Network armies: the Internet Age has spawned a new breed of corporate foe. Here's how to deal with them, before and after they strike. (Management).

Last winter, like thousands of other computer buyers, Jack Weigand logged onto Dell Computer's Web site and placed an order for a laptop. When it hadn't arrived two weeks later, Weigand, an artisinal gunmaker, called Dell and learned that his order had been cancelled. The name of his company, Weigand's Combat Firearms, had triggered alarms in Dell's order system. Since September 11, Dell had been vigilant in enforcing U.S. export laws, which prohibit the sale of goods to terrorists, and its system had been programmed to scan orders for keywords such as "missile," "nuclear" and "combat." The problem was, no one called Weigand to check, as is Dell's policy in such cases.

Outraged, Weigand immediately fired off a half-dozen emails recounting the tale to friends and a few Internet bulletin boards popular with gun-owners. His story--posted not only on gun sites, but also those of libertarian and conservative religious groups--spread with lightning speed. Within hours, Weigand was flooded with responses from angry gun enthusiasts who vowed to boycott the computer maker. Just as quickly, the letters and phone calls began pouring into Dell. They numbered well into the thousands by week's end.

The company responded quickly. A sales executive contacted Weigand within 24 hours, and CEO Michael Dell followed up with an apologetic letter, explaining that there had been a mistake and offering a free laptop. Weigand turned it down, and Dell's letter, which was forwarded to pro-gun Web sites, only seemed to provide more fodder for critics.

Unwittingly, Dell had unleashed the virulent forces of the information revolution it had helped create. Experts say the company responded well to try to remedy the situation and limit the damage. But the incident remains a cautionary tale about what can happen when you get on the wrong side of an issue in the Information Age.

In his book World Without Secrets, Richard Hunter, an analyst with Gartner, a technology consulting firm in Stamford, Conn., calls these forces "network armies"--collections of individuals with differing agendas who come together over a common cause. "Smart mobs" is the term preferred by Howard Rheingold, author of a book by the same name. Whatever you choose to call them, these forces are products of the Internet Age, united not by geography but by common cause and technology that lets them communicate freely and instantly. There's no leader, no command and control structure, just a potent ability to mobilize.

Warfare on the Web

The latest guru to weigh in on the phenomenon is Don Tapscott, author of the forthcoming book The Naked Corporation. In his more expansive view, these organic groups, or "accountability networks," surround every company and can easily go undetected until an event--whether a mistaken order cancellation or a news report--kicks them into action.

Company after company is coming under assault. Nike became a target because of working conditions at Asian factories with which it contracted, Starbucks for its purchase of coffee from ecologically sensitive areas. Monsanto faced a consumer backlash in Europe against its genetically modified foods, and McDonakl's has had to contend with attacks on everything from the fat content of its Big Macs to the use of damaging chemicals in its refrigeration. Often, a company can draw Lire from unexpected quarters. PepsiCo has been faulted by some critics for not doing enough to combat the AIDS pandemic in Africa--an issue more commonly associated with big pharmaceutical companies.

Indeed, type any corporate name into Google, and you'll likely turn up a few Web sites that would make a CEO cringe. There are sites dedicated to monitoring and publicizing some companies' every move, or misstep. McSpotlight.com has dogged McDonald's for more than a decade. Toxicdude.com, a more recent site that references Dell's popular TV ads, asks college students to write Michael Dell about "e-waste." The site is backed by one of more than a dozen groups that have aligned to create the Computer Take Back Campaign. This national effort has successfully pressured Dell to create a program for recycling old computers, which contain toxins that can leak into the soil.

For the more entrepreneurial, boycottnet.org enables visitors to start their own campaigns. "Have a gripe? Been ripped?" it reads. "Let the world know through the Boycott Network!"

Who are these critics, and what do they want? For CEOs, that question could be one of the most important of our time. Unfortunately, the answer is not always clear. Companies have long faced critics--environmentalists, nongovernmental organizations (NGOs), religious groups, shareholder activists and labor unions. But now these stakeholders have become adept at using the Internet to organize more effective and far-reaching campaigns, often joining forces to create bewildering, multiheaded foes.

To be sure, the notion of the traditional stakeholder is blurring. These days, employees are likely to be shareholders, and shareholders are likely to be activists. Nearly 1,000 shareholder resolutions have been filed this year, up from 806 in 2000, on behalf of religious groups, public pension funds, labor unions and individual shareholders--often acting together. "Today's NGO problem is tomorrow's shareholder problem," says Mark Goyder, director of the Centre for Tomorrow's Company, a London-based business-led think tank.

