Bluegrass Consulting: Blueblog

Friday: 30 July

Crowdsourcing is, alternatively, a ’super charged suggestion box’ or a ‘cheap way of ripping off ideas’. But however it is described, it can help integrate audiences and business processes, deliver tangible business outcomes and engage with stakeholders in a meaningful way, claimed Dan Young, Director - Digital, Burson-Marsteller at Frocomm’s 2010 New Media Summit.

The power of crowds was an overarching theme of 2010’s New Media Summit, which is not surprising given social media’s comms cred. Though one sometimes wonders if the ultimate professional communication is an each-way bet:

• Personalisation/niche vs. attempts to reach millions/billions of eyeballs
• Word of mouth (a la real mouths - i.e. old school) vs. Online viral (new school WOM)
• Doing ‘it’ to keep up with the comms Joneses vs. actually being skilled enough to deliver results.

Nick Holmes a Court, Executive Director of BuzzNumbers, also had crowds on his mind when speaking at the summit. He spoke about analysing online crowds and utilising their power to help drive communication programs forward. Nick (@nickhac) referred to Dunbar’s number: “150…the cognitive limit to the number of people with whom one can maintain stable social relationships.”

The logical corollary to this is that if organisations think they can control large numbers of people based on the assumption that they have a reliable, solid relationship with them - think again!

Trust in crowds, organisations and public relations

Nick’s presentation was relevant to all topics at the conference as he referred to the trust consumers have in different modes of communication, the utility of digital communication, analysing crowds and making a success of online communication. It will come as no surprise to learn recommendations from people you know are the most influential form of ‘advertising’, but one stat from Nick’s source jumped out:

• Consumer opinions posted online and brand websites generate an equally high degree of trust (70%).

Now figure that one out. It supports the argument, and seems counter to propositions advocated by the likes of Fleischman-Hillard’s Napoleon Biggs (at this very summit) that social media has significantly more influence than corporate websites. David Meerman Scott has argued for the corporate website side of the debate and I have also asked is PR missing the main digital game by focusing too much on social media at the expense of corporate website content?

Crowds, though…can they be trusted? Well, Nick said they have transient memberships and there is a low risk to being a member of an online crowd. So their devotion and loyalty seems a questionable and unreliable quantity.

However, due to the ease with which one can join an online crowd, the many means of discovering this crowd (not to mention the many means through which one can exhibit behaviour in the online environment) and the compounding interest and impact a crowd can have…can organisations afford to miss leveraging the crowd wherever possible? Nick certainly discussed some powerful cases studies to support his assertion that, in many cases, the answer is no.

But perhaps the punch line is this: the internet is the 2^nd most influential source (after TV) of information - and TV is in its sights. That, and his comment that consumers are becoming advocates in the new social media-enabled world, should give organisations a wake up call if they are not already engaged with the digital reality.

The heart of the crowds

“Engagement between a brand and its customers can take many forms,” said Dan Young (@danieljohnyoung). “It can be as simple as talking. It can mean engagement through advocates. And it can relate to support.

“But the richest form of engagement is embracing. In this area, brands are involving all customers. Most commonly, this takes the form of audience integration with business processes.”

In essence, Dan said, this is crowdsourcing.

Or, more fully: “Crowdsourcing provides opportunities for brands or government agencies to tap into the creativity, experience and wisdom of a mass group of people. It provides a tool for understanding what stakeholders really want.”

It provides a fantastic opportunity to develop a deeper understanding of these communities. And by involving the crowd in a meaningful project, brands can engage and embrace these audience groups.  So it all has an holistic, integrated and ‘full-circle’ dimension.

Arguably the greatest value of crowdsourcing is that it provides an opportunity for an organisation to learn about it stakeholders’ preferences and positions on issues, then work in a collaborative manner to adapt its processes, products and behaviour to better meet their needs. Sounds like close to a perfect manifestation of Web 2.0’s potential.

Jeff Howe of Wired Magazine, who coined the crowdsourcing term, said it, “forces companies to approach us as potential partners”, and that organisational stakeholders, “get to participate meaningfully in the process”. It is changing the nature of the basic business model, he argues in this presentation.

Dan persuasively discussed a number of very successful crowdsourcing campaigns by the likes of Ford, Threadless, Dell, New Zealand Police and more. But perhaps the most significant example was The Guardian’s use of crowdsourcing to help it evaluate and prioritise a range of documents relevant to British MPs rorting their expense accounts.

• Readers reviewed more than 170,000 expense documents in the first 80 hours
• About 27,000 readers reviewed more than 220,000 pages of submissions
• It created a wealth of exclusive leads and copy for the paper and, in the process, enriched its relationship with, and advocacy from, its readers to a significant degree.

The crowdsourcing take-away

Dan’s final tips on the specifics of crowdsourcing were to bear some key dimensions in mind:

1.       Don’t ask your stakeholders to do too much - you need to ask them to invest a reasonable amount of time and make it easy for them to participate

2.       You’ll need to put very clear guidelines in place about how your customers can interact with the crowdsourcing program

3.       But you also need to be prepared to lose control - like a good brainstorm.  Many wrong answers may eventually lead to the right answer

4.       Play to the sense of community but also recognise individual contributions - this will provide people with the incentive to participate and share

5.       Finally, and most importantly, don’t make the mistake that Kraft made with iSnack 2.0 - allow the community to determine success.  This indicates respect for their perspective and insights and will deliver value to your organisation in the long run.

