Archive for March, 2007

McKinsey Quarterly had an article on the halo effect by Phil Rosenzweig. He explores how the halo effect affects business and particularly business perceptions. “Imagine a company that is doing well with rising sales, high profits, and a sharply increasing stock price. The tendency is to infer that the company has a sound strategy, a visionary leader, motivated employees, an excellent customer service orientation, a vibrant culture, and so on. But when the same company suffers a decline–if sales fall and profits shrink–many people are quick to conclude that the company’s strategy went wrong, its people became complacent, it neglected its customers, its culture became stodgy, and more.” Rightfully so, nothing may have changed at all. The halo effect affects perceptions of all elements of a company’s reputation.

This concept applies to the world of reputation. All of a sudden, high flying companies such as Dell or JetBlue or Sony hit a bump in the road and they are instant pariahs. The halo effect that protected them becomes a veil of shame. Their CEOs are thought of as less worthy and their reputations are called shams. But as soon as their financial performance and operations get going again, these same companies are hailed as turnaround successes and the past is forgotten.

Worth reading the article. The author believes that lasting success is largely a delusion. In fact, Rosenzweig points out that there is a strong tendency for extreme performance in one time period to be followed by a less extreme performance in the next. In other words, success and financial performance are not predictable and enduring.

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McKinsey Quarterly, reputation, halo effect, elements of reputation, Philip Rosenzweig, CEO reputation, culture, stock price, visionary leader, culture, employees, business success, high fliers
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I certainly have to wonder about a recent survey by two finance professors about how the size of a CEO’s house correlates with financial performance. David Yermack of NYU and Crocker Liu of Arizona State actually examined 432 CEOs of large-sized companies in 2004 and found that 12% lived in homes having at least 10,000 square feet or 10 acres. They also found in 2005 that CEOs with the biggest homes lagged behind those with the smallest homes by approximately 7%. The authors are quoted as saying that “Sprawling homes might be a sign that CEOs are taking advantage of profits…”

To be honest, I can hardly believe that two finance professors spent time researching this idea. What on earth can anyone do with this information. Should I investigate the size of my CEO’s house to foretell how profits are being used? Is this a good use of valuable university research time?

The fascination with CEOs continues to astound me. The next thing I know we will be researching the size of CEOs’ feet and how that relates to oversized ambition. I can only shake my head.
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CEO mansions, size of mansions, reputation, financial performance, David Yermack, NYU, Crocker Liu, Arizona State
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Just read an interesting article in Wired titled “The See-Through CEO” by Clive Thompson. For some reason, the April issue is not online yet [I will check back with the link]. One of the reasons I knew about this article was that I spoke to Thompson about how companies manage reputation online. It was a fun conversation and I was pleased to see my quote included.

The article is all about how corporate communications have been turned inside out. In our Web 2.0 world, all inside communication is out and outside communication is in. We always advise our clients that there is no such thing as a company secret. We also tell them that everything internal = external and vice versa.

Thompson underscores how corporate communications from the top has changed for better and sometimes for worse:

1. How the CEO of Redfin, an online brokerage firm, used his blog to grow his business by being outrageously transparent about how real estate agents and brokers were pushing their customers around.
2. How CEO David Neelman of JetBlue used YouTube to capture his apology for Valentine’s Day flight cancellations.
3. How CEO Gary Kelly of Southwest suggested on the company blog that perhaps the airline should assign seats to passengers and how he was talked out of it by employees.

Thompson refers to a new breed of naked CEOs or CEOs 2.0. Unfortunately there are not as many blogging and transparent CEOs as we might wish. Jonathan Schwartz of Sun Microsystems is the poster boy for CEOs 2.0.

Thompson continues in the article to make the point that “authenticity comes from online exposure” and that “corporations that publicize their failings grow stronger.” It does seem that the ever-increasing CEO apology helps to stabilize failing reputations and buy critical time for companies when they most need it.

Thompson got me excited when he talked about Google not as a search engine but as a “reputation-management system.” That is downright profound. I always talk about how reputation management has changed radically because corporate misdeeds are now evergreen. When a CEO or other top officer misbehaves, the crime or misdemeanor lives on forever in Google. And often on page one and two of Google.

The article has many interesting concepts for companies to consider as the age of transparency takes over. Thompson even refers to a Reputation Economy. I have to agree wholeheartedly.

