Archive for September, 2007

Veteran CBS newscaster Dan Rather's suit against his former employer proves the point that reputations are worth reclaiming and repairing.

Rather's esteemed reputation was severely tarnished after he apologized for a controversial 2004 report on President Bush's National Guard service.  In due time, CBS essentially forced Rather out as anchor of CBS evening news. It seemed as if Rather slipped away with his tail between his legs. But two plus years later, Rather is suing CBS for breach of contract and the broadcast company's attempts to "pacify the White House."  Rather accuses CBS of committing fraud with a biased investigation that "seriously damaged his reputation." His lawsuit is aimed at CBS president Leslie Moonves and Viacom chairman Sumner Redstone. I was surprised to learn how many people think it is "sad" that Rather is suing CBS and bringing back the entire event. Someone is quoted in The Washington Post as saying that Rather must be going off the deep end to behave this way. Others say they can not believe he has not been humiliated enough. On and on. His lawsuit makes perfect sense to me.  Your reputation is all you have at the end of the day. He has every right to mend his reputation and restore his good name. He says he has new evidence that supports his claim. We might find out that his reputation is worth more than the $70 million named in the lawsuit. Actually reputation is priceless.

I was reading various blogs about CEO blogging in order to decide how best to answer the question of whether CEOs should blog. There are many different schools of thought about the topic. On one hand, some say that CEOs should be attending to customers and employees while others say that its the best way to communicate broadly and hear from your customers and employees.  Both points are valid. I turned to Debbie Weill's blog on corporate and CEO blogging and was directed to an insightful interview with Sun Microsystems CEO blogger Jonathan Schwartz with ZDNet Asia. Schwartz is one of the more famous and popular CEO bloggers.  Schwartz says: "The number one role of a leader is to communicate. And the number one role of a CEO is to be the chief communicator, to make sure that the people inside the organization know what is important, as well as our partner community and our customers and our shareholders. ...I think press releases are Byzantine and antiquated. And I think what matters more is what Rich Green thinks about a change we made to our software strategy, so let us go look at what Rich says on his blog. That, to me, is a much higher fidelity communication instrument than simply a press release that you, as a journalist or a customer, will just throw away and say that's just marketing."  I like Schwartz's call of blogging as high fidelity communications. No doubt about the impact on his blog on the reputation of Sun Microsystems. Schwartz is a great spokesperson for a high tech company and its industry. However, there are many industries in which CEO blogging might not make sense.

I had fun reading Robert Reich's opinion piece (CEOs Deserve Their Pay) today in the Wall Street Journal ($) (September 14). Reich, former U.S. Secretary of Labor under President Clinton, believes that CEOs deserve those big bucks. I agree.  I loved how he described the differences in being a CEO several decades ago with now. Here is an excerpt:

"The CEO of a big corporation 40 years ago was mostly a bureaucrat in charge of a large, high-volume production system whose rules were standardized and whose competitors were docile. It was the era of stable oligopolies, big unions, predictable markets and lackluster share performance. The CEO of a modern company is in a different situation. Oligopolies are mostly gone and entry barriers are low. Rivals are impinging all the time -- threatening to lure away consumers all too willing to be lured away, and threatening to hijack investors eager to jump ship at the slightest hint of an upturn in a rival's share price. Worse yet, any given company's rivals can plug into similar global supply and distribution chains. They have access to low-cost suppliers from all over the world and can outsource jobs abroad as readily as their competitors. They can streamline their operations with equally efficient software culled from many of the same vendors. They can get capital for new investment on much the same terms. And they can gain access to distribution."

Sounds like an unwinnable job. Reich agrees. "So how does the modern corporation attract and keep consumers and investors (who also have better and better comparative information)? How does it distinguish itself? More and more, that depends on its CEO -- who has to be sufficiently clever, ruthless and driven to find and pull the levers that will deliver competitive advantage."

There are not so many CEOs to pick from these days that can pull all the levers. For that reason, their salaries remain high when they can find them. And boards are not going to say no when one of these tested CEOs are available.

 

Just read about a new reputation service that travels with you. We all know about the scores that we get on ebay saying whether we are reputable or not. And if we go to Craigslist or LinkedIn, we might want to make sure that this reputable score is easily on view there as well.  A new service, TrustPlus, provides you with a reputation score that signals how trustworthy you are, wherever you are. Makes sense as long as you have a reputation that is better than most.

We just released some new research on company reputation. This is a subject that I have always been very interested in. Considering the daily headlines about quality problems with products made in China, this research is very timely.  This is what we learned about managing country reputation -- it is alot harder than you may think.  Leading a large multinational company might be a complex and challenging task, but global business leaders believe that heads of state have a much tougher job than they do when it comes to managing reputation.  When asked which is harder to manage — a country’s or a company’s reputation — executives chose country reputation more than twice as often (68 vs. 29 percent respectively).  Our survey, Safeguarding Reputation™, was conducted in 11 worldwide markets in partnership with KRC Research.

Which is harder to manage well?	Total Global	North America	Europe	Asia
Country reputation	68%	69%	66%	68%
Company reputation	29	28	31	28
Don’t know	3	3	3	4

In a challenging sociopolitical global environment, business leaders clearly recognize that managing a country’s reputation or brand is complex and subject to many external forces. Recent problems with manufacturing in China, news about terrorist breeding grounds in Pakistan and U.S. government efforts to improve its reputation internationally show how difficult it is to effectively manage country brands today.  By comparison, managing a corporate reputation looks tame to senior business people.

