Archive for May, 2008
If you ever wondered about the importance of scorecards, they mean a whole lot in the financial services industry. The Economist says that investment banks have entire dedicated teams working on gathering the necessary information and challenging rivals’ positions. As you may know from my postings, we spend a lot of time helping companies decide which rankings are best to apply for. League tables are superb third-party positioning tools and can sometimes differentiate one company from another among prospects or job candidates.
The Economist asked the smart question about whether the colossal credit crunch was impacted by some companies’ reckless efforts to win the league tables’ crown. Here is their fun answer:
“Yet to blame league tables for their mishaps feels a bit like accusing the candlestick, not Colonel Mustard.”
According to the article, being at the top of the table does not necessarily translate into market share or even tell you what you need to know about the quality of service. But maybe it does tell you a few things that are not correlatable (is this a word?) or measurable such as whether this is a company culture driven to perform at its very best and wants the world to know about it. With all the information overload today, these league tables sometimes give outsiders a sense of how the cards are stacked.
I have always wondered if those huge advertising ads in airports do their job in reputation building. It is hard not to notice them and they are fairly captivating to me. As I get off the airplane, I look forward to what new campaigns might be up. So I was glad to see some data behind my question. The Ipsos MediaCT U.S. Business Elite Study that was conducted for the American Association of Advertising Agencies (AAAA) found that airport ads are indeed a good way to build reputation and get your message across. Nearly six out of 10 say they notice them.
- Have You Noticed Advertising at the Airport on Your Last Trip?
Total Business Elite 59%
As well, the survey answered the question about viewing TV while waiting at the boarding gate. Nearly four out of 10 business executives said they do so. Again, another way to capture this audience although I imagine that the other six out of 10 are watching their blackberries or iphones.
- Have You Watched TV at the Gate on Your Last Trip?
Total Business Elite 39%
One other fascinating fact that I picked up from the survey was that the U.S. business elite turn to the Internet first for “helping them in business.” Among CEOs, however, the first place they go to is business magazines. I guess that is why the business publication space is expanding despite the advertising decline over the past several years. In addition to the stalwarts – Fortune, Forbes and BusinessWeek, we now have Portfolio, a new Slate business site coming to us in June I believe and Bloomberg ramping up its business and news coverage once Norm Pearlstine gets in the door.
Clearly, the Internet is a main source of information for the U.S. business elite although national newspapers, cable TV, and business magazines are close competitors. Reputation building online is as important as ever but let’s not lose sight of the power of these other mediums.
CEO Michael Dell on Dell:
“I will care about what happens to the company even when I’m dead. I just can’t let it go.” The Economist, May 3rd
The Institute for Crisis Management (ICM) comes out every year with its list of crises. I always find it interesting to see how the year adds up. As our research shows, reputations tumble primarily because of executive and managerial misconduct. In 2007, ICM found that over half (52%) of major crises were caused by management. Employees accounted for 29% of crises in 2007 and outside forces contributed to the remaining 19%. ICM has been monitoring crisis types for many years going back to 1990. This year it found that three crisis types had risen – recalls, workplace violence and class action lawsuits. Undoubtedly, the horrific shootings at Virginia Tech accounted for the peak in workplace violence and the many toy, pet food and other product recalls contributed to the big 44% increase from the year earlier. The most crisis prone industries in 2007 were:
1. Software Makers
2. Pharmaceutical companies
3. Petroleum Reining
4. Natural Gas Companies
5. Security Brokers/Dealers
8. Automotive Manufacturing
10. Computer Manufacturers
Another fact caught my eye because it is one of the main tenants of my work on reputation protection and recovery. ICM found that over the past 10 years, most crises were caused by smoldering issues vs. sudden events (65% vs. 35%, respectively). I could not agree more. You can always point to a red flag way before a crisis erupts into public view. Then it’s time to hold up the white flag!
Reputation is all about having advocates to support you in time of crisis. An article in today’s Wall Street Journal on Lehman Brothers CFO, Erin Callan, supports this side benefit of building relationships before you need them. “To squash fears that Lehman could face the same kind of liquidity squeeze as Bear (now being acquired by J.P. Morgan Chase & Co.), Ms. Callan has had hundreds of face-to-face meetings and phone calls with investors and trading partners. She aggressively roots out rumors, even while pushing her bosses to disclose more financial information.” Sounds to me like she is out winning the vote every day.
The risk is often worth the reward.
I guess there is something for everyone and every profession. I have blogged before about reputationdefender. The company (whose slogan is “watch your back”) helps individuals and families defend their reputations by getting negative comments taken down from the Internet, lowered in the search rankings or explained more accurately. They counsel individual and organizations on strategies for removing harmful information which is ultimately a good thing. Now there is politiciandefender.com for those politicos who need to counter negative or untrue bloggerisms with truthful messages. As the site says, “The program is designed to build personal branding online and minimize harmful blog posts that would influence an election. Our company allows politicians to hire our bloggers to create posts on social media venues and blogs throughout the Internet in an effort to get the target message across.” In essence, the company will counterpunch or should I say counterpost right back when a politician’s reputation is being pummeled. I guess there truly is something for everyone and expect soon to see celebritydefender, professordefender, prdefender, lawyerdefender, doctordefender, cashierdefender, computerhelplinedefender, etc. You see where this is going.