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Wired, CEOs 2.0, Clive Thompson, Redfin, Sun Microsystems, reputation, CEO reputation, JetBlue, You Tube, Southwest, manage reputation online, Jonathan Schwartz, authenticity, reputation-management system, Google
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April is upon us and Conde Nast’s new business magazine Portfolio is about to arrive. A friend sent me an article in AJR about the new glossy. Since I signed up as a charter subscriber, I was eager to hear what people were saying about the new magazine. The article is titled “A New Portfolio.” If you love business magazines like I do, definitely read what they are up to.

There is a wonderful statement in the article from often-quoted Samir Husni, the chairman of University of Mississippi’s journalism department. Husni is fascinated by Conde Nast’s launch in a crowded business publication space. He uses this analogy: “There are plenty of places these days where you can get a piece of chicken. What you can’t find everywhere is a five-course meal.” I am looking forward to the new magazine and can’t wait to see the cover which sounds luscious. A real looker!

(this is not the cover but one that was used to market the magazine!)

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Portfolio, Conde Nast, AJR, University of Mississippi, Samir Husni, business publications
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Esteemed columnist for The New York Times Thomas Friedman recently wrote an oped (March 16) about the relationship between NGO Environmental Defense and KKR/Texas Pacific Group. The latter are buying out power company TXU. In short, Friedman cautioned readers about an approaching shift in how business will get done in the future. He described how Environmental Defense hired a Wall Street investment firm (Perella Weinberg) to force a reduction in planned TXU coal plant carbon emissions in exchange for the NGO’s blessing on the deal. Friedman then goes on to say….

“The Internet age is an age of transparency, when more people than ever can see right into your business and judge you by your deeds, not words. TXU could not manage its reputation by just hiring a P.R. firm and issuing a statement — because, thanks to the Internet, too many little people could talk back or shape TXU’s image on a global basis through the Web, for free.

The reputations of companies are going to be less determined by the quality of their P.R. people and more by their actual actions — and that empowers more of an honest debate on the merits.”

As a public relations professional and reputation expert, I was suprised to learn from Friedman that public relations had such a stronghold on reputation creation. Friedman gives public relations firms way too much credit for making or breaking corporate reputations. The world may indeed be flat but its citizens are not that dumb. Yes, the Internet provides greater access to corporate information, misdeeds and bad behavior. But public relations professionals do not have the power and influence to mask who companies truly are and keep people from having honest debates. We wish we could be that omnipotent but alas we are not.

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Thomas Friedman, New York Times, PR, public relations, reputation, corporate reputation, TXU, KKR, Perella Weinberg, Environmental Defense, coal plant, Texas Pacific Group, reputation expert, carbon emissions
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Always like to share interesting research that speaks to the executive suite. I came across new research by CIT (a global commercial and consumer finance company) and Harris Interactive (market researcher) on networking for building relationship capital. For top management, nothing can replace F2F (Face to Face) interactions. I often think that F2F will become extinct or a scarce resource in the years to come as we move increasingly towards electronic business communications.

The survey asked US senior business executives (CEOs, Chairmen, EVPs, VPs, Directors) of $1B+ firms about the importance of networking. Three quarters said that networking with clients and prospects is more effective than traditional marketing. Despite this acknowledgment, only about half (55%) attend five or fewer events per year–that is less than one every two months. Only three percent attend 26 events or more per year. With executive travel schedules being what it is, this result is understandable but relationships are best built by seeing the whites of other people’s eyes.

The CIT/Harris survey also found that most executives prefer one-on-one social encounters or personal interactions.

Personal interaction (small dinners, meetings)–58%
Industry conferences/events–52%
Professional associations–43%
Social responsibility/charitable activities–28%
Internet-based networking platforms (Linked In or Second Life)–17%

The finding that 17% find Internet-based networking useful is fascinating. I would have imagined that figure to be lower among this elite group. However, online networking pales in comparison to offline executive networking in this study.

As a CEO watcher, this research confirms what I have noticed–conferences and smaller seminars/events are booming for the C-suite. I have no doubt that F2F will soon become an extreme sport for building business.

The Associated Press ran an article yesterday about Wal-Mart’s chief Washington lobbyist, Lee Culpepper. Culpepper is returning to Bentonville headquarters to become vice president of corporate affairs. Congrats to Mr. Culpepper.