Though their specific issues may vary, these corporate critics are generally after what they would describe as socially responsible behavior. "We believe that corporate behavior relating to environmental and social concerns has an important bottom line impact," says Patrick Doherty, the administrative manager for New York City's massive $70 billion pension fund. As examples, Doherty points to the disastrous Exxon Valdez oil spill and the public furor over Nike's alleged use of sweatshop labor. Both incidents badly damaged the companies' reputations and cost millions, if not billions, in shareholder value, says Doherty. The bottom line? "If it damages the company's reputation, it's something we're concerned about," he says.

In an era when corporate brands and reputations can be shattered in a matter of days, staying on top of issues and potential land mines is crucial. As Gartner's Hunter warns, "Whatever you do, you don't want to make yourself the nemesis of a network army."

CEOs who react well

The problem is, many top executives don't fully appreciate the delicate balance of power between corporations and stakeholders. "When they're just these little disparate groups, you can ignore them," says Debra Dunn, senior vice president of corporate affairs at Hewlett-Packard. "When they're networked, you can't. Beginning to comprehend this shift is one of the most important things a company can do."

Smart CEOs are learning how to respond or, better yet, to avoid having their companies become targets in the first place. Experts give high marks to the chief executives of HP, Shell, Intel, Staples, Home Depot and Starbucks for deftly managing their critics, even if belatedly. For example, when environmental groups initially approached Staples four years ago about getting more recycled content into the paper it sells, the company balked. But when shareholders such as The Calvert Group, a $9 billion fund, got involved, Staples developed a desire to understand the issue, says Julie Gurte, Calvert's head of social research. Last fall, Staples, under CEO Ron Sargent, rolled out a recycled-products line and asked suppliers to use sustainable sources of timber. "While we certainly didn't agree on everything, we shared points of view and knowledge that brought value to the discussion table," Sargent says of Staples' cooperation with its critics. He says the talks "produced a policy that supports the best interests of the environment, our customers and our shareholders."

Another standout when it comes to dealing with potential pressure groups is James Rogers, CEO of Cinergy. As head of one of the country's largest power producers--the Cincinnati-based company burns 30 million tons of coal a year and produces almost a full one percent of man-made emissions in the U.S.--Rogers is keenly aware of the impact his company has on the environment and the responsibility that confers upon him. Cinergy has been an industry leader in setting voluntary goals to reduce emissions, reporting on the company's progress and working with environmental, regulatory and consumer groups. "I value other points of view and respect where they are coming from," says Rogers, a former consumer advocate and regulator. That attitude has helped him win the respect of stakeholders: Cinergy came out on top of a recent corporate governance ranking by Institutional Shareholder Services.

One key in dealing with network armies is to not be defensive. With too many companies, the first sign of conflict triggers a knee-jerk reaction: The bulwarks go up and the public relations minions are sent out. This tactic usually backfires. Stakeholders today are sophisticated, and likely to see through attempts to placate them with philanthropic gestures and social reports that amount to little more than "green-washing."

"The worst thing you can do is try to spin something," says author Tapscott. "It aggravates the network and isolates you." Even if you do fool them, it's not a long-term strategy. Accountability networks, he says, are like the Blob from old horror-flick fame: They get stronger when attacked.

If there were a poster child for how not to manage stakeholders, it would probably be Exxon Mobil, according to many activists and experts. The company's handling of the Exxon Valdez oil spill and its rigid stance on climate change has only angered environmentalists and expanded its network of critics. This year, the oil giant has been hit by a whopping 23 shareholder resolutions, attacking policies ranging from its lack of a renewable energy strategy to the separation of Lee Raymond's chairman and CEO positions.

Know your enemies

As national coordinator for Campaign Exxon Mobil, Peter Altman doesn't expect the oil company to treat him like a VIP. But, he says, on the occasions he has met with Exxon executives, he's left feeling "lied to and misled." That's counterproductive. "When you know you're getting the runaround, who wants to talk to them?" says Altman, whose group has aligned with religious groups and pension funds in filing resolutions against Exxon.

So what should your company do? First, know your enemies. Identify the key activists and issues in their industries--which environmental groups are influential, for example, or which leaders within a community you should be consulting before building a new plant. Once that's clear, reach out and engage those groups in dialogue, preferably before a problem arises.

Hewlett-Packard has identified three main issues-the environment, privacy and the digital divide-that it will focus on to avoid potential problems. "We believe that global reach and global responsibility go hand in hand," says CEO Carly Fiorina. "We no longer view corporate citizenship efforts as separate from our long-term business success; they are fundamental to our success." Fiorina says that "human capital," not financial capital, is the greatest asset companies can bring to communities in need. Accordingly, she says, "We engage in partnerships with local community groups, governments, NGOs and other corporations and stakeholders to learn from each other and to leverage our resources to change lives and futures."

