Institute, there are ten trends in reputation management: 1. Know who you are first, and stick to it.

Companies must develop an authentic narrative based on their core purpose and stick to it.

2. Consequences of the Big Data revolution. By 2020, big data will dominate the way companies manage their reputation.

3. Reputation management is a long journey

that needs patience and organization. Companies using long-term indicators such as reputation make better decisions.

4. CCOs will lead reputation management in 2020.

5. Employees will be reputation ambassadors.6. Reputation management will increase the

value of the business.7. Stakeholders will increase in numbers

and influence. Social networks’ influence will increase and significantly expand the voice and power of stakeholders.

8. Personalized messaging will be the norm. To be able to reach their stakeholders, companies need to create more individualised messaging and stop massive communication.

9. Industry reputation will individually affect a company.

10. Social relevance will help companies, products, and services stand out from the crowd.

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The main problem when researching reputation has been the lack of clear concept definition and relevant literature. Carreras and Alloza agreed with this hypothesis when studying Steven Wartick’s 2002 research project about corporate reputation, which showed an important confusion of metrics.

But context changes and now reputation research can be considered a trend, as shown both at the annual symposium on reputation held by Oxford University and the event held by The John Madejski Centre for Reputation at Henley Business School. In both events, the interest in investigating reputation as well as its growing importance in more disciplines became clear. Digital communication networks play a crucial role in this sense, because they allow research to work closer and exchange ideas and efforts in the evolution of reputation analysis. There are still vast horizons to discover in the field of reputation, since achieving a good reputation about someone and perceived by someone is only the beginning in the business world, distinct from what happens on a personal level.

REPUTATION TRENDS

Investment on Reputation growth

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The complexity of managing corporate intangible assets, especially reputation, demands leaders that are sensitive to the challenges and opportunities of this kind of asset and to their changing nature and evolution. Executives responsible for reputation management need to consider it a strategic piece within the business.

In The CEO’s role in reputation building, Corporate Excellence claims that “ranging from an unplanned departure or succession, through the setting of a company’s vision or other corporate statements, sending key messages to customers, employees, and society in general, to satisfactorily overcoming a crisis situation, CEOs play an essential role when it comes to boosting and protecting their company’s reputation”.

In its new training program, the Oxford Corporate Affairs Academy from Saïd Business School seeks a greater specialisation of leaders responsible for intangible assets and corporate communication. Corporate Affairs are becoming more important for the strategy, because they help create value and protect the company from different risks. This is why CEOs should develop a more integrating character and have a strong engagement capacity, since they are “responsible for achieving greater engagement to attract and retain talent, gain advocacy and obtain contracts, achieve long-term goals and draw legitimacy in the system”.

Reputation management in companies is also perceived as one of the functions of the Chief Communications Officers (CCO), together

with critical thinking, public relationships, and strategic business vision. This is what Roger Bolton, president of the Arthur W. Page Society, the premier professional association for senior corporate communications executives in the United States, said during the presentation of the 2015 Communications Yearbook, developed by the Spanish Association of Directors of Communication (Dircom). The Arthur W. Page Society explains in The Future CCO that, in order to successfully manage reputation, CCOs need analytical, communicative, interpersonal, leadership and management skills.

According to a report developed in 2015 by Brunswick and the European Association of Communication Directors (EACD), to ensure its future, communications should “cut through the noise”. This document also explains several emerging realities that will have a profound effect on the profession:

1. The combination of social media and instant digital communication means transparency. Organisations are coming to grips with the reality that anything and everything going on inside the business can suddenly be part of the conversation outside. This presents risks and challenges, but also presents an opportunity Organising the communications function around this notion can be powerful and differentiating.

2. Brand and reputation will increasingly be managed as one. The ease with which information about a corporate brand, its products and services, and reputational issues can be discovered and linked

REPUTATION TRENDS

New responsibilities for upper management

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means that brand and reputation will need to be managed as one to ensure they are working together effectively and to reduce risks.

3. Communicators will use direct engagement and rely less on intermediaries to deliver the message. As communications and engagement shift increasingly to social and digital channels, organisations will build their own processes and platforms to turn great ideas into stunning content and to deliver them without the need of intermediaries.

4. Agencies will change as well. Agencies will more closely align to achieve greater consistency and impact and therefore, will need to be more collaborative too.

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Every new reputation initiative faces the challenge of getting KPI to show a real picture of the evolution of reputation as a corporate asset. To relieve this permanent tension between benefiting the society or the business, initiatives cannot be detached from the company and, consequently, must be focused on the direct or indirect impact that they have on the income account. However, quality is becoming more important to deduce behaviours and plan strategies. At this point, it is important to mention cultural studies,

which promote a more motivational analysis of stakeholders and can be essential to plan before taking action.

