Seat at the Table

The core challenge of operating a business is to do so in a way that is both socially acceptable and profitable.  That is why we tend to try and outmarket our competitors instead of murdering them (the latter being more profitable but socially unacceptable). 

All to often, PR people focus on what moves are socially acceptable without calculating the financial impact positive or otherwise.    The resulting counsel is to tell companies how to enhance their reputation while either ignoring the negative financial impact or not articulating the positive one.  This, I’ve always believed, is a fundamental reason PR counsel is often ignored at the most senior levels. 

PR business counsel, as a management consulting discipline, should focus on calculating the potential bottom line gain or  loss from reputation enhancing moves.

So what is the doing good to do well formula? It can be simplified as follows: Potential cost of positive reputation move + potential profits from increased sales or other financial gains as a result of the reputation move = a net gain or loss.  If it’s a gain, it’s the right reputation and business  move.  If it’s a loss, go back to the drawing board.

There are two potential examples in this week’s Newsweek (I saw potential as I don’t know the companyies exact financials):

TXU: An example of a reputation move to get a profitable deal done:  Recently, private equity groups Kohlberg Kravis and Texas Pacific Group agreed to give up a number of coal plants in order to secure the support of environmental groups for their TXU acquisition.   While I don’t know the exact numbers it’s not hard to imagine the bottom line driving this reputation enhancing deal.  Let’s say canceling the plants cost a potential of $1 billion in future profits but the private equity firm figures that pre-cancellation it was going to make $2 billion off the deal.  It’s worth going green in order to still capture that $1 billion in future profits rather than get nothing due to large protests.

Toyota Prius: In Toyota‘s case, they can calculate increased sales of other vehicles as a result of the eco-friendly Prius halo effect.  Let’ say Toyota did a survey to see how many buyers were more likely to buy a Toyota because they saw the company as more eco-friendly as a result of the Prius.  If the profits from those additional sales exceed potential losses from the Prius, then reputation result from the Prius has that bottom line business value.