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November 2, Beijing




Private © Confidential © Edelman
        & Edelman
Agenda

 Welcome, Decentralization                            CSR & Corporate Ethics
  Alan VanderMolen, Asia Pacific President, Edelman     Steven Cao, Founder, Pegasus Communications

 Overview of Survey:                              Digital Dialogue
  Three Pillars of Modern Public Affairs in China   Mark Hass, President, Edelman China
  Mark O’Brien, Vice President, PAA
                                                       Conclusion: Looking forward on
 Government Relations                                  complexity & decentralization
  Frank Lavin, Public Affairs Chairman, Edelman          Alan VanderMolen
  Yuan Haiying, President, Yuan & Associates
                                                       Cocktail Reception




   Private © Edelman
DECENTRALIZATION




Private © Edelman
Decentralization
 Economic growth
– Drives strengthening of Provincial and Municipal governments
– Ability/need for Central Government to delegate authority


 Web and mobile technologies
– Flood of sources and channels for consumers of news and
  information
– Domestic voices and foreign sources


 Legal compliance complemented by social compliance
– Changing legal and regulatory environment
– Great social expectations



  Private © Edelman
Pyramid Model of Authority
                             Organization




                             Mass Audience


   Private © Edelman
Traditional Influencing Model




                            Your Name
                               Here
A New Era Of Public Engagement

A new model has
emerged: Public
Engagement Cloud
                          Your
                          Name
                          Here




  Private © Edelman
ABOUT THE SURVEY




 Private © Edelman
About the Survey
 Aims and Objectives of the 2nd Dialogue
- Research and benchmark
- Debate and challenge
- Distil into white paper                           * Chatham House rules – open debate
                                                    * White paper: answers and
 Three Pillars of Public Affairs in China          questions…and more questions
- Government Relations: Tough and getting tougher
- CSR: Social license to operate
- Social Media: The digital citizen

 Methodology
- 104 respondents
- Online between October 1-28


  Private © Edelman
GOVERNMENT RELATIONS




 Private © Edelman
Government Relations: Tough and Getting Tougher
76% believe GR is more difficult in China                                   68% feel GR will be even more challenging in
than in the West                                                            the future
                                                                            80%
80%

70%                                                                         70%

60%                                                                         60%

50%                                                                         50%

40%                                                                         40%

30%                                                                         30%

20%                                                                         20%

10%                                                                         10%
 0%                                                                         0%
                More difficult                     Less difficult                        More challenging                  Less challenging
                                                                             Q15. The government relations landscape confronting Western MNCs
Q 14. Practicing government relations in China is: Net top & bottom 2 box    in China is becoming: Net top & Bottom 2 box


    Private © Edelman
Decentralizing Government Relations Practices

                                                                       Agree                   Disagree   Neutral
               Local government in China is
             rapidly rising in importance as it
                 takes on a greater role in                             78%                      2%        20%
               economic development and
              commercial investment issues
               The rise of second tier cities
            means government relations and
            public relations strategies must be                         70%                      8%        22%
              devolved from national to local
                            levels


Q16. State your levels of agreement/disagreement with the statement (Net top & bottom 2 box)



       Private © Edelman
Government Relations:
Tough and Getting Tougher
 More potential for          Provincial and municipal
change in China’s business   decision-makers
environment than any         increasingly involved in
other major economy          operating decisions
 Strong positive             Even at Central level,
commercial prospects for     diffusion of decision-
most MNCs, balanced          making authority requires
against more difficult       MNCs to help shape a
regulatory environment.      consensus across multiple
 Ongoing debate in China    institutions
between economic             – Bloomberg
rationalism and economic
nationalism

    Private © Edelman
Government Relations: Tough and Getting Tougher

 Sustained over-performance of China’s
economy contributes to nationalism,
protectionism and creates local champions
 Increasingly open architecture and
multiple decision-makers and regulators
heightens the complexity for MNCs
 Opportunities in China have never been
greater; risks have never been higher
– US exports to France vs China




     Private © Edelman
Implications for Government Relations

                      1. Are your PA-PR-CSR functions coordinated?
                      2. Do you just monitor/consult in GA or do you try
                         to influence government activity/policy?
                      3. How do you tackle challenges at the provincial
                         and local level?
                      4. How is your PA budget in China set?
                      5. How do you build-up PA operations, including
                         head office calling schedule?




