Archive for February, 2007
We also identified the key triggers of reputation failure that if caught early could reduce the chances and extent of CEO blame. This should interest those CEOs who wish for some protection against the elements. Interestingly, many of the reasons causing companies to suffer reputation loss are self-inflicted.
A majority of executives surveyed cite major triggers of reputation failure as financial irregularity (72 percent), unethical behavior (68 percent) and executive misconduct (64 percent). Other frequently mentioned strikes against reputation revealed by the survey are security breaches (62 percent), environmental violations (60 percent), and health and safety product recalls (60 percent). Financial irregularities, unethical behavior and executive misconduct are all issues that could be prevented if companies had better controls in place.
As more reputations deteriorate worldwide, companies need better reputation radar systems to identify and track approaching reputation threats – 33 percent of the Global Fortune 500 experienced reputation deterioration in their ‘most admired’ status in 2005. These are unusual times.
Safeguarding Reputation, reputation damage, reputation failure, triggers of reputation damage, financial irregularity, executive misconduct, unethical behavior, Global Fortune 500, CEO reputation, blame
What a week for amazing CEO/Chairman statements — we had David Neeleman’s Jet Blue apology and now Starbucks’ chairman Howard Schultz’s memo to the troops about the commodization of the brand. The language of leadership is apparent in Schultz’s memo. He writes with great clarity and resonance. He also makes the case that everyone must come together to provide a future for all the employees and their families depending on the company’s success. The memo can be understood easily with little jargon and business lingo. Worth a read. A few snippets:
- Many of these decisions were probably right at the time, and on their own merit would not have created the dilution of the experience; but in this case, the sum is much greater and, unfortunately, much more damaging than the individual pieces.
- At the same time, we overlooked the fact that we would remove much of the romance and theatre that was in play with the use of the La Marzocca machines. This specific decision became even more damaging when the height of the machines, which are now in thousands of stores, blocked the visual sight line the customer previously had to watch the drink being made, and for the intimate experience with the barista.
- Again, the right decision at the right time, and once again I believe we overlooked the cause and the affect of flavor lock in our stores. We achieved fresh roasted bagged coffee, but at what cost?
- The merchandise, more art than science, is far removed from being the merchant that I believe we can be and certainly at a minimum should support the foundation of our coffee heritage. Some stores don’t have coffee grinders, French presses from Bodum, or even coffee filters.
- We have built the most trusted brand in coffee in the world, and we have an enormous responsibility to both the people who have come before us and the 150,000 partners and their families who are relying on our stewardship.
The part I like alot was Schultz’ s ending — Onward….
I think that leaders should have a consistent close that serves as a rallying cry for the organization. Onward…is a particularly good one.
My boss sent me a copy of a piece in O’Dwyer’s which is a trade newsletter for the pr trade. I read it avidly because it was about the granddaddy of all reputation scorecards, Fortune’s Most Admired Companies survey. [By the way, we should be hearing about those most admired companies the week of March 5th.] The title of the research that O’Dwyer cites is “Stocks of Admired Companies and Despised Ones” by University of Michigan professor Deniz Anginer, Kenneth Fisher of Fisher Investments and Meir Statman of Santa Clara University. I was somewhat alarmed on page one of the research when I saw the publication date was February 2008. We are not there yet, are we?
The professors and advisors had the following conclusion — stocks of admired companies had lower returns, on average, than stocks of despised companies during the 23 years from April 1983 through March 2006. They surmise that the differences in the returns of stocks of admired and despised companies are due to affect, “the quick feeling that distinguishes good from bad, admired from despised.” The authors write, “The affect of admired companies is positive, and investors who were attracted by affect to stocks of admired companies during April 1983 – March 2006 paid for it with lower returns.” They also mention several caveats — they found that the relative returns of stocks of admired and despised companies varied considerably from year to year and from decade to decade. Stocks of admired companies were the winners in some periods and losers in other periods.
All in all, am having a hard time buying this. The research I have done by looking at the top 10 most admired and the bottom 10 least admired shows clear advantages to being admired. For those on the bottom, the costs to companies of having poor reputations are enormous. It is hard to imagine that feeling good about owning stock in a poorly performing but admired company stock is worth the loss. Since I am not a mathematician, it is hard to argue with their columns of numbers but common sense tells me that companies with bad reputations are not worth owning.
We are working on another executive summary from our Safeguarding Reputation series. This time around we will be revealing results on triggers of reputation failure and the risks that companies should be prepared for. As part of our research, we conducted a simple search among the global media on how often the term “reputation risk” appeared. What fascinates me is that “reputation risk” appeared only two times in 1990. This figure is miniscule compared to the 270 mentions of “reputation risk” in the global media in 2006. It is hard to believe that reputation risk was not part of the lexicon 16 years ago. Is it possible that few companies underwent reputation failure and worried about gathering insights on how to prevent it? An interesting question to ponder. What were companies thinking about back then?