On another subject, I am often asked what companies should do to reduce their ever-mounting reputation risk. As corruption, fraud, recalls, security breaches, tainted products and financial wrongdoing continues to escalate, one idea that deserves serious consideration is assigning reputation risk responsibilities to company boards, officers or outside firms. UBS recently announced that they would establish a stand-alone risk committee as part of their board restructuring. This committee would be responsible for assessing and being informed about management’s strategy for monitoring and managing corporate reputation threats. Financial Week has an excellent article by Jeff Nash on how companies are now in the hunt for hiring chief risk officers and fully understanding their own risk scenarios today. He quotes Spencer Stuart who told him that only 3% of S&P 500 companies had stand-alone risk committees as of 2007. That is not encouraging. Apparently Bear Stearns and Northern Rock had separate board risk committees which does not fill me with much confidence that they work as well as they should.
So what are the alternatives? I like the other ideas that surfaced in Nash’s article. Pitney Bowes reportedly has a list of 60 risk categories which are assigned to individuals who report about them to a board committee. Pitney Bowes thinks that when a particular risk or two is assigned to an individual, they are more likely to be accountable and take this oversight seriously. I agree that being able to focus on a few risks makes more sense in determining threat-levels than having to worry about 60+ risks all at once. The article also raises an idea from a governance expert who suggests that a non-board risk committee comprised of select company executives and outside risk experts could work. I definitely see value in that idea as well because outside points of view are often critical in shaking up organizations who are rightfully concentrating on the next quarter and next customer demand. It is not easy.
Risk radar is increasingly imperative today. Have no doubt about it.
An article in last week’s Wall Street Journal reported on Unilever’s decision to only purchase palm oil for its Dove soap brand from vendors that do not harm the rain forests. This decision was said to be directly related to Greenpeace‘s efforts to save the rain forests in Indonesia and call attention (as it should) to how deforestation harms wildlife and wildlands. It is hard to figure out who came to the table first but one thing is for sure and was noted in the article by Greenpeace’s executive director John Sauven. He said “It targeted Dove soaps and skin creams because ‘everyone has heard of those brands.’”
One of the clearest trends in the reputation landscape has to do with the danger of being number one or two among the most admired companies. Although other companies are surely guilty of clearing rain forests to plant palms for producing the oil, the best-known brands are expected to know better and to take the heat by virtue of their standing, size and stature.
I just thought it was worth noting that Greenpeace’s head director confirmed my belief that when it comes to building reputation, be careful what you wish for (meaning being among the most admired). Leaders in corporate reputation carry great responsibility — they must set the course and must justify all their decisions in public. The pressure upon them is immense. It goes with the territory.
Thought I should report on some analysis we did with Planet2050, Weber Shandwick’s corporate responsibility and sustainability arm led by my friend Brendan May. As you know, annual reports often begin with a Letter from the CEO and/or Chairman to company stakeholders. When it comes time to learning about companies, I always read the CEO Letter since it encapsulates what is on the minds of company leadership and the business environment overall. These Letters always contain some clue as to what might is important in terms of company priorities.
Since corporate responsibility is increasingly in the news, it seemed that we could determine how permanent corporate responsibility really was from reading Letters to Shareholders. It would be interesting to discover whether the world’s largest company CEOs were acknowledging corporate responsibility initiatives now vs. several years ago. To just underscore the growing importance of sustainability in shaping corporate reputations today, think about this week’s announcement that KKR, the private equity leveraged buy-out firm, is teaming with Environmental Defense Fund to incorporate sustainability measures into its business operations and practices. This action is a continuation of KKR’s smart efforts to listen carefully to environmentalists as it did when it bought Texas utility TXU last year and reduced the number of coal-burning plants to minimize environmental harm.
Back to the Shareholder Letters, what did we find?
- Corporate responsibility mentions in CEO Letters to Shareholders increased 18 percent from 2003 to 2007. I agree with Brendan when he said, “Clearly, CEOs in the second half of this decade have embraced corporate responsibility as a critical driver of business strategy and reputation-building.”
- Interestingly, broad environmental issues were the most frequently mentioned corporate responsibility initiatives mentioned back in 2003 CEO Letters to Shareholders. In 2007, energy efficiency and carbon emissions were the most common corporate responsibility agenda initiatives. Volunteerism, a topic featured in 2003 CEO annual report Letters, appeared less frequently in 2007.
When I used to review the findings from the Fortune Most Admired Companies survey a decade ago, I would be distressed that corporate responsibility was always the least important factor in driving corporate reputation. Now we see that is permanently on the CEO agenda. That’s a good thing.