Five Ideas That Matter

For much of the past twenty years two commercial sectors have had a considerable influence on how we perceive risk and reward.They in turn have carried the burden of our sense of moral hazard.

Regulated companies, typically,  have to balance our perceptions of risk and reward. Pharmaceutical companies and banks have varying experiences of this.

I wonder does this become part of the strategic debate in these companies? The diligence and skill is an important management skill.

A. You wonder does it get enough attention?

B. You wonder, is it inevitable that some sectors will always fulfill this role, taking the brunt of our fears and basking in the light of our expectations?

Our view is it is inevitable – corporations deal in emotion. Fear and expectation are important emotions for us and they need a home.

Pharmas and banks are two types of company for whom the balance of risk and reward perception has recently changed significantly.

Yet would it surprise you to learn that most people seem not to perceive the recession in terms of banks. In a study of 22,000 blog comments around financial stories coupled to three weeks of the FT, Times, Guardian, WSJ and one or two more august papers we found the association between “bank” and “recession” was very much skewed towards the professional press.

We call this relationship “engagement power”. We mean by that the ability of any one communications’ channel to exert a significant pull over a subject.

For example the engagement power of blogs is very much personality related. Even serious bogs like to deal in people. Readers much more so. In blog readers comments people RULE!

That means readers typically perceive and discuss recession and recovery in terms of leaders whereas the mainstream financial press have engagement power over the institutions of the financial system.

Let’s extend the discussion….

Pharmaceutical companies were very much on the risk side of risk/reward, while financial services have happily inhabited the reward side for the past decade and a half.

How times change. The financial sector is now having to deal with a perception of risk whereas the pharmaceutical sector is beginning to manage perceptions away from risk towards – if not reward – then at the very least, security.

Swine flu is one trigger for an upside to pharma reputation.

Think back over the past two decades…. Vioxx, the elephant man drug trials, Selective Serotonin Re-uptake Inhibitors, high drug costs, particularly in Africa. Pharmaceutical products have had a tough time.

Simultaneously pharmaceutical companies have conveyed a more positive impression of their endeavours and mission – that the investments they are making in targeted therapies presage a new era in treatment and a potential cure for cancer and other diseases. We have bought the downside in order to see progress here.

That we seem no closer to a cure was in danger of denting pharma’s arguments. That could have led to a tipping point in the overall perception of pharmaceutical research.

Is it ironic that a better press has begun with swine flu and vaccines? This is after all a relatively benign illness and a relatively simple treatment. Yet vaccines, drug companies, are out there – ready (almost) to protect us.

Let’s now look at banks. They have spearheaded the extraordinary reward syndrome we are just dragging ourselves out of. Cheap mortgage, investment vehicles for the general public, cheap credit, infinite opportunity.

The complicating factor, as we found in our study, is that people’s desire to hold banks responsible is far less pronounced than their desire to see politicians resolve the crisis. Why would this be the case when the mainstream press has so much engagement power with banks?

It could be that people find it difficult to rebalance their rrisk/reward realtionship with banks, having enjoyed a good decade. Nontheless we are surprised by the finding.

We think the point is that risk and reward for customers is part of any corporate-customer relationship. That can be balanced, it can be imbalanced accidentally, or it can be ignored. But it is clear that there are perils in how it is handled. Perhaps most importantly though people are more than willing to see moral hazard shared between corporations and politicians.