Assessing Companies’ Walk-Talk Ratio

Two Steps Forward

Assessing Companies’ Walk-Talk Ratio

I’ve long maintained that for many companies, the environmental walk-talk ratio is out of balance, though not necessarily in the way most people think. Conventional wisdom has it that green and sustainability initiatives for companies is all too often is a fig leaf — a cover-up to obscure environmental shortcomings and misdeeds.

Perhaps. But most companies are smarter than that.

The other side of the coin are companies that are walking more than they are talking — that is, doing more than they’re saying. There are several reasons why this happens: first, most of what companies are doing amounts to “doing less bad,” not an easy story to tell; second, the most significant actions companies are taking typically don't relate directly to their products’ value proposition, making them hard to market or promote in a sound bite; and third, when companies talk about what they’re doing right, they often risk setting themselves up for criticism about the problems they haven’t yet solved.

So, what is the walk-talk ratio? A recent study took a look at how some global fared, and while it offers some interesting findings, it raises as many questions as it answers. The study, by brand consultancy Brandlogic and investment research firm CRD, surveyed three groups about the sustainability perception of "100 leading companies," then compared those perception scores to these companies' actual sustainability performance. (You can download the report here - PDF.)

First, Brandlogic measured the perception of 100 brands among individuals in the US, China, Japan, Germany, UK and India, focusing on investment professionals, purchasing professionals and graduating university students soon entering the workforce, "all of whom have reasons to be highly attentive to the performance of corporations on ESG [environment, social, and governance] factors." The researchers assigned 50 percent of the ESG factors to perception of social issues, 25 percent each to environmental and governance issues. The result was an overall perception score. That was then compared with an analysis of the company's ESG performance, based on 175 metrics compiled by CRD. That resulted in a ratio of a perception score to a performance score.

The result: Two-thirds of the 100 companies enjoyed a more favorable sustainability reputation than they deserved, based on their actual performance. On the one hand, that suggests that some companies are overcommunicating about ESG issues. On the other hand, it suggests that some companies may not be communicating enough, or effectively, about what they are actually doing.

Which is it? No doubt a little of each.

"We’ve talked to many of these companies," James Cerruti, Senior Partner, Strategy and Research at Brandlogic Corp., told me last week. "In many instances I would say that companies in that position are intentionally in that position, insofar as they want to be really on firm ground about what they are reporting and saying, so that they are perfectly happy to have the perception lag while they build greater and greater strength. Others would like to have a higher perception and are grappling with what to communicate and how to communicate what they are doing."

But it's more complicated than that. A closer look at the study found that some of the companies whose perception outweigh their actual performance may simply have been poor communicators -- or, perhaps, the victims of insufficient research.

For example, McDonald's and Avon were both seen as companies lagging in performance relative to their reputation. I find that curious, given that both are, in my opinion, at the forefront of their respective industries in both environmental and social commitments and achievements. (Bob Langert, McDonald's sustainability chief, would love it if his company's reputation lived up to its actual performance. In my 2008 book, he railed against something he called "greenmuting," in which companies are unwilling or unable to tell their sustainability stories. You can read his comments here.) Regarding McDonald's, Cerruti told me, "The data doesn’t demonstrate that their management of waste is where it needs to be." You can read about McDonald's waste initiatives here and here and decide for yourself whether they're up to par.

Google and Apple, too -- both had an "alignment gap" of more than 20 points, meaning that their performance didn't measure up to their reputations. Again, I consider both companies leaders. Chevron has a higher level of performance than Walmart? Motorola a better sustainability performance than Nike? The researchers at CRD concluded so.

Regarding Apple's high reputational score, Cerruti said: "It's because of the general satisfaction of their products and, in particular, by the investment community, of their stock performance. So you have a halo effect of general goodwill that comes to bear on some of these perceptions." So, at least in some cases, a company's ESG performance was gauged against its overall reputation, not just its ESG reputation. If the company is well-liked, as Apple is, it is seen as having an inflated reputation relative to its performance, thereby creating an impression that it is not walking its talk.

In the end, it's hard enough to get reliable data when it comes to assessing people's perceptions. But -- with all due respect to the good folks at CRD, which, among other things, is behind Nasdaq's sustainability index -- some of these factual analyses seem suspect. Put them together and there's a muddled story here.

I asked Cerruti what he suggested companies do to ensure that their perception and reality were aligned. "That would presume that alignment was a virtue in itself," he responded. "I’m not prepared to say that. That’s a strategic decision that companies ought to make. We’ve talked to some companies that say they try to make sure those things are aligned — that their reputation is not ahead of reality. But other companies are happy to have perception behind reality because they are a little shy of the camera. They want to be 100 percent sure that when they talk about something, that it will bear up under extreme scrutiny. So they’re managing the reputational risk by saying, ‘Let’s not get ahead of ourselves.' Other companies may be happy to have their perception ahead of reality, and reap the benefits of that, even though — as I argued in the report — there are risks to going too far out on a limb that way. It may be acceptable, if a company is committed to building the reality behind it."

In the end, the Brandlogic-CRD study's greatest value is probably not in comparing one company's perception-reality gap with another's. That, it's clear, is a dicey proposition. The true value of the study may be in demonstrating the complexity of the question itself -- the amount of insight and rigor required for a company to understand how its perception and reality relate, and how each can push the other forward toward the goal of keeping up with competitors, meeting customers' and society's expectations, and reaching a point where sustainability is seen as a competitive advantage. And doing this in a dynamic, roller-coaster marketplace.

As Cerruti put it: "All of these companies are on a conveyor belt, and it’s not going to stop. Companies are going to need to get more and more rigorous."