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Okay, welcome everybody, to this second Polis Media Agenda Talk. Delighted to introduce Tim Burt, who is our speaker this evening. Tim has worked in journalism, first of all, for the Financial Times, where he's had a variety of roles, including covering the media beat. So he's come to the right place here. But he's also worked on various industrial policy beats looking at the motor industry and also the Nordic countries. Tonight he's going to be speaking about the job that he does at the moment in the public relations industry. Very pleased you could make it this evening, Tim. I should also mention that Tim is going to speak a little bit more about something that might interest all of you as students in getting involved with, which is a new prize which is being run by Polis along with Tim's company, Stockwell Communications, and he will say a little bit more about this. But the topic of his discussion today, his title is the Economy of Reputation, may lead you to develop some thoughts for a new research proposal. So we're having a competition for the best research proposal related to the topic of this talk, which he's going to say more about. So thank you very much, Tim, for coming this evening.
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Is that working? That sounds better. Okay. So dark Arts and the Reputation economy. Dark arts is the kind of pejorative title often applied to public relations. But I'm going to talk about the interface between public relations, the media, and the broad information revolution that not only this economy, but the global economy is going through right now. So I think I just want to spend the first half of the next half an hour and then we'll have time for questions talking about the macro environment in which we operate and the relationships with the media and how that fits in with the digital communications revolution taking place right now. And I just want to draw an analogy right at the start. If you apply for car insurance in this country, they ask, is this for private, social, recreational and pleasure use, and that you get much cheaper insurance? If you say yes, really, social media is either recreational or it's professional. And if you are in any way engaging in social media or any form of information flow which has a professional impact, it has the ability to move share prices or determine the future of a CEO or to deliver judgments in the media, then you're part of the reputation economy. And what I'm going to talk about is the reputation economy and how it's evolving and the change relationships that underpin that. Now you may well say, well, what qualifies him to talk about any of this? And I think this divides down into what I call above the line information and below the line information and for the first half of my career I occupied above the line information. So back in 1985, I was doing a semester at the University of Istanbul and I filed some columns for Middle East International. Then I thought, I rather like living in a warm country, so go to Mexico. And it happened to be the World cup finals, which was a good incentive to be there. I worked for the Mexico City News, then came back to the uk, worked for a regional newspaper called the Journal, then went to the FT in 1989 and then did a variety of roles through to 2005 when I moved into the advisory environment, into below the line information and worked for a company there called Brunswick and advised companies such as Google, advising Google on things as diverse as going into China and whether to take down the YouTube images of Saddam's execution or not. Through to the succession crisis at BP when John Brown left, the massive recall crisis at Toyota back in 2010. And then we formed a new company called Stockwell, going for about three years, which advises companies like Alcatel, Lucent and Universal Music and Sony on all the issues about reputation management. And people call this crossing to the dark side. But in reality, I think it's like diving under the iceberg, because as a journalist you realize once you're on the below the line communications world that you only saw 20% of the real story. And you have to try and imagine that we on our side are trying to assure companies about how they control, if you like, the bottom of the iceberg. And the other thing that people say is generally it's a church state relationship between media and the communications or public relations world. I've come to think that actually we're all in the information business and it's actually a much more symbiotic relationship and it's almost a production line of information that is now defining the relationship between the two. And just a small digression, when I was at the FT in in the Millennium, they ran a competition to identify the device which most liberated mankind. And one of the runners up was the refrigerator because it changed the food industry, it changed the storage of vaccines. Another runner up was the washing machine because it liberated women from the household, changed the whole domestic service economy. Second prize went to the automobile because it liberated the way people worked and it liberated people's leisure time. But the winner was the printing press. And the printing press really was won because it was the first multimedia device. And what it did was unlock information from the control of elites and the information industry really exploded with the arrival of the printing press. But of course, the printing press and the flow of information. The democratization of information also opened up a new degree of command and control when it came to managing opinions, particularly in developed Western economies. And there was no better master of that information flow than this Chapman. His name is Edward Bernays, often regarded as the father of public relations. Edward Bernays was an advisor to Woodrow Wilson at the end of the First World War on the Information Committee dealing with propaganda. And interestingly, his uncle was Sigmund Freud, the master of psychoanalysis. And Bernays, when the war ended, went into the commercial world and thought, can I apply the disciplines of propaganda to a corporate environment? And can I apply some Freudian principles to managing reputation? And he did that very