Archive for May, 2007

Read an interesting article from the Economist (5 May 2007) which I am only getting around to writing about now. Researchers decided to investigate whether business publication covers are good predictors of future performance. The researchers stated that there is anecdotal evidence that business editors are not the best at picking the companies to watch in terms of future performance. In all fairness to business magazines, it is hard to create new news when it takes time to pull a feature together and get it printed and distributed. The researchers looked at the cover headlines of BusinessWeek, Fortune and Forbes over 20 years (1983 to 2002) and measured whether the coverage was positive, negative or neutral. Researchers then looked at share price 24 months before the cover feature and 24 months following.

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The Economist, Fortune, Forbes, BusinessWeek, share price, future performance, reputation, headlines, cover features, predicitive, coverage
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The New York Times cover story yesterday reported on the widening pay gap between CEOs and top executives. I was particularly interested in some of the comments about CEOs. Some say that that CEOs can make a tremendous difference to stock price and others say that CEOs have too much authority. Some say that CEOs are paid like celebrities and sports stars and others say that CEOs are too greedy. I guess it is somewhere in-between.

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The New York Times, CEO pay, CEO premium, communications, glass houses, damaged reputation, CEO complexity, political campaigns, CEO reputation, board reputation, Home Depot, Wal-Mart, Lee Scott, Nardelli, narrative CEO
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Last week we revealed new research on Advocates. The research reflects the radical shift taking place in decision-making patterns and speed-to-action today. Our New Wave of Advocacy is a global survey in nine markets and was conducted with KRC Research.

Reputations are being profoundly impacted by Advocates and what we call Badvocates. The former take action to support companies, issues, causes, products and services. The latter comprises those who detract from companies and organizations. They are likely to spread negative word of mouth and recommend not purchasing products and services. Badvocates make up their minds pretty quickly so it’s important to find them and understand them and most of all, listen to them. Companies that worry about their reputations need to identify their advocates and badvocates and what triggers their actions.

To build enduring and lasting reputations, companies need to engage with their advocates early on in the process. Here are some of the key findings:

Decision-making has accelerated. Nearly two-thirds (63 percent) of respondents around the world report that they are deciding more quickly to support or reject issues, causes, companies, products and services than they did two to three years ago. Several factors are fueling this speed—people are more informed, have stronger voices, and have easier access to information and experts. People are feeling empowered.

The democratization of Advocacy. Nearly one out of two citizens globally (45 percent) is identified as an Advocate. Advocates take action to support or detract from issues, causes, companies and products, such as making purchase recommendations, sending a letter to a company or elected official, or organizing a protest or boycott. People care about sociopolitical issues to a greater extent today.

High-Intensity Advocates are critical to reach. The most vital Advocates are “High-Intensity Advocates,” who represent a small nine percent of all citizens worldwide. They more actively influence others’ decisions, make decisions faster and demonstrate their support or lack of support more zealously than “Low-Intensity Advocates” (36 percent). The key is to move your Low Intensity Advocates to High Intensity Advocates. What will it take to get your passive advocate to start a petition or start a blog on your behalf.

Badvocates waste no time. We (Weber Shandwick) also found that Advocates contain an important segment of “Badvocates.” Badvocates actively make their dissatisfaction known in a variety of ways and do so more quickly today than two or three years ago. They waste little time acting—76 percent report expressing displeasure within one week. That’s a mighty force to reckon with.

Advocacy is more common in Europe and Asia. Advocates are more likely to be found in Europe and Asia Pacific than in the United States. In Europe and Asia Pacific, Advocates are more likely to be influenced by environmental and social causes than in the United States. Think Monsanto and GMOs. These regional differences present opportunities as well as challenges for multinational marketers who want to build reputation and communicate their messages more broadly to audiences throughout the world.

Both traditional and new media play critical roles in forming Advocates’ opinions. Advocates’ opinions about issues, causes, companies, brands and products are more strongly influenced by the media than non-Advocates’ opinions. Following broadcast and print, online media ranks third in importance of opinion influence among all citizens, globally.

Advocacy plays an increasingly important role in reputation today. Companies need Advocates to invest in their companies, give them the benefit of the doubt, buy their products, spread positive word of mouth and tell people to go work at the best companies. It is how to win the battle for reputation.