The trend is to design flexible measurement models that enable a greater responsibility, rigour and efficiency; that allow relevant comparisons and can be used with different stakeholders.

Figure 8. Keys to measure reputation

Source: Reputation Institute

Link reputation initiatives to commercial relevance. For a program to receive ongoing funding, it needs to be linked to value generation. Promoting unanimous attention and engagement from the top

Deliver visible ROI for reputation programs, this is, performance metrics linked to the income account. According to Reputation Institute, less than half of the programs focused on reputation include these metrics. Likewise, it also indicates the necessary development of strategies to enjoy a competitive advantage.

REPUTATION TRENDS

Evolution of metrics

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Using intermediaries in social media to generate more conversation around a product or brand is an increasingly widespread practice.

Influencers have a great capacity to make their opinion matter and expand, and companies are growing aware of it. This term, specially used online, refers to all intermediaries who have a large number of followers in social media. Influencers are well-known and make a company or product obtain more visibility. In this sense, experts put the spotlight on the importance of partnering with them and having sufficient authority over them.

Merco, the flagship Corporate Reputation Business Monitor in Spain since 2000, included Influencers and Social Media Managers as expert audience in 2015, because their opinion has now the same weight as financial journalists’.

These new trendsetters are now a trustworthy source for people seeking advice or recommendations. According to Gillian Brooks, research associate at the Oxford University Centre for Corporate Reputation, influencers are also called “perceived experts” because they generate trust even when they are not an authorized source or professionals from a particular topic or discipline. The dynamics that intervene in this trend imply that influencers’ credibility is put under scrutiny by their followers and they should therefore defend a personal and believable tone, and not allow companies to control their actions and opinions, at least, in an obvious way.

There are key influencers in all fields, opinion leaders of the industry and politics that determine if a company will be successful or not in the market. With this in mind, becoming more important to include this profile in the map of stakeholders to strengthen the relationship with them.

REPUTATION TRENDS

Gain authority over influencers

Corporate Governance Trends

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The Spanish Securities & Exchange Commission (CNMV) approved a Code of Good Corporate Governance for listed companies, which places Corporate Social Responsibility (CSR) at the centre of corporate management and claims that the Board of Directors needs to be responsible for it, linking CSR to executive management functions.

The Board of Directors should identify what matters for a company from a CSR point of view and respond to stakeholders’ expectations, establishing communication channels with them. Besides, the Board needs to make promises and lead the commitment while at the same time promoting a CSR policy. In the third place, the Board of Directors needs to monitor adequate implementing of the corporate strategy and policies and keep in mind non-financial risks, compliance with the objectives set by the company on a strategic plan, quality supervision and assessment of the relationship with frequent stakeholders and information prepared in this regard. (KMPG and SERES, 2015).

Top management should be involved to guarantee that the company meets its goals and generates value. In 2007, Craig Mackenzie, from the University of Edinburgh, identified six tips for directors to manage and promote CSR:

1. Review the CSR policies.2. Identify and control non-financial risks.3. Set policies and standards.4. Monitor compliance with CSR.5. Review CSR reports and corporate actions.6. Supervise corporate social action.The new Code also refers to Board of Directors’

function regarding CSR. In accordance with the principle “comply or explain”, companies are requested to publish a report about the company’s policy in this area. It is also important to assign special responsibilities to an expert commission that oversees the CSR policy, monitors the strategy and evaluates if it is being fulfilled, given “the relevance of issues related to corporate governance and Corporate Social Responsibility”. Thus, this organism can be an audit commission, an appointments committee or an ad hoc commission of corporate governance and social responsibilities aimed to boost a more intensive and committed management of these issues.

Principle 24, targeted towards CSR, explains that “society will promote the right CSR policy as a non-delegable responsibility for the Board of Directors and will offer transparent and enough information about its development, use and performance”. These three recommendations in CSR are:

• CSR policy should be included, together with the rules of corporate governance and the internal code of conduct, as an issue to be supervised by any of the commissions.

• It is recommended to have a CSR policy that includes the principles or commitment voluntarily assumed by the company with reference to its stakeholders.

• It is in the interest to inform about CSR related issues in a separate document or the management report using any of the internationally accepted methodologies.