successfully and published this book called Propaganda, which is worth reading, it's applicable just today. And he started to deal with three particular industries. One was tobacco, railroads and cosmetics. And really used the tools of propaganda to change the reputations of those industries. But why it was easy or relatively easy for him to do so was really because of what we call the command and control relationship of the media industry, which persisted for most of the 20th century. And I used the image of a pipeline because more or less as a consumer, you are at the end of the pipeline, and the people who owned the pipeline and put the fuel in it really decided what you consumed, when, how the valve was turned up and on. And if you think about a TV editor or a journalist or a news editor, they pretty much determined what was in the schedule, how you received it and what you were going to consume, when and where. And I think this was what we called push media. And push media was where the editors, or indeed the people refining stories on behalf of the public relations industry would have a degree of control over what was received at the other end. And all of these devices, the printing press, the newspaper industry, radio, television, were all linear push media devices. And I think what's changed in the last five to 10 years is that smartphones have and tablets have caused the replacement of push media with pull media. In other words, the recipient can aggregate and pull towards them whatever they want to consume. And another way of saying that is that the pipeline has been replaced by the sprinkler. And it's the end of command and control when it comes to information. So what you have is mass consumption, but minimum control. And that's pretty worrying for us who are trying to defend the reputations of organizations or companies or individuals. But the other aspect of this it means we're all media companies now, whether you're the LSC or an individual blogger, you can now become part of citizen journalism. And it's leading to a change in the whole relationship between those who think they own information and those who are disseminating it and consuming it. So where's this going to go? Well, we know that we're just at the beginning of the revolution. IBM talks about 40 zettabytes of information being out there. And a zettabyte is 100 exabytes, a billion terabytes, or 10 to the power of 27 bytes. To put that in context, 5 exabytes is equivalent to the whole Library of Congress or 40,000 years of television viewing. So this is the amount of information that's going to be out there. And it leads to this thing, which Ken Costa, who's a banker formerly at ubs, a problem he called in the reputation industry of people being knowledge long and wisdom short in that from Wikipedia or Google, you can become an expert in something pretty quickly, but the ability to transact is really difficult. And information is flowing around the place, which isn't subject to the same checks and balances as perhaps in the past. What is this meaning for the media industry? Well, here is a survey of financial journalists conducted last year, and it really measured how much are you investigating stories because of what's in social media, and how often are you writing stories on the back of what's in social media. And this really shows that almost half of all journalists are now writing stories on the basis of what's in a blog. And 90% of reporters are investigating stories based on social media. So again, it's another example of the loss of command and control. And this is coinciding, unfortunately with a breakdown in media economics. So because of the collapse in advertising generally in display and classified, the rising costs of traditional media, you find my former colleagues, certainly on the ft, feel that they're on this conveyor belt now where they are filing all the time. And they're in this what we call a fight for relevance and a fight for relevance against social media. And what they're filing is immediately then retweeted and blogged by the citizen journalistic community, which leads to this new wave of commentary which is going who knows where that's being retweeted again. And what you get is this circle of activity which is all racing to be first with a story. And it's leading to what we call the rise of risk journalism. And risk journalism is where stories are not filtered through the normal checks and balances that may have been there in the past. And it's very worrying for those of us who are in the reputation economy or trying to defend reputations. So what's another way of expressing this? And I'm keeping it long on images and short on words because I think it's more entertaining generally. But what you're seeing is a collision between what I call media promiscuity and corporate celibacy because companies and individuals are becoming increasingly risk averse in this digital environment. And another way of expressing that is what I call the opening of the reputation gap. And it really, it's not at all scientific. This is entirely subjective. So it's my view. But really with the financial crisis, the reputation gap started to open up where business anxiety started to escalate and trust in the media was going down. And with each new crisis, whether it's BP or news corps, corporate anxiety has escalated, trust in the media has gone down. And I think this is now the underpinning of what I call the reputation economy. How much is that economy worth? The reputation economy is worth about $880 billion a year. And this is all forms of generic brand reputation management. These figures are from wpp, the world's largest marketing and advertising services company. And what it shows is that most of the spending clearly still goes on advertising, but the public relations industry is now worth $11 billion a year. So it's a pretty significant spend. But there are hundreds of companies fighting for space and revenues in that world. And just to put a bit of context on that, the quarterly revenues of GE are $35 billion on their own. So the entire annual revenue of our industry is one third of one quarter of GE's revenues. So it's a very competitive environment. But this is a definition of what the whole reputation economy is worth. And it's worth thinking about where is that money spent. Some