I received a terrific paper titled “Building and Protecting Corporate Reputation,” that was written by Peter Firestein, president of reputation risk consultancy Global Strategic Communications. The article appeared in Strategy & Leadership in 2006.
Peter writes about the changing business landscape that is impacting reputation management. He comments on how consumers are judging companies for their values today and that a new “public self-consciousness” has arisen. One of the common threads of failure that Peter points out is the inability for companies to truly listen. “Constant feedback from outside is the best protection…” He is so right. In our research on Safeguarding Reputation, we underscore the importance of listening to the early warning signs that are usually present (sometimes in abundance) before crisis strikes.
One of the many helpful insights that Peter discusses has to do with three questions. He mentions that when designing best practices for building good reputation, companies might want to turn to the US Justice Department’s guidelines for attorneys trying corporate cases. The questions that they ask to help them decide on prosecuting and sentencing companies are:
“1. Is the company a repeat offender? Does it have a history of continued misconduct?
2. Has it been transparent and forthcoming with information, particularly in the voluntary reporting of any failure to comply with regulation or law?
3. Has the company instituted controls designed in good faith to prevent the offense from recurring?”
To quote the author, “When translated for internal corporate use, these principles offer some of the clearest and most widely applicable ‘best practices’ leaders can adopt to manage risk.”
A excellent source for those of us thinking about reputation risk. This article and the one by Robert Eccles and others (Reputation and Its Risks) in this month’s Harvard Business Review add greater depth to the science of reputation management.
The New York Times had an article on Michael Dell’s comeback as CEO at Dell. The former Dell CEO Kevin Rollins resigned after poor financial performance and style. I was surprised to learn that Rollins was aloof and difficult to work with. I recall several articles about Rollins and what a great CEO he was. The old perception-reality gap seems to have been at work at Dell. Although exorbitant compensation was not an issue at Dell like at Home Depot, CEO personality certainly seems to play a greater role in CEO ousters than many consultants and onlookers care to admit.
The article, “Second Acts,” had this interesting data on founders that I did not want to overlook in my blog. “If statistical averages are any guide, Dell’s performance may well improve. Rudi Fahlenbrach, an assistant professor of finance at Ohio State University’s business school, found that a company’s stock performs 9 percent better than the market after the return of a founder, which has happened with 28 companies since 1993. (Mr. Fahlenbrach counted 462 management changes in that period among 1,500 publicly traded companies.)”
Founder reputation is a whole subset in the CEO reputation space — consider Apple’s Steve Jobs and Microsoft’s Bill Gates. When I speak, I often get asked about people like Gates, Jobs and other well-known CEOs. It seems that I always have to point out that founder CEOs are in a class by themselves and cannot be compared to CEOs-for-hire.
I have to admit that I agree with what was said in the article that Michael Dell will be leading a stronger company two years from now.
Hope everyone tuned into today’s Wall Street Journal’s annual survey with Harris Interactive on the best and worst reputations. Ron Alsop wrote the article, as he does every year. I totally agree with his reasoning as to why Microsoft came out on top with the gold trophy. Bill and Melinda Gates’ charitable contributions have positively rubbed off on Microsoft’s overall reputation. As Alsop quoted one respondent, “The involvement of Bill Gates and his wife in their charitable foundation has had a definite impact on Microsoft’s reputation.” When I was at Burson-Marsteller, our survey on the most admired CEO among global business executives in 2006 found Bill Gates as number one among all CEOs worldwide. My hypothesis at the time was similar to Alsop’s — the Gates’ corporate citizenship is a win-win for the company he founded.
Alsop’s feature was powerful and compelling because he told it through the words of consumers. He quoted respondents in the article to enhance his explanation of the rankings. There were none of the usual expert suspects adding their two cents. Alsop was also fair by giving space to company spokespeople about why their companies performed as they did. All in all, an equitable profile on corporate reputations today.
Of course, I was 100% in agreement with Alsop and consumers that the reputation of the CEO (Bill Gates) can have an immense effect on the reputation of the company (Microsoft). In fact, I have staked my career on the inextricable link between the two. Nice to see it validated. Thank you voters!
Wall Street Journal, reputation, Bill Gates, Microsoft, Bill and Melinda Gates, corporate citizenship, charitable contributions, Ron Alsop, consumers, CEO reputation, experts, Burson-Marsteller