As an added bonus, ICT and PR professional Jan Willem Alphenaar has put together a useful and interesting presentation on crowdsourcing that is well worth checking as well.

Friday: 23 July

“Search is the reputation gateway,” said Napoleon Biggs, VP Digital Fleischmann-Hillard Asia at Frocomm’s 2010 New Media Summit. And whilst this claim seems accurate in our web-wound up world, his claims that social media will soon be the primary source of information on organisations, rather than the latter’s corporate site, is not aligned with the views of commentators such as David Meerman Scott.

Yet, as Facebook now ranks as the number one go-to website over Google in the US, there is evidence to suggest Napoleon is on the money. It seems a fair assumption that many of the visits to Facebook will be to seek information (in a social sort of way, of course) on organisations, products and services.

Napoleon (@webwednesday) mentioned the rather scary notion of 440 million people around the world sharing their opinions on Facebook alone. You can’t blame organisations and brands for quaking a little in their gumboots just a little - all that control they used to have…gone in the click of a mouse!

Communication, engagement…or a ‘listening brief’?

So what should organisations do about this? Engage? Or continue the command-and-control paradigm (or, in the communication context, the broadcast rather than engage model) that may have served them quite well in the past? Or are there alternatives to the reductive black and white scenario?

As much as the contemporary communicator is schooled in the notion of dialogue and engagement above all else, even James Grunig said there is a time and a place for two-way asymmetrical communication (i.e. communication taking place that maintains an organisation’s ‘power’ over its stakeholders or, to put it another way, not communicating, not engaging and probably just listening).

And it may simply be because of the nature of the organisation, or the nature of the issue, that a bunkering down approach is taken. It doesn’t necessarily mean an organisation is seeking to maintain any sort of Machiavellian control.

The march towards dialogue also has ramifications for the marketing element of professional communication. All this talk of engagement has changed the language of marketing, but I doubt very much whether it has changed its essential behaviour or processes.

Marketing is still there to identify a need, turn it into a want and sell the living daylights out of it. Just because there is a conversation around the process doesn’t change its essential intent or objective.

Approaches to professional digital communication

Napoleon’s presentation had a strong focus on China, with an underlying key message being that, as always, professional communicators need to:

• customise content and messages for different stakeholders or target audiences
• utilise the communication mechanisms that are most salient for an organisation’s target audiences.

His tips on utilising social media?

• Digital is raw, live: don’t stand back and vacillate. Get in there and get active
• Don’t try to fake it - online is a unique environment where mistakes are amplified and permanent
• Strategic and proactive offence (i.e. communication) is the best defence for an organisation’s reputation…so build relationships by engaging with organisational advocates AND naysayers.

When in a crisis situation, Napoleon said social media needs to be monitored to determine:

• what/who are the conversation/information sources and how is it spreading?
• who are the influencers?
• what is the emotional context?
• what actions are crisis participants taking?

This information is vital in determining what crisis management responses organisations should take. Fundamentally, however, you should have a game plan prepared, advised Napoleon. And one of the key strategic elements of this game plan is no doubt being flexible.

The online environment is not stable. Left-field is where you can expect your next challenge to come from!

Corporate websites: the digital sanctuary?

One of the interesting elements of what is not being spoken about terribly much in public relations circles (and did not seem to be flagged at all during the New Media Summit - not ‘new’ enough?!) is ‘content’.

Now, the content of an organisation’s website is potentially the element that will attract the most possible eyeballs. And lead to the greatest amount of engagement.

So why aren’t PR pros talking about this? Why aren’t they pitching it to potential clients? What focus is occurring here regarding the strategy and tactical/technical skills to make a difference to organisations and their stakeholders?

This is especially important when Napoleon makes the point that people are using the web for purchasing advice. Don’t organisations want to get in on the action of leveraging, highlighting and/or influencing the advice that is given?

Sure, there will be hesitation and scepticism from many in utilising content provided by organisations, but with the power of SEO and the resources that organisations have at their disposal, it would seem a potent opportunity they have at their fingertips.

And are consumers really so gullible to think that organisation-initiated, sponsored, moderated and, yes, even involved or monitored social media dialogues are completely free of an organisation’s grip?

As the web is a fractured environment full of dissenting voices, most of them small in stature and characterised by inconsistency and a lack of evidence for their assertions, organisational websites are almost like the calm amongst the storm: a digital sanctuary.

Also, organisations should be employing strategic communication approaches such as strategic alliances and thought leadership. Using such approaches gives the organisation 3^rd party credibility and content that their stakeholders will value.

This, then, supports their attempts to have their websites (and, by extension, themselves) perceived as being credible.

Corporate websites or social media as an organisation’s communication/engagement hub? Either/or? Is there another paradigm? Command and control…or a blend? Another paradigm? What do you think about Napoleon’s points and this discussion?

A full and comprehensive report on Frocomm’s 2010 New Media Summit, featuring leading Australian marketing, PR and social media pros and can be downloaded at Public relations and managing reputation). The report captures key points made at the summit, provides additional perspectives from the speakers and analyses their thoughts.