of you may be familiar with this image. It's a NASA image of light power, but it's a good metaphor for where reputations are won or lost. And reputations really are determined in the big capital markets. New York, the Eastern seaboard, still Western Europe, London. You can see the blips of light around the European capitals basically everywhere north of the equator, even with India and China coming in, is where most reputation, danger and opportunity to our mind is really underway. So that is really a summary of the macro environment. So I'm now going to talk about, okay, if that's the macro environment, how do we now operate and what are the New rules of engagement in this world. And as I said, you know, the media industry is changing. Newspapers becoming broadcasters. Social is now a trusted source of information. There is a shift to PAC reporting. And if you want to read a good article on the theory of PAC reporting, journalists hunting as a pack. Peter Kahn, who's the former publisher of Dow Jones, wrote a good piece in Wall street journal in 2009. If you search PAC journalism, you'll come up with that. It's worth a read. The rise of risk journalism connected to that is also a fundamental issue that we now have to deal with. And we say to our clients, and I think this is common across our industry in this new media environment. You better build a degree of reputation credit in peacetime. That is, you can't react in the middle of a crisis to educate an audience about why you think you're a good corporate citizen. You better have a degree of inbuilt reputation credit in the marketplace, because when things go wrong, no one's going to forgive you. And obviously the biggest example of that, and probably totemic for what I call the age of anxiety, was Deepwater Horizon in 2010. And this was one of the recent corporate stories where the communications response to the problem made things worse rather than better. And it was a story which jumped the tracks from being an oil spill and the first oil spill of the digital age into an existential threat to the company. And of course, those of you will remember that it was right before Obama was facing midterm elections. So he went to war. The White House went to war with bp. He said he would have fired Tony Hayward had he had the power. And this image of the oil gushing from the ocean floor, which was put up for academics to see how much is the flow, became part of the media stories. So when Tony Haywood testified before Congress on all the networks, this picture of the ocean floor flow was juxtaposed against him testifying where Henry Waxman, the ranking Democrat, said, you know, you're kicking the can down the street and avoiding responsibility here. And of course, that then coincided with the fatal quote about wanting his life back and the comedic interpretations of that. And every CEO that we know had a fundamental question after bp, which was, how do I avoid being the next Tony Heywood? And it created this extra kick to the age of anxiety, which we're now dealing with. And we think that companies are going through a sense of bereavement for their reputations. And some of you may be familiar with the five principles of bereavement. Counseling, but it's equally applicable to the corporate world. Where BP initially was in a sense of denial, it's Halliburton, it's Transocean, it's not us. There was then anger at the way that social media was reporting their response to the crisis. There was a sense of bargaining with the Department of Justice, if we set aside this compensation fund, will you lift the moratorium on deep water drilling? There was depression when it became clear that none of those tools were going to work, and finally acceptance when Tony Haywood resigned. They set aside $40 billion and started to sell assets in order to pay for the compensation fund. You could say the same thing applies to news corps. You know, James Murdoch went through a sense of denial, anger over the way the company was being treated, bargaining about, you know, if we set aside this amount of settlement money for those people who've been hacked, maybe the regulatory threat would go away. So this I think is it's not surprising that people treat us now as therapists. How can we avoid or navigate this new, more threatening environment? And one of the things that they ask us most is how do we manage our reputation in a fully global environment? And this is just an image, a metaphorical image to show, show that we have to guide people through dealing with international media with completely different rules of engagement. And the rules of engagement in the US where there is stratified differences between what's on the record, background guidance, off the record, is completely different, for example, from when you're dealing with a business journalist in China and where Chinese political journalism is self controlled. Business journalism is completely out of control. And it's almost as though they're liberated to write stories which are very aggressive towards Western companies. Apart from of course, what we call the three T's and the F, Tibet, Taiwan, Tiananmen and Falun Gong. Even in business journalism in China, those are things they won't talk about. So all of this is saying that we have to become much more aware of what we call the fear factor in managing the reputations and images of our clients. And I think there are three responses which determine the way companies or individuals react in this new environment. One is the outright denial response. You know, you have to remember most companies above the equator are run by 50 to 60 year old white men who don't like this kind of scrutiny and they don't like social media. And we have to say to them, not communicating is not an option in this new environment. The other reputation response which is typical of oligarchs and regimes such as Sri Lanka and Kuwait is, I want to launder my reputation. So take it to the launderette, take out the stains. And London in particular has been called the reputation launderette of the world. We don't have the same regulatory rules that apply in the US and you see oligarchs in particular spending a lot of money with certain agencies in this city to clean up reputations, but not necessarily answer uncomfortable questions. Our view is that actually there