James Brumm, executive vice president and general counsel for Mitsubishi International, learned that lesson the hard way. When a Mitsubishi joint venture wanted to build a large salt plant in Mexico in the mid-1990s, it touched off a furor among environmentalists who said it would endanger the gray whales that happened to breed nearby. Brumm says the company had done a thorough study that concluded there was no danger to the whale's habitat. But, he adds, "by the rime we got involved, there were already stories on CNN about how the environmental assessment had been madequate." Now, he says, "we get opinion at early stages. You involve all of the stakeholders at an early stage and try to involve people in the process, so that you can have community support and input from the major interest groups."

Engaging in dialogue with stakeholder groups can help flag issues before they become problems. "If you pay attention to what NGOs are discussing, even though they are fringe issues today, it provides a clue as to what may become a prevailing point of view," says Cinergy CEO Rogers. Of course, a company can't meet with every group clamoring for its attention. "Separating noise from knowledge," he says, "is important."

CEOs would do well to think of these critiques as a free service that can improve their companies, says Fred Talbott, a professor of leadership communication at Vanderbilt's Owen School of Management. What's more, "if it's valid criticism, thank the critic"--a tactic, he says, that is sure to disarm an opponent.

To identify potential problems before they blowup, many companies have created the position of chief risk officer, charged with safeguarding corporate reputation and market value. Tapscott suggests that every company have a "business integrity officer" or a sustainability executive. And to be effective, that person must sit at the executive table.

Another method is to monitor the Internet for signs of discontent. "You have to have your antennae out," says Rheingold, the author of Smart Mobs. "Look at what the bloggers and the Web sites are saying." If you don't even know what that means, you're in trouble. Find a tech-savvy employee to keep tabs on the cyber-community's chatter. And it's not a bad idea to have a presence in chat groups that discuss your company, to politely correct misinformation.

Still, even the best-prepared companies can be broad-sided. If the network army has a valid point, apologize and get out of the line of fire, says Gartner's Hunter. "You don't want to get into a fight you can't win," he says. Backing up words with actions is key. "The only way you make a network army go away is by addressing the issue that brought it together," he warns.

Cooperation on the rise

There's evidence that CEOs and activists are adopting the pragmatic (some might say enlightened) view that their interests are more aligned than once thought. In fact, a compelling business case can be made for good corporate citizenship. In their recent book Walking The Talk: The Business Case/or Sustainable Development, three authors--Chad Holliday, chairman and CEO of DuPont; Phillip Watts, chairman of Royal Dutch Shell; and Stephan Schmidheiny, chairman of Anova Holding--argue that sustainable development is good for business, and that solving social and environmental problems is essential for growth.

Overall, shareholder activists say companies are becoming more cooperative. "Twenty years ago, companies were almost hostile," says Meg Voorhes, director of social issues for the Investor Responsibility Research Center. "Now companies are more willing to sit down and meet with shareholder proponents to discuss their concerns." And many groups, such as the Center for Environmental Leadership in Business, an offshoot of Conservation International, make a point of partnering with companies.

That can produce surprising results. When it received criticism about its plastic packaging in the l980s, McDonald's went to Conservation International for help in developing more eco-friendly containers. Now, the group helps McDonald's study the impact of its food sourcing around the world and develop sustainability guidelines for fisheries and cattle farmers. In addition to winning points with conservationists, that strategy helps assure the company future sources of fish and beef. Conservation International has also worked with Starbucks since 1998 to encourage coffee growers in Mexico and Colombia to produce shade-grown coffee, which spares the destruction of rainforests. Shadegrown coffee has been among Starbuck's best sellers.

The key to such partnerships is establishing trust. Indeed, in interviews with stakeholders and executives, the issue of trust arises again and again. "It requires a certain vulnerability," notes Rogers of Cinergy. That's not an attribute typically associated with CEOs, but it maybe worth cultivating.

Putting Principles into Practice

Issues that companies have taken specific steps to address:

Values ethics and codes of conduct           87%
Environmental impact of business operations  71%
Employment equality and diversity            76%
Human rights, including child labor          48%
Sustainability performance of supply chain   64%
Work/life balance                            55%
Environmental litigation                     49%
Greenhouse gas emissions                     40%
Environmental impact of products             51%

Source: Price Waterhouse Coopers 2002 Global CEO Survey

Note: Table made from bar graph

RELATED ARTICLE: Don't Get Caught Off Guard

* Be clear about your values and communicate them to stakeholders.

* Identify the social issues relevant to your company and the key groups involved in them.

* Be proactive. Have a strategy for engaging potential network armies.

* Don't try to spin, PR is not engagement.

* Make top management available for dialogue.

* Listen, don't lecture. Look for common cause.

* Be honest, even vulnerable, to build trust.

* Involve stakeholders early on in the planning of new initiatives.

* Monitor what's being said about your company on the Internet.

* Don't fight back. If attacked, defuse the situation by acknowledging it and apologizing if you're at fault.

* Back up your words with actions.