Craig Pearce

Related posts

• Free report: PR at war – opinion explosion at social media summit
• Strategic communication with Facebook
• Social media communication generating trust

Tuesday: 20 July

After 2 months of fierce struggle, highly expensive ads and the election of a new Prime Minister (PM), the Federal Government and the resources industry have finally reached an agreement on the now scrapped RSPT.

One can wonder if it has resulted into a win-win situation or, given the new neutral name of the tax, if the resources industry is not the main winner of the deal. Is the glass half full or half empty?

From a political point of view, the MRRT appears to be the first victory of Julia Gillard’s new role as Prime Minister. Her ability and her efficiency in leading negotiations surely took a weight off the Labor Party’s shoulders for the election now being held on August 21.

The original RSPT was definitely too disconnected from the way market works whereas the MRRT shows far more respect for market conditions.

However, it appears that former PM Kevin Rudd was close to an agreement and that Julia Gillard only had to seal the deal, probably with larger concessions. So her victory has somewhat of a bitter taste for taxpayers.

From Rio Tinto’s, Xstrata’s and BHP Billiton’s point of view, the MRRT is a genuine victory. Indeed, Gillard’s Government has conceded on:

-          Lowering the rate of the tax from 40% to 30%.

-          Raising the rate at which the tax applies from 6% to 13%.

-          Removing the retroactivity of the tax.

-          Applying the MRRT only to iron ore and coal mining companies.

This is good news for big mining companies - especially for those that extract gold and base metals - and testifies of their strong lobbying power on the Federal Government.

On the other hand, medium and small mining companies have lost out given that they were not part of the negotiations.

In the end, the resources industry will have to share a bit more of its colossal profits, logically enough for the Federal Government to help, finance its flagship projects (the national broadband network, climate change, etc.) and lay down a stronger tax base during the resources boom.

The MRRT will enable a better distribution of wealth among Australian people, which was the primary goal of taxing the resources industry. But picking who won the debate seems a fairly simple task - just ask Rio Tinto or BHP. They can hardly contain their delight to have, again, emerged into positive territory.

Arnaud Eard

Arnaud comes from Paris and gained a MA in International Political Economy at the University of Sheffield. He has been interning at Bluegrass Consulting since May 2010.

Friday: 16 July

The value, and key, to utilising the world’s social media darling to its full extent lies in comprehensive targeting, compelling advertising, putting product in users’ hands and continuing the relationship with communication that truly engages with, and provides value to, target audiences…said Paul Borrud, General Manager, Facebook Australia, at Frocomm’s 2010 New Media Summit (a full report on the summit, featuring leading Australian marketing, PR and social media pros and can be downloaded at Public relations and managing reputation).

Paul’s presentation was timely. Facebook is everywhere. In 2010 it has gone ballistic in the virtual sense. If there is one social media brand to have your hands all over right now, Facebook is it.

It is the most visited website in the US, outranking even Google, though it still doesn’t have Google’s reach.  And Facebook is the most searched term across search engines.

This raises important issues for communicators:

• Is social media (or more specifically, Facebook!) where greater resources should be directed rather than Google Adwords, corporate websites, SEO etc (in both the digital and overarching comms mix)?
• Is social media (or, once again, just Facebook) where searches for information are, or will primarily, take place for information?
• Is the sort of information and the type of communication that occurs within Facebook something that public relations professionals are able to control?

Other facts to raise the communicator’s eyebrow include:

• Over seven million Australians are ‘active’ Facebook users
• Globally, it has over 400 million active users
• In Australia, over 35s is the fastest growing sector
• 18-24 year olds are the core group of users, with 79% of those engaged using it more than email, 38% more than mobile phones and 35% more than any other ‘communication device’
• Facebook operates in 75 languages
• Three billion+ photos are uploaded on to Facebook each month (and this is not a ‘photo site’)
• 20 million users become fans of pages each day.

Thoughts on communication strategy

From a strategic communication perspective, Paul advocated integrating all brand extensions into the same fan page, rather than running a different fan page for each product. Over time, there can be a focus on different products (or services) at different times.

Certainly, this solves one of professional communicators’ greatest dilemmas, that of consistently generating quality content of interest to target audiences.

On the other hand, however, who is to say the brand of one product, despite being the property of a single organisation, will suit the tastes/aspirations/etc of another brand/product? Will it lead to a weakening of individual brands’ equity? Classic marketing thinking would seem to suggest so.

Paul defined his approach to communication into three phases:

• Build a fan base
• Use fans as a focus group
• Launch new product.

As with any form of social media, Paul said a basic premise of using Facebook for commercial purposes is to provide value to your network (or fans).

Somewhat conversely, Paul said to apply the 70/30 rule (i.e. get your network to provide 70% of the content and you just provide 30% - great thought! Easier said than done, though no doubt the clever strategist will come up with solutions to this formidable challenge.)

The notion of authenticity is social media 101, of course. In fact, it should be strategic public relations 101, but that’s another story. A manifestation of this in a commercial sense is, as Paul said, “Asking for forgiveness, not permission.” This has at least two implications:

• Get stuck into social media. Don’t hang around waiting and watching. The only way to leverage is to participate
• Whilst being sensitive to the needs of your stakeholders is of course important, so is realising that mistakes are made. Social media is a new field. It’s okay to step out of line if your intentions are good (if they aren’t, go back to PR school), so say you’re sorry and you’ll try harder to get it right next time: but don’t hang around waiting for someone to say, ‘yes, you may give this a try now’.