are three elements to what we do. One is to create the jigsaw or to put together the narrative which helps reflect what a company's authentic story is. At the same time, we have to keep the plate spinning of different individuals, different client demands, and we have to offer a form of navigation in this kind of more frightening media environment. And all of that is about becoming a trusted intermediary. And the issue of trust in this new digital world is particularly pertinent. So CEOs, when it comes to authority, sourcing of stories, and now seen, I'm afraid I'm right at the bottom, CEO is right at the top. So they better be able to articulate a trusted story about their company or its strategy. And we have to advise them. Do you go to trusted media or do you go to volume? And when it comes to trusted media, this is a survey of US journalists. I don't think on an international survey you'd see Fox News anywhere near it, but still. So there's either a flight to trust and these are the most trusted titles. What defines a trusted title? The ability to move markets, the ability to change someone's credit rating, its ability to have a ripple effect into other media. So if you can get a good story or a good relationship built with the Wall Street Journal, the multiplier of effect of that into other territories, into other media is very valuable. So either there's a flight to trust in media or a flight to volume media. So you might have a story which isn't particularly pertinent to the Wall Street Journal, but it's certainly going to score highly on one of these aggregation sites. And so there's a dilemma in people's minds about which one do we go for. And I think all of this is going to change again with Big Data. And this is the elephant in the room which we're all worrying about, because Big Data could change the game again. And IBM talks about the four V's of Big Data, but they also apply to reputation. So we know the volume of coverage is going to increase dramatically. We know that the velocity of it, the Speed at which it comes towards us is going to increase dramatically. We also know that the variety of information and where it's coming from is going to be hard to navigate. And lastly, the veracity. So how do you separate what is static and white noise in social media and in other forms of media from what is a real threat? And that's about measuring risk. So I had earlier the slide which compared us to a therapist. This is another metaphor. I think we're now more like air traffic controllers. So we have to keep all these different things in the air. We have to stop client interests colliding into each other. Sometimes we want to land stories, sometimes we want to keep them off the ground. And it's all about giving our clients navigational aids for this new environment. And I think if you think about, okay, what is the dark art? The dark art is about giving. This combination of being a therapist or a therapeutic air traffic controller is quite a good way of summarizing it. And it's about saying to a client, this is the risk you have to assess of whether it's the right time or not to communicate. And you better have a reality check about the way the media is behaving these days. You better have a compelling story, a basic narrative with proof points that back it up. You need a coherent engagement strategy. As BP found out, you can't do it in times of crisis. You might as well prioritize audiences of influence, those who can have a multiplier effect into other media or your share price or your credit rating. And you have to separate an annoyance from a crisis. So most people really get irritated by two things in traditional newspapers, the headline and the picture. But most headlines and most pictures are an annoyance. They're not a crisis. And if you do face a crisis, you better have the rapid response tools to deal with it. And the crises of 2010, particularly BP, but also Toyota, Goldman Sachs, perennially Prudential, all showed that those companies didn't necessarily have the right rapid response tools in place. And the aggregation of all of this is to try and build a degree of reputation credit. And reputation credit is basically what we're all aspiring to. Harvard Business Review did an article, I think, a couple of years ago worth searching for on the issue of reputation credit. And many of you may be familiar with the fact that goodwill as an accountancy term represents the intangible asset of what the value is in a company. We think that reputation is now the biggest intangible asset a company has. And if you don't manage your reputation effectively, Everything else is going to be much harder to convey. And companies with a good reputation generally can command more in terms of pricing. They generally have a higher share price and a lower cost of capital and are premium in most of what they do. And frankly, it's very difficult to manage this fast changing environment. And what does success look like? And success looks like each earning season, getting upstream and getting over the tide of potential difficult stories. And the media is there. And I know because I've been the role of the bear waiting to potentially have you for lunch. And we don't have the answers to all of this. We are just part of trying to experiment with new guidance tools and reputational devices to help companies and individuals navigate this much more uncertain environment. So that's it. I just have one more slide to put up there and then I'll take as many questions as people want to throw at me. We, as I say, don't have the answers. So we're actually engaging with the LSE to say let's conduct a piece of research about corporate reputation and society because we feel that it's no longer enough to have a strong financial brand. You have to have a good society brand. And companies, whether it's in the clothing industry, post Bangladesh, in the oil industry, post Deepwater Horizon, in the banking industry, post Lehman, are all thinking to themselves, how do I build a society story which is compelling and builds a degree of reputation credit? And I wrote a book about this whole issue which was published last year. There's a link there if you care to probably borrow it, not buy it, unfortunately. But I'm going to leave those up there and then I'll be happy to take any questions you have.