 Private © Edelman
CSR & CORPORATE ETHICS




 Private © Edelman
Impact of Rapid GDP Growth
                        China’s GDP growth is set to place higher explicit and implicit
                        obligations as companies are expected to address societal needs


               Lower                           11%



                Same                                                                          35%



               Higher                                                                                             54%


                        0%               10%                20%                 30%                 40%     50%         60%

Q12. The development of GDP-focused growth in China means that companies will face (Net top & bottom box)



       Private © Edelman
A View on Social Responsibility

                                                                                               Agree   Disagree   Neutral
       Chinese government expects foreign MNCs to have a                                        72%       7%       21%
       higher standard of CSR than domestic operations & SOEs
       CSR in China is more central to our overall corporate                                    21%      47%       32%
       strategy than it is in the West
       CSR in China is more closely aligned with government                                     61%      18%       21%
       strategy than in the West
       The government in China is committed to ensuring that                                    48%      11%       41%
       companies treat workers better




Q13. State your levels of agreement/disagreement with the following statement (Net top & bottom box)



       Private © Edelman
CSR and Corporate Ethics: Social License to Operate
 Greater number of participants in the debate
about a corporation’s responsibility to society
 All corporations are exposed to pressures to be
“good”, with social media used when they fall             Implicit and explicit obligations for MNCs
short.                                                   – Audit to preserve and enhance license to operate in
- Trust Barometer: 75% in China more likely to trust a   China’s increasingly crowded and complex markets
corporation that partners with an NGO to battle global    The ‘citizen consumer’ is rising leading to
issues                                                   Governments responding to increased call for
 Citizens and competitors will fact-check and           action
expose corporate wrong-doing in a continuous
cycle of finger-pointing




      Private © Edelman
CSR and Corporate Ethics: The New Government Decree
                       Three Key Reflections of Central Leadership’s Attitude:
                        Harmonious Society
                        Scientific Development
                        Sustainable Development

                       Sustainable Development has become a high-priority state policy,
                       expected to guide the current transition in industrial restructure and
                       upgrade – while China is gaining its economic strength and quickly
                       converging with the world in all aspects.

                          To answer government’s new call, the
                        upcoming 2010 Summer Davos in Tianjing
                                  takes the theme of
                              Promoting Sustainable Growth



   Private © Edelman
CSR and Corporate Ethics: Social License to Operate
 Environment continues to be a key issue,              Labor laws: CSR and stakeholder
leading to the creation of relationships               engagement are being fused
between government, NGOs and                           - Employees are rapidly becoming one of the
corporations                                           most significant stakeholder groups
 Edelman’s 2010 goodpurpose study:
- 84% in China expect corporations to take action to
preserve and sustain the environment
- 82% in China agree government and business need
to work together more closely to ensure the
environment is protected
- 80% in China would support legislation that
requires government to fund partnerships between
public and private organizations to help protect the
environment


     Private © Edelman
Government Expectations
  Looking to Business Leaders to Participate in Public and Social Management as Pioneers and Thinkers


 Investment, advanced products & technologies
  and contribution to the GDP are still important.
  More important is your role in helping China
  solve social and environmental issues that
  impede its sustainable development.

 Chinese mainstream media are seeking out
  those who set good examples which promote
  China’s sustainability in social, economic and
  environmental arenas.




      Private © Edelman
Implications for CSR & Corporate Ethics

                      1. How do you comprehensively integrate CSR into
                         corporate strategy for business in China?
                      2. How do you align CSR strategy with government
                         concerns and policies?
                      3. How can you achieve the step change from CSR to
                         sustainability?
                      4. Government expects more of MNCs than local
                         companies, but strategy doesn’t match up. Why?
                      5. To what extent do Chinese country managers have the
                         ability to determine CSR priorities?



 Private © Edelman
SOCIAL MEDIA




 Private © Edelman
Digital is More Important, but Companies Are Engaging Less


                   Social media is important to public affairs                                          79%
                               strategy in China                                                    74%


             Opinions expressed in online and social media                                  54%
               are more influential than other channels                                           67%                2010
                                                                                                                     2009


           We fully utilize social media platforms as part of                 10%
                          public affairs strategy                               17%


                                                                         0%    20%    40%   60%     80%       100%


Q7. Top 3 Box Important; Q9. Top 2 Box Influential; Q8 Top Box Utilize



       Private © Edelman
The Role of Social Media

                                                                       Agree   Disagree   Neutral
    Social media is beyond my company’s control                        39%     38%        23%
    Social media is beyond the government’s control                    27%     40%        33%