As Paul said after the summit, “Conversations about brands are happening regardless of whether or not the brands want to take part. They can be a passive observer or an active participant. When you’re active you can shape your brand in front of a large audience, which will pay dividends.”

There are doubtless some nuances to Paul’s claim that organisations can shape their brand. Plenty of pundits have espoused that it is not organisations that shape brands, it is those who use them. Social media has accelerated this ability of brand ‘users’ to shape what constitutes a brand (i.e. what it represents).

So the notion of who is controlling or shaping a brand is a field ripe for debate and further insight.

Facebook outranking market research?

The issue of using fans as a focus group is a particularly interesting application of a social network. On the one hand it is engaging with target audiences so an organisation can adapt a product and adapt its communication to suit the needs and preferences of those it is seeking to sell to.

But on the other hand this is using two-way symmetrical communication purely to sell a product, rather than do the target audience any big favours. It is marketing adopting a best practice public relations methodology to dress up its profit-making objective.  But it is doing so in a very transparent manner, so it is hard to argue that everyone isn’t a winner through this process.

Another interesting dimension of using social media for research is whether social media:

• will overtake formal market research as a means to determine target audience needs and wants
• become a standard means through which to test potential products’ and services’ market potential and effectiveness
• develop methodologies for communication metrics to be developed that clearly elucidate the effectiveness of professional communication to achieve business-relevant results.

Social media conversations: who if profiting?

Paul was adamant that social media is about relationships, not marketing. Yet Facebook (like many other forms of social media), is a mechanism that exists, at least partially, for advertisers, marketers and public relations professionals to help organisations achieve their business objectives.

So the mentality that says ’social media is about relationships, not marketing’ is either specious or, in fact, social media is facilitating a new way to do business, a new way for organisations to think. This is an approach that has been articulated before, but it is worth reiterating:

• The dialogic characteristics of social media are forcing organisations to talk more with their target audiences and stakeholders than they might have pre-social media
• It seems logical to hypothesise that increased dialogue leads to increased understanding which, finally, leads to organisations actually wanting to change their behaviour as a whole (not just in the context of communication)
• The rationale underpinning this is that if an increased number of conversations occur between an organisation and its stakeholders, then unless the needs and preferences of those stakeholders impact on the way an organisation behaves, then those conversations will eventually be seen by stakeholders as meaningless. This, in turn, is liable to lead to compromised relationships, a less favourable organisational reputation and, ultimately, a failure to meet business objectives.

The critical upshot question for Facebook

Is there a risk that its seeming increasing use by marketers will devalue the Facebook brand, one founded on the notion of sharing personal information and networking with friends?

Commerce is everywhere these days (McDonald’s provides encouragement awards/meal vouchers to my son’s soccer and Nippers clubs - much to my chagrin) and people seem very open to commercial intrusion into their lives. So maybe it’s a null and void question/argument.

Certainly, the internet is a pretty social and open environment, so it’s hard to argue that its mechanical communication devices should be devoid of commercial trappings. But there does seem something paradoxical about the notion of personal networking and the commercialism that Facebook’s business model seems predicated on.

It’s unlikely, however, that this will impact on Facebook’s utility as both a social networking tool and a means for professional communicators to facilitate engagement between an organisation/brand and its stakeholders.

Focusing on Facebook results

Paul concluded his presentation by reminding attendees of what to focus on:

• Leveraging the social graph
• Building your brand and shaping it
• Get started and iterate
• Develop a conversational calendar.

A full report on Frocomm’s 2010 New Media Summit, featuring leading Australian marketing, PR and social media pros and can be downloaded at Public relations and managing reputation).

Craig Pearce

Thursday: 08 July

If ever a social and political issue was so completely driven by the power of imagery as opposed to fact - it is that of ‘boat people’.  We are manipulated and cajoled by a potent combination of pictures, fear laden political catch phrases and an absence of hard facts.

Most of us have heard it at some point - boat people are only a tiny fraction of the ‘illegal immigrants’ coming to our country. In fact virtually all come by plane. Every day, at least 13 asylum-seekers penetrate our borders through airports, by using traditional visa options, a hefty 30 times those who come by boat, according to this report. Furthermore, Amnesty research shows that 96.6 per cent arrived by airplane whilst only 3.4 per cent by boat.

But still the arrival of a new boat and its passengers, its picture sprayed across the front pages of our newspapers and TVs, spells such panic that it dominates the national agenda, the national conscience and national elections, time and time again.

Perhaps the sophisticated nature of aeronautical transport and an established gateway - compared with leaky boats and unwashed passengers - makes one group look safe and the other not? Or perhaps it’s simply because those using our airports, coming in one by one, elude that potent ‘group photo’ that gets everyone so flustered.

Boat people, according to Tony Abbott, pose a threat to “keeping our borders secure and our country safe” . I wonder, how exactly is our safety being jeopardised by boat people and not plane people? In fact, the research says plane people are much less likely to be genuine refugees, only about 40-60 per cent compared with 85-90 per cent of boat people.

Is Abbott piggy-backing off the fear still simmering from Howard’s political opportunistic legacy of ‘children overboard’, and the oh so loose and intangible connection between terrorism, Muslims and boat people?

And whereas boat people are detained while their claims are processed, plane people live in the community and are allowed to work; a Rudd Government initiative. Where is the fairness there?

