Thursday, July 18, 2013

The Value of Trust Deposits

Public relationships share something in common with hard assets:  they have currency, just like money in a bank.  Specifically, they create what I call “trust deposits.”  When companies engage in actions and behaviors that nurture strong public relationships with all their key constituents, and they do that in a consistent manner, they are building trust reserves not unlike bank deposits, which they can redeem when hard times come.

Let me cite a business example of how this principle works.

Martha Stewart is a brilliant businesswoman who has, in certain quarters, established unprecedented loyalty and trust.  But she also has a shadow reputation for being arrogant, controlling, and self-righteous.  In 2004, when Stewart was charged with and ultimately convicted of insider trading, that negative perception, whether unfairly or not, was widely reinforced.  This image was damaging to Stewart’s business for two reasons.  First, it contradicted her public persona as a gracious hostess.  Second, because she had assumed the company’s almost exclusive public face, her descent had an outsized impact on the stock of Martha Stewart Living Omnimedia (MSLO).  It took two years for the company’s valuation to recover.  It seems clear that had Martha Stewart made some trust deposits with her more critical publics — diversifying and showcasing company management to investors, softening her image through sincere, high-profile charity work — the damage might have been mitigated.

Thus, it is worth dispelling here the myth that public relations can “manufacture” a positive image from whole cloth.  The truth is that practitioners can only shape, rather than create, reputations.  Without the basis for building a desired reputation, a campaign will invariably fail. Further, social media has enhanced transparency.

But Martha has learned some lessons since those days. After leaving prison, she began a comeback campaign in 2005, returning to television with various shows, releasing a number of new books, adding product lines and in 2012 returning as Chairman of her namesake company.

But she decided to do it differently this time — with more heart.  As part of the Clinton Global Initiative, Martha cofounded the impressive Martha Stewart Center for Living with Mount Sinai Hospital in New York.  It serves to promote and facilitate access to health and resources for older adults and enhance the public perception of aging.

Good public relationships rarely, if ever, just happen.  They are established and maintained by commitment to a strategic plan that targets each of its constituents with a rationale for building a relationship.  Then a company needs to establish the messages and the best channels to communicate these messages and reach those  constituencies.

While the value of public relationships is intangible, one leading accounting firm estimated 35% of a company’s value to be non-financial intangibles, such as goodwill.  Thus, trust deposits work to a company’s benefit.


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