Besides, the Code suggests that the Board of

CORPORATE GOVERNANCE TRENDS

New Code of Good Corporate Governance in Spain

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Directors should try to conciliate social needs with the interests of its employees, providers, customers, and the rest of stakeholders involved, as well as the impact of the corporate activities on the society and the environment (Garrigues, 2015).

These principles and recommendations regarding CSR step up the requirements for an ethical and responsible corporate behaviour. CSR becomes, consequently, an action guide for managers in terms of transparency, exemplarity and good governance.

Ethics in management and transparency of CSR practices

The last report about Fraud and Corruption by Ernst & Young developed in Spain in 2015, showed that seven out of ten executives point to bribery and corruption as the normal modus operandi of businesses in Spain. In February, the CIS (Spanish Centre of Sociological Research) barometer placed corruption as the second problem for Spaniards, only after unemployment.

The Code of Good Corporate Governance encourages ethics and transparency within the governance of companies. In this sense, the Code develops some of the concepts included in the Spanish Corporation Law, which promote a more thorough control of the behaviour of executives and a better ethic quality.

The Code’s reform expands the function of the audit commissions, which are responsible for supervising control and risk management

systems (principle 21) and financial information systems (principle 6). Auditors also need to present three reports: one regarding their independence, another one regarding the performance of the audit commissions, and a last one regarding related transactions.

For its demand of greater transparency, the Code requires Appointments and Remuneration reports; an online live broadcast of general meetings and the publication of all necessary information to protect minority shareholders from discrimination, among other measures.

For this to make sense, a new formula is included for companies to easily adopt the recommendations stated above – the principle of “comply or explain”. Thus, those companies that don’t comply with the Code need to explain why to the CNMV.

However, it seems that companies, and not only listed companies to whom the text is addressed, are willing to comply with the Code, , but maybe also other organisations that use it as a model.

For example, compared to the previous Unified Code from 2008, CNMV published a follow-up report in 2009 —based on the information sent by companies —, which showed a “satisfactory” follow-up level that went from 80.9% in 2007 to 84.9% in 2008.

In another independent research published in 2010, in a Spanish business magazine under the heading El Código Unificado de Buen Gobierno: su nivel de seguimiento por empresas socialmente responsables, which

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could be translated as The Unified Code of Good Corporate Governance: its level of follow-up by companies socially responsible, explained that on average an 83.40% of companies said they were fully following the recommendations; a 9.95% confirmed they partially followed the Code and a 6.65% declared they ignored it.

More diversity on the top management

Whether it is a trend or a historical claim, the Code of Good Corporate Governance points out that companies must have a diverse top management, this is, diverse in knowledge, experiences and gender. It also establishes a goal of 30% of female board members by 2020. PwC (2014) says that there are key actors to progress towards equity and gender diversity: team managers, companies, women, Board of Directors, media, head-hunters, business schools, and Public Administration. McKinsey (2015) analysed in a recent study women’s contribution to global GDP in 95 countries; they provide 37% of the GDP despite representing the 50% of the working age population.

Besides the traditional barriers to the entry of women in the management board: recent incorporation into the employment market / lack of experience, lower visibility in the management networks, and problems to balance work and family; there are also cultural barriers. Although the company is not discriminatory insofar as it supports positive-discrimination measures within its values, our society is still discriminatory in many ways, as it happens with the different interpretation of maternal and paternal responsibilities.

In a recent study called Women Rising: The Unseen Barriers, published by Herminia Ibarra, Robin Ely, and Deborah Kolben on the Harvard Business Review, the authors showed how companies’ efforts to achieve diversity at senior levels are failing. The authors also concluded, as Helena Ancos claims in the article Código de Buen Gobierno: Cuotas para mujeres en los Consejos about quota for women in Boards, that “companies haven’t dealt with the problem of incompatibility between the perceptions society has about women’s characteristics and the skills often associated to leaders”.

The same articles talks about another research, Gender Diversity in the Boardroom and Firm Performance: What Exactly Constitutes a Critical Mass?. The German researchers who wrote the article showed from a performance analysis in 151 companies that women need a 30% of quota so that their actions have better performance than male boards.

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Pay and bonus

In this regard, the trend is to include non-economic concepts, such as social and environmental impact, innovation, quality or value creation in pay-checks and bonus of the top management. 54% of the S&P 500 companies connect the pay of managing directors and top managers to sustainability, and consider details such as environmental impact on operations, health and safety at work or engagement with employees, according to data published by the Spanish newspaper Expansión. The article highlights the cases of Banco Popular, Enagás, and Repsol as an example of companies that have recently included ethical, social, and environmental values in top manager’s salary. At Banco Popular, executive officers will receive 105% of their pay on the development of reputation, good governance, social and environmental policies, according to the newspaper. The 10% of the bonus received by BBVA employees is linked to responsible business.