The truth is, having boats rock up on our shores is not a ‘good look’ politically. It looks like we have no control, when in truth the evidence shows we have far less ‘border control’ through our airports.

Julia Gillard, whilst also guilty of cleverly ‘handling’ this political hot potato, deserves credit for being the first of recent Prime Ministers to point out the real numbers, saying “…the number of asylum seekers arriving by boat is very, very minor. It is less than 1.5 per cent of permanent migrants each year; and indeed it would take about 20 years to fill the MCG…”

So, despite my initial thoughts, she doesn’t seem to be swinging as hard to the Right as may have first appeared.

This can also be seen through her acceptance of the ‘push’ vs. ‘pull’ factor as to what drives the number of boats. “It has less to do with what we do here and more to do with the conditions people are escaping - like war, genocide, imprisonment without trial, torture…” Read here for some interesting research on push/pull factors.

Finally Gillard’s key policy plank that has media headlines pointing to Howard’s Pacific Solution, although scant on detail, is not really like the previous government’s ’solution’ at all. As explained by credible political blog Pollytics.com:

“The creation of a well resourced, properly administered regional refugee processing centre that has UNHCR participation, regional government cooperation, a fair, efficient and consistent refugee status determination process, clearly defined legal rights for appeal and, most importantly, a well functioning resettlement program…was one of the most important long standing goals of most refugee organisations in Australia.”

The post goes on to explain that the Pacific Solution was canned by refugee organisations - because it was exactly none of these things.” It’s also why comparisons between the Pacific Solution and some possible East Timor solution are pretty superficial and lazy.”

Former Liberal Prime Minister Malcolm Fraser, a vocal, committed and harsh critic of the Pacific Solution and politicisation of refugees, agrees it is different and has given the plan “his provisional approval“.

If you want to see more on how this could actually work, and be a benefit rather than a burden to East Timor, check out some of the comments here.

In the meantime, as we wait to see Gillard flesh out the policy, let’s remember to not let the pictures of another boat make us panic, look at the stats, the facts, and remember last year Australia took only 0.6% of the world’s asylum seekers. We are after all just a little fish…in that big blue sea.  And if you still want to get upset, think of the planes.
Ruci Fixter

Thursday: 08 July

Lately, there has not been a week without a warning or a cut in the credit rating of European countries, worsening their financial situation and bringing the reform of credit rating agencies back under the spotlight.

After having been accused of being largely accountable for the global financial crisis (GFC), Moody’s, Standard and Poor’s and Fitch (the ‘big three’) have simply and unapologetically returned to their daily grind with seemingly intact legitimacy, their usual aura of infallibility and -above all- influence remaining in. It is as if they had never contributed to what has been the most important financial turmoil since the Great Depression!

In his column in the New-York Times Paul Krugman stresses that the examination of e-mails exchanged by employees of credit rating agencies reveals a ‘deeply corrupt system’, in which issuers of debt hired the credit rating agency which gave the best rating to their debt. The ‘big three’ consequently distorted their notations to satisfy their clients, and 93% of the subprime-mortgage-backed securities that were rated AAA in 2006 were in fact ‘toxic assets’.

It did not take more for some scholars and politicians to argue that the ‘big three’ work in favour of Wall-Street and, more generally, in favour of the United States. On Tuesday 15^th June the members of US Congress did not ratify the Franken amendment, which resulted into a terrible status-quo as the purpose of the amendment was to implement conflict interest rules for the rating agencies industry. This non-ratification clearly shows the huge influence of financial industry lobbyists on Congress.

While arguing that the ‘big three’ work in favour of Wall-Street may be considered extreme, it is true that they are maintaining a climate of uncertainty over financial markets at a time when the latter are afraid of their own shadows.

In the early stage of the European debt crisis, Standard and Poors’s downgraded Greece’s rating and put the already weakened country into a highly critical situation. At the end of May, Fitch in turn cut Spain’s rating. On 15^th June, Moody’s downgraded the sovereign debt of Greece to junk status just as Greece had concluded a macroeconomic policy agreement with the European Commission, the European Central Bank and the IMF.

The timings were rather well-chosen - or badly-chosen, depending on which side of the Atlantic you stood. Good times for speculators of the US financial sector indeed mean bad times for Greece, Spain and Europe in general.

Lately there has been a will both in the US and Europe to break the oligopoly of the ‘big three’ and to increase the transparency of their functioning.

In early June the US Security and Exchange Commission introduced the rule 17g-5, which requires that the information used for rating be available to all rating firms.

The European Commission took a similar decision in order to increase competition and plans on creating a new pan European Union regulatory body that would supervise the operations of agencies.

However, it is still unclear who should funds rating agencies or how ratings should be assigned. The key issue remains unchanged i.e. issuers of debt will continue to pay for ratings, and it is unlikely that investors will be the ones to pay.

Reforming credit rating agencies is crucial, and urgent. In the short- to medium-term, the absence of any restructure could threaten the economic recovery of Europe and could compel countries to leave the Euro-zone. In the long-term, it could possibly generate another GFC.

Arnaud Eard

Arnaud comes from Paris and gained a MA in International Political Economy at the University of Sheffield. He has been interning at Bluegrass Consulting since May 2010.