    Social media is a form of digital democratization                  66%     25%        9%
    The Chinese government is responding to                            58%     35%        7%
    representations made via digital platforms
    Social media is presenting increased challenges to the             87%     6%         7%
    traditional mode of corporate communications and
    government relations



Q10. State agreement/disagreement with the statement (Net top 2 box)



       Private © Edelman
The Digital Citizen: A Populist Force

 Rapid user growth to continue: 380 million
 (2010); 840 million (2013)

 Urban, young, educated: Half the nation’s
 population is urban; 75% of its internet users
 live in cities

 Internet landscape is fragmented, but
 increasingly oriented toward social
 networks, mobile access                          Internet is a broad public forum in China, both
                                                  a source of public opinion information for
                                                  companies and the government, and a force
                                                  for shaping policy and news

 Private © Edelman
The Digital Citizen: Government vs. Community
The Government                                        The Social Media Community
 The internet, once a force to control, must          The community exerts pressure on
now be viewed as a release valve for social           government because of its sheer size
pressure and a portal into grassroots emotions        • Social media are part of the news cycle
 Substantial, but declining control of content       • Mainstream media quote social media and vice
           Wumao Dang: The 50 Cent Party              versa in an “internet amplification cycle”
              The Golden Shield: Blocked searches,    • Eruptions of nationalism online are disruptive
vanishing social media posts                          and troubling to Chinese policy
• Growth of online community makes long-term, real-    Growing importance of online
time control technically unfeasible                   influencers creates new, populist sources
                                                      of information
                                                      • 60% of Sina Weibo’s 20m users follow top 10
                                                      bloggers


     Private © Edelman
The Digital Citizen: Protesters, Vigilantes, Nationalists
 Large Scale Internet Protests against corruption, unfair actions and
“enemies” of China are a unique and powerful phenomenon of the
Chinese digital community
 2 large-scale protests targeted government in 2003; 12 in 2009
 Typically aimed at local government officials, rather than national
leaders or policies (with exceptions)
- July 2010: Internet community on behalf of Qiu Ziming vs. Zhejiang
province paper company and police
- July 2009: Internet community vs. Ministry of Industry and Information
Technology Green Dam software initiative
- July 2009: Online community vs. Hubei party and police officials over
Shishou incident
 Protests aimed at companies can be “scandals for hire”
 Protests often reflect strong nationalist themes
- Japan, Nobel Prize


      Private © Edelman
Implications of Digital for Public Affairs

                        1. Why have companies been unable to engage fully
                           in social media for PA programs?
                        2. How do companies monitor and analyze the
                           voice of the Digital Citizen?
                        3. How can companies prevent competitors from
                           exploiting Digital Citizens for negative attacks?
                        4. Can corporate GA and CSR programs be positively
                           aligned with the power of Digital Citizens?




 Private © Edelman
Where from here?




Private © Edelman

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Public Affairs Dialogues 2010