This can be linked to the New Code, which includes aspects of the European Commission’s recommendation such as deferral on the payment of a salary’s variable components.

Another novelty involves clawback clauses in contracts signed by directors and companies. This section is one of the recommendations of the New Code and forces companies to include in their contracts the possibility for the society to claim repayment of variable

components of a director’s salary if the payment is not adjusted to performance.

Long-term shareholders

Separation between property and governance in companies encourages a professional corporate management but it can also be tempted by bad practices. In 1776, Adam Smith talked already about this situation in his famous book The Wealth of Nations: “(With) directors [...] being the managers of other people’s money rather than of their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which the partners in a private co-partnery frequently watch over their own”.

A new ethical framework, which includes corporate Governance, social responsibility, and sustainability offers a more stable base to live up to moral values and ethical thinking, as stated by Thomas-Clarke in Values and Ethics for the 21st Century promoted by BBVA.

In this context, the European Union is reviewing the EU Shareholder Rights Directive of 2007, an amendment approved on July 8 that is being reviewed now by the member states before publishing the final document. Measures in this area include:

• Shareholders should be granted the right to vote on the company’s remuneration report, in order to ensure transparency and link remuneration with performance of directors.

CORPORATE GOVERNANCE TRENDS

Risks of a bad corporate governance

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• Some great corporations must disclose information about fiscal and investment decision-making and public grants received.

• Companies must include mechanisms to gratify long term shareholders through further voting rights, tax incentives, dividends or fidelity shares. Member states will define the “long term” period with duration of over two years.

The debate requires to study more deeply the big shareholders’ role and their responsibility for involving large investment funds or pension funds in the company and adopt sustainable practices.

Map of Trends and Main Conclusions

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From the trends analysed, companies are forced to have a “rather collaborative leadership than competitive leadership”, as stated by economist Margareta Drzeniek. It is necessary to evolve to new ways of interaction, of doing and supplying, for that it’s the only way to recover people’s trust on organisations.

To draw up the main plan for their sustainability policies, companies should question what kind of companies our society needs nowadays and what kind of society helps build our companies in the current context.

Companies are essential in our society and their future depends on whether they are considered as corporate citizens and whether their directors show they take responsibility for their actions. Thus, culture and sustainability must keep growing to be integrated within enterprises.

We need transforming leaders with purpose; leaders that inspire the change needed to add more meaning and who will guide the lives of whoever makes that change possible. The purpose can be simple and eloquent, powerful and feasible, deep and basic at the same time, but specially, it has to sum up the clear reason why the company exists and does what it does. An authentic, stand-out purpose must answer the question as to whether stakeholders would miss the

company if it ceased to exist. That is the primary test, the irreplaceable mark, of a great purpose in life in favour of others.

Corporate Excellence developed a document based on the book Grow: How ideals power growth and profit at the World’s Greatest Companies by Jim Stengel, who established five key points to define a great ideal:

1. Deliver an experience of happiness to people: encourage them and make them feel at home.

2. Connect people with the outside world: make them feel part of something bigger and greater.

3. Explore new horizons with them: take them out, and help them discover yet unknown paths.

4. Develop confidence and stamina: help them explore their inner strength and build confidence.

5. Generate a positive influence on the society: help them challenge the status quo and embrace the change.

Leadership is not great because of the goals or results achieved, but because of the people that reach them, because of their identity, character and authenticity, because of their self-knowledge and wisdom. Leadership is not only about logical-formal intelligence but also practical and socio-existential (Corporate Excellence, 2014b).

MAP OF TRENDS AND MAIN CONCLUSIONS

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Figure 9. Map of trends

Source: Corporate Excellence

GLOBAL TRENDS

Trust recovers, but there is still a great social gap

Climate change at a crucial tipping point

Tax evasionExcessive payMarket value

Set strategic partnerships

Connect with aspiring shoppers and consider new actors (millennials)

Develop new sustainable business models

Manage risks (listen + anticipate)

Recover the value of reputation

Gain authority over in�uencers

Set �exible and comparable �exible metrics

Determine new competences for executives

Code of Good Corporate Governance

Reinforce CSR

Manage bad governance practices to avoid risks


REPUTATION TRENDS

TRENDS IN CORPORATE GOVERNANCE

REPUTATION

Promote diversityGoal: 30% of female advisors

SUST

AINA

BILITY

CORPORATE GOVERNAN

CE

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