Friday: 18 June

The Australian Government’s RSPT proposal

The Federal Government’s proposed ‘Resource Super Profits Tax’ (RSPT) announced in the May 11^th Budget seeks to tax ’super’ profits by resource companies made from all non-renewable resources at a rate of 40% from July 2012. Super profits are defined as profits that exceed a relatively low threshold rate of return, essentially the risk-free rate of return. In its Budget proposal the government sees the risk-free rate in this case equal to the yield on a ten-year Government bond (LTBR), which is currently 6%.

The RSPT would, if approved, supplant the crude oil tax regime and function in conjunction with State/Territory royalty regimes.

Through the RSPT the Australian Government proposes to become in effect an associate of mining companies by crediting 40% “of accumulated project losses and undeducted capital expenditure even if a project should be closed”.

However the Government does not immediately fund the joint venture. It is the mining company which holds 60% of the joint venture that has to “lend the Government its share of capital costs” (40% at the LTBR).

Since the Government holds 40% of the joint venture, it proposes taking 40% of the mine’s exploitation profits. These profits will nevertheless be reduced by RSTP allowances.

Because 40% of the project is guaranteed by the Government, mining companies should borrow 40% of the total capital of the project at 6% (LTBR = risk free rate). Based on this assumption, the Government starts taking profits as soon as the rate of return on the project outstrips the LTBR.

In theory, the Government believes that, even if the RSTP “reduces” profits, it should not have a negative impact on investment; and that the return on funding needed to finance the balance of the project remains identical.

According to KPMG if this tax is implemented “Australia will have a higher effective tax rate” than those of Canada, Brazil, China, Indonesia, India, South Africa, Argentina.

Current debate

1.       The Australian Government’s position

• The Government, supported by a range of economists, argues that “the RSPT will provide a more appropriate return to the Australian community from the exploitation of its non-renewable resources compared with the current charging arrangements.”
• Treasury claims that RSPT will be a more efficient means of collecting a rightful share of the returns to the community and of removing obstacles to mining investment and production. Treasury says the RSPT will foster greater investment and employment in the resource sector.
• According to the Australia’s Futures Tax System Review’s Consultation Paper, Australia is currently shifting towards profit-based royalties in the resource industry. Other OECD countries with important resources endowments have already adopted profits-based taxation, which has influenced the standards for Australia.
• According to Econtech, a prominent economic modelling agency, under the RSPT scheme mining investment should in the long run rise by 4.5%, jobs by 7% and mining production by 5.5%.
• According to Treasury Secretary Dr Henry, the resource industry has enough projects on the agenda for the next 30 to 40 years and investment should continue, despite the claims of the miners.
• The introduction of the RSPT is supported by 20 Australian leading economists. They emphasize that “the existing royalty system reflects the fact that it is desirable to levy a charge for access to publicly owned mineral resources, in addition to normal corporate income tax.” However they admit that the finer details still need to be negotiated.
• According to S&P’s associate director, “the mining tax would have no implications on Australia’s credit rating, which is a barometer for a nation’s sovereign risk.” Australia has been rated AAA since 2003. He adds that “the revenue projected to be earned by the tax, $12bn in the first two years, could strengthen the rating given the positive influence on net national income.” In 2009 Australia reached its 19^th consecutive year of growth, with a GDP above 2.7%.
• According to the Coface (a French country-rating agency), “Australia has without doubt the prize for excellence in all categories, as much in terms of its debt or deficit.” The International Monetary Fund predicts that in 2010 Australian national debt will stay below 20% of the GDP.

In the face of strong opposition from the mining industry to RSPT, the Government has embarked on a controversial $38 million advertising campaign to counter what it sees as misinformation. However at this stage, voters are strongly divided on the issue, with most against the measure in its current form.

2.       The Australian mining industry’s position

The major players in the mining industry have reacted strongly against the tax and have monitored a major political and advertising blitz. This includes the release of studies and reports.

• In a study commissioned by the Minerals Council of Australia, the Radar Group said that “institutional investors believe the implementation of the RSPT will have a highly detrimental impact on both the Australian equities market and the Australian economy over both short and long term.” Between the announcement of the proposed tax on May 2^nd and May 29^th, Rio Tinto shares have dropped down 5.5%, BHP 4.8% and Fortescue Metals 9.17%.
• The report also emphasizes that no less than 66% of investors surveyed believed that the proposed RSPT would have a significant impact on future institutional investment in the Australian resources sector while 33% believed it would have a moderate impact.
• In another report commissioned by the Minerals Council of Australia, KPMG argues that “capital markets and in particular debt markets, will be unable to price funding at the LTBR due to risk and pricing issues.” For instance, the bankers of Fortescue Metals - one of the leading producers of iron ore - withdrew from Fortescue’s outstanding projects on this basis.
• The KPMG report also stresses that a higher effective tax rate and funding costs above the LTBR aim at reducing net present value returns of mining projects. Because of risk and pricing issues, the capital market, and more specifically debt markets, will not be able to set the interest rate the same as the LTBR. In the end the report is positive the RSPT at 40% will severely impact the mining sector. Recovery for the sector is only expected to be on the long term.
• The mining industry’s arguments have been strengthened by poor communication and industry consultation by the Australian Government which has led many financial and economic experts to claim that investors seeking to buy Australian assets or sell Australian holdings could be faced with uncertain tax outcomes. This lack of transparency has generated what investors regard as “change law risk”/ Sovereign Risk, which creates uncertainty. Some observers though question the term “Sovereign Risk” as it is more generally linked to company asset expropriation by government, breakdown in the rule of law etc.
• The prospect of tax grabs with no prior consultation or warning - and, worse, the prospect of retroactive tax grabs - has generated uncertainty. It takes mining corporations years of investment before making any actual returns and now, in addition of the risk associated with their operations, they also have to take into consideration the possible decisions the government might take about them.
• The industry argues that profits trigger future investments. The higher the risk, the greater the expected return to justify the risk. Overtaxing profits maintains low productivity, low risk and low pay industries. The interest charged on the Government’s unpaid contributions is based on the risk-free rate, which means interest payments will be too low to prevent risks and costs from being borne by miners, and therefore too low to encourage investments.