  • 1. November 2, Beijing Private © Confidential © Edelman & Edelman
  • 2. Agenda  Welcome, Decentralization  CSR & Corporate Ethics Alan VanderMolen, Asia Pacific President, Edelman Steven Cao, Founder, Pegasus Communications  Overview of Survey:  Digital Dialogue Three Pillars of Modern Public Affairs in China Mark Hass, President, Edelman China Mark O’Brien, Vice President, PAA  Conclusion: Looking forward on  Government Relations complexity & decentralization Frank Lavin, Public Affairs Chairman, Edelman Alan VanderMolen Yuan Haiying, President, Yuan & Associates  Cocktail Reception Private © Edelman
  • 4. Decentralization  Economic growth – Drives strengthening of Provincial and Municipal governments – Ability/need for Central Government to delegate authority  Web and mobile technologies – Flood of sources and channels for consumers of news and information – Domestic voices and foreign sources  Legal compliance complemented by social compliance – Changing legal and regulatory environment – Great social expectations Private © Edelman
  • 5. Pyramid Model of Authority Organization Mass Audience Private © Edelman
  • 7. A New Era Of Public Engagement A new model has emerged: Public Engagement Cloud Your Name Here Private © Edelman
  • 8. ABOUT THE SURVEY Private © Edelman
  • 9. About the Survey  Aims and Objectives of the 2nd Dialogue - Research and benchmark - Debate and challenge - Distil into white paper * Chatham House rules – open debate * White paper: answers and  Three Pillars of Public Affairs in China questions…and more questions - Government Relations: Tough and getting tougher - CSR: Social license to operate - Social Media: The digital citizen  Methodology - 104 respondents - Online between October 1-28 Private © Edelman
  • 11. Government Relations: Tough and Getting Tougher 76% believe GR is more difficult in China 68% feel GR will be even more challenging in than in the West the future 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% More difficult Less difficult More challenging Less challenging Q15. The government relations landscape confronting Western MNCs Q 14. Practicing government relations in China is: Net top & bottom 2 box in China is becoming: Net top & Bottom 2 box Private © Edelman
  • 12. Decentralizing Government Relations Practices Agree Disagree Neutral Local government in China is rapidly rising in importance as it takes on a greater role in 78% 2% 20% economic development and commercial investment issues The rise of second tier cities means government relations and public relations strategies must be 70% 8% 22% devolved from national to local levels Q16. State your levels of agreement/disagreement with the statement (Net top & bottom 2 box) Private © Edelman
  • 13. Government Relations: Tough and Getting Tougher  More potential for  Provincial and municipal change in China’s business decision-makers environment than any increasingly involved in other major economy operating decisions  Strong positive  Even at Central level, commercial prospects for diffusion of decision- most MNCs, balanced making authority requires against more difficult MNCs to help shape a regulatory environment. consensus across multiple  Ongoing debate in China institutions between economic – Bloomberg rationalism and economic nationalism Private © Edelman
  • 14. Government Relations: Tough and Getting Tougher  Sustained over-performance of China’s economy contributes to nationalism, protectionism and creates local champions  Increasingly open architecture and multiple decision-makers and regulators heightens the complexity for MNCs  Opportunities in China have never been greater; risks have never been higher – US exports to France vs China Private © Edelman
  • 15. Implications for Government Relations 1. Are your PA-PR-CSR functions coordinated? 2. Do you just monitor/consult in GA or do you try to influence government activity/policy? 3. How do you tackle challenges at the provincial and local level? 4. How is your PA budget in China set? 5. How do you build-up PA operations, including head office calling schedule? Private © Edelman
  • 16. CSR & CORPORATE ETHICS Private © Edelman
  • 17. Impact of Rapid GDP Growth China’s GDP growth is set to place higher explicit and implicit obligations as companies are expected to address societal needs Lower 11% Same 35% Higher 54% 0% 10% 20% 30% 40% 50% 60% Q12. The development of GDP-focused growth in China means that companies will face (Net top & bottom box) Private © Edelman
  • 18. A View on Social Responsibility Agree Disagree Neutral Chinese government expects foreign MNCs to have a 72% 7% 21% higher standard of CSR than domestic operations & SOEs CSR in China is more central to our overall corporate 21% 47% 32% strategy than it is in the West CSR in China is more closely aligned with government 61% 18% 21% strategy than in the West The government in China is committed to ensuring that 48% 11% 41% companies treat workers better Q13. State your levels of agreement/disagreement with the following statement (Net top & bottom box) Private © Edelman
  • 19. CSR and Corporate Ethics: Social License to Operate  Greater number of participants in the debate about a corporation’s responsibility to society  All corporations are exposed to pressures to be “good”, with social media used when they fall  Implicit and explicit obligations for MNCs short. – Audit to preserve and enhance license to operate in - Trust Barometer: 75% in China more likely to trust a China’s increasingly crowded and complex markets corporation that partners with an NGO to battle global  The ‘citizen consumer’ is rising leading to issues Governments responding to increased call for  Citizens and competitors will fact-check and action expose corporate wrong-doing in a continuous cycle of finger-pointing Private © Edelman
