“My No. 1 job is to be a communicator,” says new Sun Microsystems CEO Jonathan Schwartz and reported in last Sunday’s New York Times’ article on CEO blogging. “I don’t understand how a C.E.O. would not blog if committed to open communication.” This statement echoes Wall Street Journal Alan Murray’s article a few weeks ago about the premium on GE Jeff Immelt’s reputation vs. Home Depot Bob Nardelli’s reputation. A greater public presence and efforts at open dialogue are becoming the new competitive advantage.

CEOs are becoming more like politicians than ever before. Unfortunately presidents are becoming more like old time CEOs and giving stakeholders the silent treatment. Interesting “trading places” turn of events.

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I was reminded of the butterfly effect last week as I was preparing for a presentation on corporate reputation trends. The first definition in wikipedia says that “small variations of the initial condition of a dynamical system may produce large variations in the long-term behavior of the system.” This is a fairly technical explanation related to chaos theory.

Wikipedia’s second description was closer to what I was thinking about with respect to reputation matters today. “The phrase refers to the idea that a butterfly’s wings might create tiny changes in the atmosphere that ultimately cause a tornado to appear. The flapping wing represents a small change in the initial condition of the system, which causes a chain of events leading to large-scale phenomena.” That is more like it. When I first heard the term, it was something like this, ” Does the flap of a butterfly’s wings in Brazil set off a tornado in Texas?”

It is easy to see how the butterfly effect applies to reputation today. A reputation transgression that begins as a flap in Silicon Valley (stock options) sets off a tornado in Washington DC with the SEC and Justice Department? The arrest of LiveDoor’s CEO in Tokyo sets off a hail storm in the financial markets? A fraud in a U.S. foodservice division leads to a new CEO and the label of “Europe’s Enron” or “tsunami” for Global Fortune 500 company Royal Ahold?

Collateral reputation damage is more common today than it was 10 years ago. A product recall in the pharmaceutical industry impacts all of its peers worldwide. The rise in oil prices influences perceptions of all oil majors. The backdating of stock options in Silicon Valley rubs off on all technology firms. It is now a fact of life in reputation terrain.

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It seems that black eyes in the reputation space are fairly common. With the ubiquity of the Internet, it is hard to avoid them. Every company and industry has something it would rather not shine the spotlight on. The recent backdating of options has harmed Silicon Valley once again and smudged the reputation of business executives. Everytime it looks like business is mending its reputation, a scandal arises that takes us back to 2002. Have to wonder what is next.

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The BP succession announcement that occurred this week raises several questions. On one hand, a company is not about a single individual (CEO Lord John Browne). True. On the other hand, leadership reputation matters significantly. Also true. The fact that Lord Browne has to retire at the mandatory age of 60 is unfortunate for BP. Some lucky company gets to hire Browne in 2008. Reminds me of Royal Dutch Shell’s luck in capturing Nokia’s Jorma Ollila as their chairman. [Ironic that the letters of the word “oil” are in Ollila’s name.]

Retirement at the age of 60 is outdated. 60 is too young and should be changed to 65. However, the premise that new leadership brings new ideas to advance the business is not out of date. GE’s Jeff Immelt is a good example of ground-breaking change that came after a legendary and extraordinarily successful CEO, Jack Welch.

Makes perfect sense. Just need to add five years.

I lost last night’s entry about my weekend reading. I will try my best to recall what I wrote. Definitely annoying. Blogspot.com just shut down on me.

My weekend reading was an interesting mix of CEO and company reputation items:

• An amazing interview with Home Depot’s CEO Bob Nardelli by BusinessWeek columnist Maria Bartiromo. The questions were fairly hostile for your typical Q&A. Nardelli seemed ready for them and diplomatically answered. Not easy to do when you are being attacked on all sides. Nardelli has alot of explaining to do over the failed shareholder meeting. Definitely worth a read to see the punches thrown by Maria.
• Caught up on two CEO blogs. One blog is by CEO Charles Dunstone of Carphone Warehouse. Dunstone started out promoting his company’s new free broadband package for TalkTalk and to respond to the deluge of customers. He also managed to get a dig into his competitor BT who Dunstone says is complaining that the new service is not free (Dunstone advises BT to “do the maths, BT”). The other blog is by CEO Richard Charkin of publisher Macmillan. Charkin’s reason for blogging is that his IT department complained that his electronic newsletter was clogging up the system. Can’t say that Macmillan people tip toe around their CEO!
• Next I read Cadbury Schweppes CEO Todd Stitzer’s oped in the Financial Times (June 1) calling all business leaders stand up and defend the reputation of business. Stitzer reviews how business bashing has become a sport and will continue unless business people stop letting others speak for them. “We have allowed our argument to go unheard and we have, as a force in the world, sometimes preferred to be invisible. We can do so no longer. The invisible hand needs to become visible. If we do not speak up for business, who will?” I have to agree that the reputation of business only continues to deteriorate and needs shoring up by the business community.
• A colleague pointed out a full-page advertisement that ran in the top tier media by the CEO of Boston Scientific, Jim Tobin. Tobin put his job on the line when he said: “I have taken personal responsibility for overseeing our Cardiac Rhythm Management organization, and I have put a new management team in place.” It is good to see CEOs sign their names to commitments and not shy away from controversy.

Just some facts I thought I would share with you.