My view

Such a major change at time when Australia and the world is emerging from the global recession has surprised many. The RSPT appears as an improvement on the current approach but in some areas the proposal made by the Treasury appears to be too theoretical and disconnected from the reality of the market.

In the end negotiation will be necessary to reach agreement between the government and the mining industry. At the moment, both sides have deeply entrenched positions, and a short term solution is not expected.

However, I believe that political pressure and the looming federal election later this year is likely to see a compromise achieved. This is likely to take into consideration the risk incurred by mining companies and the need for clarity for those institutions to fund more projects.

Any compromise or new scheme will also need to better balance the drivers of future growth and a better return to the Australian people. Australian voters will be watching closely. In the end, perhaps at a reduced level, the RSPT appears as a fair and necessary measure but the timing of its implementation and the way it currently works is definitely not ideal.

Arnaud Eard

Arnaud comes from Paris and gained a MA in International Political Economy at the University of Sheffield. He has been interning at Bluegrass Consulting since May 2010.

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Thursday: 17 June

As the wheels on the Rudd train rattle and loosen and the destination once so bright now looks foggy and unknown, the pressure is not just on the train driver, but his top engineers and navigators, whose youth have many asking, do they know what they’re doing or are they just on for the ride?

Is someone’s age a genuine indication of their professional ability and skill or is it just an easy target? Take Adam Boland, Channel 7’s boy wonder who at just 24 began steering Sunrise to “national dominance 10 years ago”. Clearly his age wasn’t a hindrance.

On the other hand we have the Primer Minister’s top advisers Alister Jordan, Lachlan Harris (both 30) and Andrew Charlton (31) who featured in Tuesday’s Australian newspaper under the title Novices at the wheel of state. (Note: Peter van Onselen the journalist who wrote the story is only 34).

Whilst running the country vs. running Sunrise may seem an inequitable comparison, what is it that makes one young manager a ‘wonder boy’ and the others ‘novices’?  It may simply come down to how they tackle the challenge.

Age discrimination - or simply too young?

With more and more young people ascending to management positions, it is often these young highly capable managers and advisers who face roadblocks because older people use their ages against them.

In the case of the PM’s three young guns, are we simply seeing an older caucus speaking out because they are struggling to accept the tremendous power these youthful advisers have, and now that things have gone bad, looking for the easiest excuse?

Then again, it makes every sense to ask, especially as the wheels are coming off, is there a lack of experience here which needs to be addressed? And, are these young advisers doing what they should to ensure their short years do not translate into a lack of experience or strategic ability?

Politics not friend nor mentor

Adam Boland took steps to counter his young age. “Being so young, I had to become a student of TV, because I wasn’t around for the first 20 years of television… I’ve also surrounded myself with people such as Graeme Rowland who has been there for most of that time.”

Rudd’s advisers appear to really only be surrounded by Rudd, and the nature of politics is such that adopting experienced Labor party mentors to tell them the political lessons of 20 years ago…is not really possible.

The ‘trust’ and ‘confidentiality’ inherent in the role of a political adviser, spurned by the ever present threat to their boss’s leadership, leaks, and the need for the PM’s office to look like it knows what its doing, makes it hard to see how they could engage a mentor to bounce their ideas off and learn from.

And there is the obvious point, that Rudd would also be worried that asking the advice of others would be perceived as a sign of weakness on his part, and no doubt there would be those who would like to interpret it that way.

Learning on the job

So while a mentor may be out of the question for Rudd’s young men, there is no limit to these three advisers becoming ’students of politics and public affairs’. As Bernard Keane said in Crikey last week, talking more directly of Rudd, “there is no shame in learning on the job…John Howard almost managed to make himself a one-term wonder, but went on to do OK.”

A point made in yesterday’s Sydney Morning Herald was that van Onselen ‘forgot to mention’ that Bob Hawke had many successful ‘young buck’ advisers, while John Howard’s chief of staff in his first term, Grahame Morris, “was a man with years of experience when he was forced to fall on his sword.”

Maybe if Rudd’s three advisers were older they would have remembered first hand when in 1987 the Hawke Government introduced a 40 per cent profits tax on off shore petroleum and the industry’s response was by all accounts similar to that of the proposed super profits tax, one of the main issues behind all this finger pointing.

If they had worked around government then, would this be an example of how they would have had the ‘experience’ critics say they lack? No doubt this experience may have helped, but ultimately the challenge is as Keane says”…communicate effectively the case for reform, detail the flaws in the arguments of your opponents, and show you’re determined to achieve what you set out to do.”