  • 20. CSR and Corporate Ethics: The New Government Decree Three Key Reflections of Central Leadership’s Attitude:  Harmonious Society  Scientific Development  Sustainable Development Sustainable Development has become a high-priority state policy, expected to guide the current transition in industrial restructure and upgrade – while China is gaining its economic strength and quickly converging with the world in all aspects. To answer government’s new call, the upcoming 2010 Summer Davos in Tianjing takes the theme of Promoting Sustainable Growth Private © Edelman
  • 21. CSR and Corporate Ethics: Social License to Operate  Environment continues to be a key issue,  Labor laws: CSR and stakeholder leading to the creation of relationships engagement are being fused between government, NGOs and - Employees are rapidly becoming one of the corporations most significant stakeholder groups  Edelman’s 2010 goodpurpose study: - 84% in China expect corporations to take action to preserve and sustain the environment - 82% in China agree government and business need to work together more closely to ensure the environment is protected - 80% in China would support legislation that requires government to fund partnerships between public and private organizations to help protect the environment Private © Edelman
  • 22. Government Expectations Looking to Business Leaders to Participate in Public and Social Management as Pioneers and Thinkers  Investment, advanced products & technologies and contribution to the GDP are still important. More important is your role in helping China solve social and environmental issues that impede its sustainable development.  Chinese mainstream media are seeking out those who set good examples which promote China’s sustainability in social, economic and environmental arenas. Private © Edelman
  • 23. Implications for CSR & Corporate Ethics 1. How do you comprehensively integrate CSR into corporate strategy for business in China? 2. How do you align CSR strategy with government concerns and policies? 3. How can you achieve the step change from CSR to sustainability? 4. Government expects more of MNCs than local companies, but strategy doesn’t match up. Why? 5. To what extent do Chinese country managers have the ability to determine CSR priorities? Private © Edelman
  • 24. SOCIAL MEDIA Private © Edelman
  • 25. Digital is More Important, but Companies Are Engaging Less Social media is important to public affairs 79% strategy in China 74% Opinions expressed in online and social media 54% are more influential than other channels 67% 2010 2009 We fully utilize social media platforms as part of 10% public affairs strategy 17% 0% 20% 40% 60% 80% 100% Q7. Top 3 Box Important; Q9. Top 2 Box Influential; Q8 Top Box Utilize Private © Edelman
  • 26. The Role of Social Media Agree Disagree Neutral Social media is beyond my company’s control 39% 38% 23% Social media is beyond the government’s control 27% 40% 33% Social media is a form of digital democratization 66% 25% 9% The Chinese government is responding to 58% 35% 7% representations made via digital platforms Social media is presenting increased challenges to the 87% 6% 7% traditional mode of corporate communications and government relations Q10. State agreement/disagreement with the statement (Net top 2 box) Private © Edelman
  • 27. The Digital Citizen: A Populist Force Rapid user growth to continue: 380 million (2010); 840 million (2013) Urban, young, educated: Half the nation’s population is urban; 75% of its internet users live in cities Internet landscape is fragmented, but increasingly oriented toward social networks, mobile access Internet is a broad public forum in China, both a source of public opinion information for companies and the government, and a force for shaping policy and news Private © Edelman
  • 28. The Digital Citizen: Government vs. Community The Government The Social Media Community  The internet, once a force to control, must  The community exerts pressure on now be viewed as a release valve for social government because of its sheer size pressure and a portal into grassroots emotions • Social media are part of the news cycle  Substantial, but declining control of content • Mainstream media quote social media and vice Wumao Dang: The 50 Cent Party versa in an “internet amplification cycle” The Golden Shield: Blocked searches, • Eruptions of nationalism online are disruptive vanishing social media posts and troubling to Chinese policy • Growth of online community makes long-term, real-  Growing importance of online time control technically unfeasible influencers creates new, populist sources of information • 60% of Sina Weibo’s 20m users follow top 10 bloggers Private © Edelman
  • 29. The Digital Citizen: Protesters, Vigilantes, Nationalists  Large Scale Internet Protests against corruption, unfair actions and “enemies” of China are a unique and powerful phenomenon of the Chinese digital community  2 large-scale protests targeted government in 2003; 12 in 2009  Typically aimed at local government officials, rather than national leaders or policies (with exceptions) - July 2010: Internet community on behalf of Qiu Ziming vs. Zhejiang province paper company and police - July 2009: Internet community vs. Ministry of Industry and Information Technology Green Dam software initiative - July 2009: Online community vs. Hubei party and police officials over Shishou incident  Protests aimed at companies can be “scandals for hire”  Protests often reflect strong nationalist themes - Japan, Nobel Prize Private © Edelman
  • 30. Implications of Digital for Public Affairs 1. Why have companies been unable to engage fully in social media for PA programs? 2. How do companies monitor and analyze the voice of the Digital Citizen? 3. How can companies prevent competitors from exploiting Digital Citizens for negative attacks? 4. Can corporate GA and CSR programs be positively aligned with the power of Digital Citizens? Private © Edelman