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The CEO of Cadbury Schweppes, Todd Stitzer, wrote an oped that appeared in the Financial Times on June 1, 2006. Essentially he was asking CEOs to stand up and defend the reputation of business. Not that business leaders have been blameless but that “by being too quiet in the past, business has allowed the argument to pass by default, with very damaging perceptions forming along the way. It is crucial that we communicate our positions and beliefs and why we are taking the actions that we are. Generally, the distrust has become so entrenched that rather than reach out, many companies have retreated and not communicated, fearing what people will say and what journalists will write.” My prediction is that we will see more CEOs standing up on behalf of their companies in the next few years. It would be hard to ignore the intense communications efforts of Wal-Mart’s CEO Lee Scott or Citibank’s Chuck Prince. The recent GM Fastlane.com blog response to the critical New York Times’ columnist Thomas Friedman’s piece is yet another example.

Stitzer also noted that his board has one of the few FTSE companies with a board committee focused on corporate social responsibility. Definitely worth noting.

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A recent McKinsey Quarterly reported on the impact of 10 trends over the next five years. As expected, the survey was conducted among global executives.

What caught my attention was the second least important trend expected to impact global business and more specifically, the profitability of executives’ own companies — “more intense social backlash against business.” [The least impactful trend expected over the next five years was public sector growth.]

The negative repercussions from Enron, WorldCom and other misbehaved companies and CEOs severely damaged the reputation of business. I take it as a good sign that the hostile response to business may been waning. Perhaps executives believe that today’s greater oversight by boards, the media, employees and NGOs have helped to clean up business practices. A good sign that business may redeem itself.

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I was reading a recent Harvard Business School Working Knowledge by James Heskett that reminded me of Jeffrey Pfeffer and Robert Sutton’s conclusions on CEO importance. Sutton wrote:

“First, in just about every study I’ve ever seen from the laboratory to the press, the amount of control a leader has over a company is exaggerated. Start reading Fortune or the Wall Street Journal, which many of you do. They will talk as if the CEO is steering the direction of the company, that every little move he or she makes has a huge effect on the business. In fact, if you started looking across numerous studies and tried to guess how much impact CEOs have, you’ll see they have maybe a 7% to 10% impact over performance. In young, small companies—and this conference more is about young, small companies—CEOs do have the biggest impact. You look at a Fortune 500 company, where you have superstar CEOs who are paid a fortune, they have the least impact.”

There are definitely people who would argue that 10% accounts for alot and those who would say CEO leadership accounts for even more. I think that CEOs matter a great deal in shaping a company’s destiny.

It’s particularly interesting how the CEO pendulum swings both ways. First, CEOs are celebritized and celebrated. Next they are scorned and ridiculed. Now CEOs are earning back some of their trust they lost five years ago. They still have a ways to go as issues surrounding CEO compensation remain in the headlines. As I see it, we are back in the middle of the pendulum swing and luckily no longer at the extremes.

One indicator that CEOs continue to matter is the hefty increase in coverage. If they mattered so little, why would media spend as much time covering their comings and goings? The coverage on Nissan/Renault’s CEO Carlos Ghosn and GM’s Rick Wagoner is over the top. Today’s New York Times features Bill Ford and his plan to revitalize the company. Fortune has Jack Welch on the cover and dismisses his lessons on how to run a business. Business Week gave Jack Welch and his wife Suzy Wetlaufer an ongoing column on leadership. New Radio Shack CEO Julian Day was big news last week as he was pulled in to turn around the ailing retailer.

CEO Capital yields sizeable dividends such as attracting the best talent, giving companies the benefit of the doubt when times are tough and motivating employees to do their best. The right CEOs make a measurable impact and I wager to say, more than 10%. Amen.

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The article in yesterday’s WSJ (7-12-06, A Tale of Two CEOs) about two distinctive CEO reputations — Bob Nardelli at Home Depot and Jeff Immelt at GE — was compelling. Not surprising, it was the fifth most frequently emailed article. The page two feature by Alan Murray succintly made the case for how reputations get made today. Two adages apply — “financial performance is necessary but not sufficient” and “perception is reality.” Despite both CEO’s inability to lift share price, Immelt is more highly regarded than Nardelli due to his accessibility, willingness to engage critics, his pay for performance and his drive to make GE a responsible citizen. Here is the quote that says it all to me about expectations for 21st century CEOs:

Success and failure are no longer a simple matter of shareholder returns. For better or worse, it is a much more public game, involving a wide range of constituencies and requiring the skills of a politician.

Being CEO today is much like being a politician. You have to win the vote every day.

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Researchers’ Doug Randall and Paul Shoemaker of Wharton found that executives spend 65 percent of their resources managing internal uncertainty and 35 percent managing external uncertainty such as industry shifts and marketplace change. Balancing internal and external patterns makes the CEO job nearly impossible because the search for equilibrium is never complete. While worrying about internal problems, the entire marketplace sneaks up on most of us and shifts to the left. The key is to never lose the plot as BP’s Lord John Browne says. Here’s his words of wisdom:

“My biggest mistake was to worry about things in too much detail and losing the picture once in a while. I always say to myself that the most important thing is never to lose the plot. No quarter passes with perfection. No year passes with perfection. The real question is: Are you sticking to the plot?”

Hope he is thinking of his own advice as his reputation faces increasing scrutiny over the troubled Texas City Refinery explosion, safety issues in Alaska and other assorted problems that have risen lately.

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