What you don’t know - the past and human behavior may tell you

Communicating effectively and detailing the flaws in the opposition is in essence the crux of Alister and Lachlan’s job and on a positive note where they actually have proven they can do it; Lachlan through developing and managing the media strategy for Rudd in the 07 election, earning him his job today, and Alister through his years working by Rudd’s side in shadow government, most effectively and expertly causing political damage to the Howard Government over the AWB “wheat for weapons” scandal.

Showing that you’re determined to achieve what you set out to do may be something they have less experience with, and something they need to man up about when dealing with ‘the man’, who’s ultimately responsible for this.

Experience isn’t everything, and years passed do not guarantee a pay off in the rise of one’s intelligence, especially in the areas of social and public affairs, where instinct and generational understanding is key. But if young advisers look to the past to manage the present and future political challenges, their chance of success will no doubt improve.

For as we know, human behaviour and responses are more often than not predictable. This is the very reason the Kevin 07 campaign was designed and built around Abraham Maslow’s ‘hierarchy of human needs‘.

You are never too old to ask for help

The lesson to take away may be that you’re “never too old to ask for help“, something Rudd was told recently by Jack the Insider. He tells the PM that Hawke and Keating are real assets for him and the fact that their advice is not sought “is staggering”. “If a government finds itself in trouble as this one has, it would be sensible to go first to the caucus and then place a call to the old salts; the combat hardened political men of yore to seek advice.”

At the end of the day, its safe to say, no one is ever experienced enough, but how they manage that, whether they ask for help or not, is what proves are they driving the train or should they get off at the next stop?

Ruci Fixter

Wednesday: 02 June

The global financial crisis has had many economic, financial, social and political consequences. And, surprisingly, it also made both A. Merkel of Germany and N. Sarkozy of France partially amnesiac.

On the one hand, it took A. Merkel almost an ‘eternity’ to agree onto Germany’s contribution to the Greek bailout plan. While it is true that A. Merkel was more preoccupied by crucial regional elections in North Rhine-Westphalia, she should have considered reassuring financial markets instead of frightening them. In the end, her party lost the election and now markets continue to stagger.The chancellor was too quick in forgetting the major political role played by the European Union during the reunification of Germany as well as the great economic contribution of the euro to the country’s recent prosperity.

On the other hand, N. Sarkozy, a former law student, would like to amend the French Constitution with the view of setting limits to public debt. Regulating public expenditure is of utmost importance but modifying the Constitution certainly is not the right means to that end. In essence, the purpose of a Constitution is to define the frame in which public policies should be implemented and not to specify the contents of public policies. N. Sarkozy is clearly making deficits a national issue although the stability pact is already meant for this.

These two testimonies of memory loss epitomize the impossibility for the European Union to achieve more than an economic and monetary union. With national interests keeping the upper hand over common interests, a genuine political union is sheer fantasy.

Arnaud Eard

Arnaud comes from Paris and gained a MA in International Political Economy at the University of Sheffield. He has been interning at Bluegrass Consulting since May 2010.

Thursday: 27 May

This is a summary of a post more fully explored at Public relations and managing reputation.

Media are not normally invited to participate in round tables, as it is generally one of the goals of the round table to produce content (initially captured in the form of a white paper) which is placed in a wide variety of media outlets. Thus, having one or two media outlets present at a round table can undermine this occurring.

Having said that, there are no rules that can’t be ‘bent’. It may well be that the one or two media outlets noted above are far and away the most influential on an organisation’s target audience. So if this is the case, then it can definitely be a viable approach to take.

Round table - media participation or not?

There is value, and there are limitations, in having a media outlet involved in the round table (RT).

Important elements to bear in mind when considering this question include:

• Do not involve media as a round table participant if it will stop you from gaining the desired coverage from priority media (or any media you want coverage in, for that matter)
• The participating media outlet will want an exclusive on the content - so they get to use it first
• That’s fine, but only if you are happy for it to be the only media outlet that covers the round table/white paper issues
• As I have written before, you can create a campaign for metro media that is based on one article or op-ed being placed and then you can leverage radio and/or TV coverage off that single placement
• The other option is getting a media outlet present that is part of a broader network, so the syndication of the story leads to multiple placements, but just within one media ‘house’ .

Public relations’ media coverage: giving an exclusive - yea or nay?

One approach to apply with securing media coverage is arranging an exclusive/placement with one metro publishing house and one exclusive with a vertical B2B publishing house. This may lead to more than one actual placement in both sectors:

• One is published virtually instantaneously and one takes longer
• Metro is often for a broader audience and B2B is generally for a more niche audience
• Metro media is often more particular than B2B in publishing content so it’s generally much easier to get placement in the latter
• After the content is used in metro media the issues not covered can be value-added to and used as a B2B media relations campaign.

And don’t forget, a bird in hand is worth two in the bush……..make sure you are smart when creating your media placement KPIs. Sure, get it so its business-relevant et al, but you also want to make sure you over-achieve, not, gasp, under-deliver!!

In other words, if getting that single placement is all important on different levels (strategically appropriate to target audiences, makes you look good in front of your organisation etc), then it may well be a prudent methodology to apply. Be smart about this on a variety of levels.

Have you used a round table to produce content that generated media results? What lessons did you learn? Where else apart from media did you use the content that was generated from the round table? Have you ever had media participate in a round table - can you share your experiences?

Craig Pearce

Twitter: @commaim