Not All Types of Reputations Are Managed Equally Global business executives agree that when it comes to managing perception, some industry and publicly held company reputations are more difficult to oversee than others, while managing an individual’s reputation is considered easier than both according to business executives.

• An industry’s reputation is perceived to be harder to manage than a company’s reputation — approximately one-and-one-half times more difficult (57 vs. 39 percent, respectively).  Interestingly, executives in Italy differ from most of their regional peers and consider a company’s reputation harder to manage than an industry’s reputation (54 vs. 30 percent, respectively).

• Publicly held company reputation is considered much more difficult to manage well than privately held company reputation — nearly three times more difficult according to global business executives (71 vs. 24 percent, respectively).  North American executives, compared to those in Europe and Asia, were the most likely to agree with this finding (82 percent vs. 63 percent vs. 76 percent, respectively).

• Company reputation is nearly four times more difficult to manage than individual reputation (77 vs. 21 percent, respectively).  

Back to the difficulties in managing country reputation. A recent article in The New York Times, "China Steps Up Efforts to Cleanse Reputation," described China's efforts to improve its tarnished reputation after much publicized recalls of Chinese-made products such as toothpaste, tires, toys and pet food. The article said that Chinese officials have engaged in the following activities in their all-out public relations offensive: held news conferences on food and product safety, were apologetic in conversations with Western officials, offered tours to international media of government safety labs, initiated a new recall system and nationwide inspection of various industry operations, and added labels to food packaging indicating that the contents were safe. As quoted in the article, a high-ranking Chinese official said: "This is a special war to protect the safety and interests of the general public, as well as a war to safeguard the 'Made in China' label and the country's image."

Chinese officials have not just turned the other cheek. They have argued with critics about the safety of their products and have publicized that other countries too have had trouble with exports. Clearly, the Made in China reputation is being taken seriously and the country's global communications campaign is in high gear.  China is intends to recover its reputation as the Summer Olympics in Beijing approaches next year. The country even launched a special broadcast on its largest state-run network called "Believe in Made in China."

Without a doubt, country reputation is hard to manage well. And as hard as it is to admit, much harder than managing company reputation. For those of us living in the U.S., we understand very well how it feels to lose reputational standing around the world. Someone has to take charge.

The Wall Street Journal had an illuminating article yesterday about how the private lives of CEOs impact share price and performance. Let me list the reported results first and then tell you what I think.

• CEOs with large homes run companies that perform more poorly after the purchase. NYU professor David Yermack measured the square footage of CEO homes to arrive at this finding. The rationale for stock erosion subsequent to buying the home is that it brings additional responsibilities such as gardening, more time spent enjoying the mansion and I guess admiring the view.
• CEOs who lose a child, spouse or significant other (the exception being a mother-in-law) are more likely to be distracted and see stock performance suffer. This survey was conducted by Professors at Copenhagen Business School, NYU and the University of Texas.
• CEOs who are narcissists take greater risks resulting in greater fluctuations in company profitability. Narcissism was calculated by assessing CEO photo size in annual reports and frequency of first person singular in media interviews. The study was conducted by Professors Arijit Chatterjee and Donald Hambrick.

Clearly, life events affect CEOs and this impacts company performance. And yes, this information matters deeply to investors.  And yes, this information all points to the importance of CEOs which is continually debated (not sure why?). After studying and researching CEOs for many years now, I was distressed to see how much time and energy went into examining these personal details of a CEO's life. Here is what I learned about how Professors Yermack and Crocker Liu of Arizona State University went about their research on big CEOs' big homes: "Prof. Yermack and Crocker Liu of Arizona State University set out to find real-estate records on the CEOs who were running all of the S&P 500 companies at the end of 2004. They scoured electronic records of taxes and deed transfers. When they couldn't find a home address, they turned to databases on voter registration rolls and campaign contributions. Eventually they found the addresses of 488 of the 500 executives." They also made good use of aerial photographs now on the Internet to determine if CEOs had swimming pools, tennis courts, boathouses and other luxuries (surely hot tubs!). Shouldnt university professors be examining how to build successful companies? The research reported above takes many many hours to conduct. The research I have conducted at Weber Shandwick found that CEOs are indeed important to company reputations. When I checked last night, nearly 3,000 readers who responded to the WSJ's poll on whether CEOs matter seem to agree: 54% said CEOs are very important, 33% said moderately important and only 14% said they were not important. This finding is close to what my research has shown over the years. If you want to learn more about why CEO reputation matters, please read my book (CEO Capital: A Guide to Building CEO Reputation and Company Success). This should not be such a mystery. We may wish CEOs did not matter but they sure do.   

Can awards be bad for companies? Apparently so. Professors Ulrike Malmendier of Berkeley and Geoffrey Tate of UCLA found that CEOs who are hailed as best managers or best performers are likely to witness poor stock performance afterwards.  The authors believe that these halo-ed CEOs are probably too distracted from all the glory and public appearances to operate their companies well. They also found that these crowd-pleasers are also more likely to write books and sit on outside boards. Their article, Superstar CEOs, was in the Sloan Management Review.

They included a Warren Buffet quote I had not seen. They used it to show what "real" CEOs should be like. “The best CEOs love operating their companies and don’t prefer going to Business Round Table meetings or playing golf at Augusta National.”

Hard to say if the awards are really the culprit. The business media are also to blame. They are looking for new stories of turnarounds and quick Jack Welches.