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Advocates, Badvocates, reputation building, High Intensity Advocates, Low Intensity Advocates, speed-to-decision making, word of mouth, positive word of mouth, global citizens, Weber Shandwick
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I spoke this week at a Harvard Business School Publishing conference about how reputations would be affected if a pandemic were truly to arrive. The conference was held at the Harvard Medical College. Without a doubt, reputations would flip overnight. During 9-11, Hurricane Katrina and SARS, we quickly saw how company reputations got shaped and twisted. A pandemic would be unlike anything else we’ve encountered. Just imagine the following if a pandemic did emerge:

**The CDC estimates that the economic impact of a pandemic on the U.S. would range from $91.3 to $166.5 billion.

A recent BusinessWeek article (May 14, 2007) on Schering-Plough’s CEO Fred Hassan revitalization of the pharma company quoted his restoration formula: “Stabilize, repair, turn around, build the base, break out.” Hassan warned that it takes about seven years to turn around a company. He should know since he turned around Pharmacia, later sold to Pfizer. Seven years is a long time but to reach the “break out” phase of reputation recovery, he is right.

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The Ipsos Mori Reputation Centre issued an interesting report that summarizes some of their best thinking on reputation. One particular article caught my eye — Building Resiliency Through Advocacy.

The author Natalie Lacey found that it is harder for companies to recover or be “resilient” when there is negative media coverage. Ipsos’ research found that a negative message or event can seriously damage a reputation while a positive message or event sometimes only has a minor impact on a company’s reputation. In the rank order of events, negative coverage such as financial wrongdoing plays a greater negative effect on reputation than negative coverage of poor customer service or product quality. Positive coverage about customer service or quality often makes no difference on a company’s overall reputation. To sum up Lacey’s findings, “About one in five respondents are significantly affected by negative messages–their opinion can shift by more than twenty points. Comparatively, less than ten percent are similarly affected by positive messages.” Negative coverage is twice as bad as good coverage.

Lacey is saying that building a good reputation for innovation or customer excellence or sustainability helps build goodwill which does provide a protective shield or halo. It is important to have in the trust bank. However, when it comes to combating a full assault on reputation, some of this armor is still not enough. Lacey argues that how a company handles negative coverage or crisis is what matters in the end. Perhaps she is saying that leadership in crisis is the defining factor. That I agree with wholeheartedly.

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The Wall Street Journal’s columnist Alan Murray has a new book titled Revolt in the Boardroom: The New Rules of Power in Corporate America. An excerpt ran in Saturday’s paper.

Murray talks about a new breed of CEOs emerging after the ousters of CEOs such as Carly Fiorina, Harry Stonecipher, Bob Nardelli and Hank Greenberg. He argues that these new CEOs focus on getting the job done and executing to perfection. In one example, Murray mentions how CEO James McNerney of Boeing fields his own questions at earnings calls. I was abit suprised when Murray mentioned this as an example of these down-to-earth, devil in the details CEOs. I did not realize that this was that unusual. Wonder if it ranks up there with CEOs eating in the cafeteria? I should hope both are more common.

Interestingly, this new class of CEOs is described as downright boring. However, with the continuing rise in CEO turnover rate, it seems that not all these CEOs could be such dullards. There must be some risk-takers and daredevils among this new executive class to keep those CEO revolving doors swung open.

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On Friday nights as I recover from the week, I begin worrying about making entries in my blog. It feels like I am disappointing people if I do not have something new to say about the world of reputation that I live in. So here goes.

One of the more interesting articles I read this week was sent to me by a colleague Doug Parker. It is about the failing reputation of Duke University. The article in Bloomberg on May 2nd reported that Duke has seen a slippage in its freshman applicants. The decline of 1.1 percent is its first decline in eight years (a decline of 217 applicants from last year’s record of 19,387). Other Ivys had record applications which makes this dip even more dramatic. Princeton Review also dropped Duke from its list of top 10 dream schools. Big hit.

Several factors account for this decline in reputation among high school seniors (and probably their parents):

1. A new scandal where 34 MBA students were disciplined for cheating.
2. Last year’s sexual assault accusations against three lacrosse players (who were found innocent as they should have been).
3. A recent internal Duke study that found too much binge drinking and not enough time studying. The study found that 20 percent of Duke students studied at least 20 hours per week vs 29 hours per week at similar institutions. Plus 14% of students spend 11+ hours per week partying vs. 9% at comparable institutions.

No doubt that Duke’s reputation has been stained. Sounds like Duke is in need of a reputation doctor. Take two aspirin and get help for the next crop of applicants.

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The Hay Group does the analysis for Fortune’s Most Admired Companies. Every year they have a teleconference and review some of the key findings and methodology.

A few results worth noting:

The top 10 Non-US companies among the World’s Most Admired Companies are:

Toyota
BMW
Singapore Airlines
Nokia
Honda Motor
Nestle
Toyota Industries
Tesco
Samsung Electronics
BP

The top 10 Most Admired among European raters are:

GE
BMW
Toyota
Apple
Nokia
Microsoft
L’Oreal
Procter & Gamble
Nestle
BASF

The Hay Group also reported that the total shareholder return for the top 10 World’s Most Admired Companies over the past three years is nearly three times the returns for the S&P 500 (18.5% vs. 7.1%). As I like to say, good reputations pay and poor reputations cost.

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