What is interesting to me is that among his various responsibilities will be coordination for “corporate reputation advertising.” Although this is not a new genre of advertising, it is rewarding to see corporate advertising referred to what it actually does — building reputation among key constituencies in order to drive recruitment, sales, investment and esteem. Several years ago, my friend Carol Ballock and I worked on a presentation to better understand the concept of “employer branding” (AKA “employer reputation advertising”). We found that companies were turning to advertising to attract the best and the brightest. The convergence of the war for talent and the proliferation of Best Places to Work rankings made companies realize how important strong employer brands were to success.

As reputation continues to become a corporate and CEO priority, “corporate reputation advertising” will only increase. As Martha Stewart says, it is a good thing.

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Associated Press, Lee Culpepper, Wal-Mart, corporate reputation advertising, employer branding, building reputation, advertising, corporate and CEO priorities, war for talent, Best Places to Work
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This has been on my mind for a few weeks and I thought I would mention it. BusinessWeek launched its first ever Customer Service Champs survey in its March 5 issue. Surprisingly, the editors chose to take JetBlue off this new “best of” lists even though it ranked #4. The editors wrote: “But in the wake of such a massive operational meltdown, we decided to take a wait-and-see approach this year before naming it one of our Customer Service Champs.” This is a very unorthodox move. Despite JetBlue’s woes from cancelled flights over the Valentine’s Day weekend, JetBlue won its top service ranking fair and square.

The methodology used to identify the top 25 customer service champs was not purely editorial. BusinessWeek created a list based largely on brands in J.D. Power & Associates’ (MHP ) database. In addition, they polled 3,000 of its own readers, generating a pool of names most associated with treating customers well. They then asked J.D. Power to survey customers about the brands that were nominated by readers but not already in its database. Thus, the top customer service brands reflected consumers’ preferences.

When Fortune came out with its Most Admired Companies list recently, I did not see the editors taking it upon themselves to omit certain companies because they had badly stumbled. Lets be honest — many companies have been in some sort of hot water over the past 12 months! In fact, Apple made it to the top 10 America’s Most Admired Companies according to raters. I did not see Fortune editors choosing to take Apple off this coveted list because of its stock option backdating scandal.

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BusienssWeek, Customer Service Champs, JetBlue, J.D. Power, customer-friendly, Fortune, America’s Most Admired Companies, Apple, stock option backdating, “best of” lists, poll, reputation, CEO reputation
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There is an article in Fast Company on buzz. CEO Andy Sernovitz of the Word of Mouth Association (WOMMA) mentions the heightened impact of consumer opinion on reputation. He is quoted as saying that one-third of the population has reviewed something online. That figure translates into millions of people buzzing about particular products and services.

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Fast Company, WOMMA, reputation online, consumers, Andy Serowitz, word of mouth, Toyota, CGM, consumer generated media, corporate reputation
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A friend of mine asked me if I had seen the recent PRWeek Salary Survey (February 26, 2007). She was curious whether I had seen the chart that reported that the median salary of pr professionals charged with reputation management was higher than all other disciplines (community relations, financial pr, brand management, crisis management, marketing communications, public affairs, government relations, internal communications). In fact, the salary for reputation pros was considerably higher than its fellow pr practitioners. Wow.

This is news to me for several reasons. Most pr practitioners fall into practices of excellence such as corporate/financial, public affairs or brand marketing. If you look at the web sites of most public relations firms, they clearly spell out their practices and specialities. Most people identify with their practice and area of expertise. A brand management professional is not likely to identify with the public affairs professional. A financial services professional is not likely to identify with the internal communications professional. As a rule, I do not run into many exclusive reputation management practitioners like myself. That is why I was so surprised to see 122 professionals reporting on their salary as a member of reputation management. Apparently everyone believes that they are managing reputation when it gets down to it. In a way, they are right. I stand corrected if that is the case.

However, as a reputation strategist at Weber Shandwick, I spend nearly all my time on reputation matters and live and breathe the topic. I wonder how many pr practitioners can say that they are 100% dedicated to strengthening, researching, building, and repairing reputations.

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PRWeek, reputation management, Weber Shandwick, salary, pr professionals, pr practitioners, reputation matters
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