A fertilizer plant blows up, killing at least 14 people who were unaware, along with regulators, that the facility stored vast quantities of explosive material. A fast-food chicken chain invites everyone to take impromptu walkthrough tours of any of its outlet kitchens. These two recent events illustrate the extremes of corporate transparency (both companies are privately-held), and why it needs to be central to our conception of corporate reputation.
The West Fertilizer Co. facility in West, Texas, had on-hand over a thousand times the amount of potentially hazardous ammonium nitrate that would normally require significant safeguards. The Federal government’s Department of Homeland Security expects companies to self-report such stockpiles, since EPA and OSHA don’t regulate it, only West didn’t do so. In fact, DHS didn’t even know the plant existed and, worse, the people who lived nearby didn’t know it could blow up so easily, or with such devastation. A variety of state and federal agencies had overlapping oversight of the plant, but somehow this glaring potential risk wasn’t evident to any of them.
Chick-fil-A was in the news last year when its CEO disclosed that he didn’t like the idea of gay marriage, and it was reported that his company had given money to some groups that, among other things, agitated against it. The company was vilified, yet it weathered the storm because nobody was surprised: Chick-fil-A has always been very transparent on its founding principles of Christian faith (the stores aren’t open on Sundays, for instance), so after the initial hubbub, consumers were left with the information they’d already known. Late last week, it announced that anybody could visit its kitchens unannounced, the only provision being that the outlet has to possess the staffing capacity to host tours. Henceforth, there’ll be no excuse for any misunderstanding about how their food is prepared.
The stakeholders of businesses in fertilizer and chicken sandwiches couldn’t be more different, or possess a wider and varying set of expectations. There’s no way to draw any objective or useful conclusion by comparing, say, the charitable giving of West vs. Chick-fil-A, or whether going beyond compliance requirements on the environment or working conditions makes one company better than the other. It’s impossible to measure, let alone compare, how people feel about chicken sandwiches or fertilizer.
But it is possible to measure what they know, and how that awareness influences their behaviors. This makes transparency a central tenet of corporate reputation, followed closely thereby with understanding.
Imagine if the residents of West were informed about what was going on at the nearby factory. Since some of them worked there, and the facility put money into community businesses and services, they could have made a reasoned decision whether to tolerate the storage of ammonium nitrate or, if they were troubled by it, petition the company to change its practices or ask the government to do it for them. That’s what Chick-fil-A’s customers did after the gay marriage incident, and will do so after a host of kitchens have been examined. If what they know about the company’s practices and taste of its food seems worth it to them, they can choose to give it their business. If not, they can eat somewhere else.
Now extend that level of transparency to evermore larger stakeholder communities — employees, vendors and suppliers, financiers — and the same rules apply. Good reputations don’t arise from companies doing good things, per se, but rather from their ability to communicate and then enable their stakeholders to reach consensus understanding of their activities. It’s upon this definition of reputation that business-critical decisions can be made, like supplier terms, employees choosing to join a company, stay, or leave, financing costs, and even potential regulatory scrutiny.
It’ll be interesting to see what the investigation of the West explosion yields, and to what degree customers avail themselves of Chick-fil-A’s store tours. They illustrate two extremes of disclosure, however, and show that corporate reputation isn’t solely dependent on compliance with the rules, nor is it exclusively the outcome of doing things that are popular with the public.
It has more to do with transparency, and the resulting level of understanding companies can achieve with stakeholders.