I recently read in Financial Week that only about three percent of S&P 500 companies have stand-along risk committees as part of their boards of directors. Found this particularly interesting considering that risk has become a major issue these days. Of course some of the most well known recent corporate failures had board risk committees such as Bear Stearns and Northern Rock. Therefore, having risk awareness at the tippy top it is not a sure fire solution to avoiding crisis. It does say something, however, about a company’s commitment to reputational issues. All in all, it is a good thing.

Another piece of information that caught my attention recently was something from Barbara Reynolds of the U.S. CDC (Center for Disease Control). She was quoted as saying that a whopping 90 percent of a crisis response is communications. There is a lot of truth in that. The irony of her statement according to Robert Alvey, a Hurricane Katrina crisis communicator who wrote the article, is that “businesses and agencies allocate on average one percent of their overall budget to crisis and risk communication. If they do have a plan and exercise it, only nine percent of that drill tests communications.” Again, a frightening truth. In this age of “gotcha” media, more resources and crisis simulations are imperative. Sometimes I wonder what companies are thinking.

I was interviewed this week by Leo Hickman of The Guardian about a crisis at Primark, the successful fashion retailer in the UK. The BBC  Panorama show exposed child labor issues in Primark’s production among three suppliers in southern India. The CEO of the parent company, ABF, George Weston responded quickly and forcefully. I went to the Primark web site and liked what I saw. Their actions and statements are quite visible on the web site and there is no attempt to push the crisis deep into the web site. They mentioned how they had dealt with a different supplier in the past who had committed wrongdoing, reported their investigation into these suppliers over the past 18 months and their apparent deceit, and reinforced their ethical standards and code of conduct. Primark provides a good Q&A as well as videos on how their clothes are made and an interview with a key director who is visibly outraged at the suppliers for harming their reputation and misleading them.

As I was quoted in the Guardian article, this is a “smudge” on their reputation but their quick and forthcoming response helped keep their reputation capital steady. However, they are now in the spotlight and cannot afford any other ethical questions to be raised

I continue to clip articles to comment on and share on this blog. Many times I find these articles while sitting on an airplane and rummaging through the papers I habitually pick up at newsstands. Because I am usually less distracted while sitting on a plane, I seem to enjoy them more. The rush of getting through the paper or the Internet news during the weeks I am in town require as much attention but my mind gets interrupted easily by all the visual stimuli, immediate work demands and inability to concentrate beyond 15 minutes.

Stefan Stern writes for the Business Life of the Financial Times. I met him while visiting London several months ago on the rainiest day I ever remember. It was monsoon-like weather in London. However we had a great conversation about my work on reputation-building and reputation recovery, my book and I had the chance to tell him how much I enjoyed his columns. I cut out (or should I say teared apart) one column from June 10 about change management.  Stern described two change management programs which interested me greatly because of my own recent experiences. One was with high speed passenger train Eurostar and the second with Heathrow’s newest terminal – T5.

My Eurostar experience was spectacular. The rain from Geneva (I think) to London arrived on time and the service was impeccable. The arrival hall was historically noble and beautiful in an “everyone is important and going somewhere important” way. Stern said that when Eurostar moved from Waterloo Station to St. Pancras, 97 percent of the trains were on time on day one. Eurostar had moved everything overnight before that momentous opening.  How is it possible that Eurostar performed so well compared to the disastrous opening of Heathrow’s Terminal 5 in March.

Both organizations prepared. Stern wrote that Eurostar ran an 18 month change program and parent company BA ran a three year program (Fit for 5) to prepare for the massive changes at their respective sites. As you know, Heathrow’s T5 opening was chaotic with misplaced baggage, damaged conveyor belts and frozen screens.  [Traveling through Heathrow always requires lots of patience and luck which I did not have on my last stopover in London. I missed my flight to New York by one minute due to a delayed inbound flight and I could not get anyone to call ahead although I tried.]

To manage the change program at Eurostar, Stern says that the organization’s leaders brought in psychologists to help with the emotional as well as physical relocation. They anticipated the problems and considered their employees’ concerns. As for BA, apparently baggage handlers tried to forewarn their leaders that there were problems but they were ignored. One problem Stern mentioned was that the lockers were not large enough to hold all their clothes and other personal belongings. Also parking spaces were too far from the terminal.  All of this added up to BIG trouble and – calamity! T5’s grand entry was delayed several months. If only management had listened, Heathrow’s and BA’s reputations would not have suffered the damage they did. Same goes for BA’s CEO Willie Walsh who had to apologize profusely and lost credibility.

Change management requires strict attention to employees’ comments since they are the ones changing. Reputations need not lose face if someone is listening intently. It is never the big things that do companies in but the small ones such as locker sizes and parking spaces…..AMEN
 

At Weber Shandwick, we first introduced the concept of the “Stumble Rate” in January when my book was released. The stumble rate measures the percent of companies that are in top place on Fortune’s World’s Most Admired Companies list in their industries five years ago vs. their standing today. Any company that was top-ranked five years ago and is no longer is considered a “stumbler.” 

Despite a declining stumble rate in the global market, the Stumble Rate for U.S. Fortune 500 companies has risen in the past year (2007). A year ago, approximately half (52 percent) of companies that were their industries’ most admired lost their crowns and this year nearly three-quarters (72 percent) have been dethroned. That is approximately a 38 percent jump year over year. Three out of four U.S. largest-revenue companies losing their reputation thrones is astonishing. Not surprisingly, the industries whose churn increased are associated with current U.S. economic challenges. Sectors such as building/real estate, energy, and automotive all included companies that newly stumbled this year. No surprises there. I imagine that the stumble rate for next year will be just as dramatic.

When I was in Asia Pacific, someone asked me whether these companies had actually stumbled or another company had lept forward in the reputation race.  A good question. I think that losing reputational equity because an up-and-comer has leap-frogged over you to the number one perch is the same thing as a stumble. Someone (usually those at the top) was not watching well enough.

All in all, Weber Shandwick’s stumble rate is a stark reminder that reputation recovery is as much a part of the reputation continuum as reputation building and reputation sustainability. In fact, it is the hardest part of reputation management equation

Am finally getting back in the swing of things after a productive trip to Asia and a well-needed mini-vacation, as I noted earlier. I regularly save all sorts of articles and items I find in the hope that I will comment on them in my blog. So here’s one that I read about in The Wall Street Journal in the Boss Talk Column (June 5, 2008). The interview with the CEO of Home Depot, Frank Blake, focuses on how he is refurbishing the company since he took over 18 months ago. As you can imagine, the challenge is particularly difficult for Home Depot considering that the housing and mortgage crisis has basically collapsed.

Since I have recently been writing about and studying how companies restore their reputations after crisis strikes (also wrote a book on the topic), I found Blake’s answers to several questions particularly illuminating and spot on. Blake mentioned that he was lunching with Coca-Cola’s CEO who asked him “Where are you in the dark night of change?”  At first, Blake says he was unsure what the CEO meant. It became clear when Isdell drew a timeline of how you navigate through challenges: “…things get tougher rather than better, and so doubts start to grow.” The dark side of change in the recovery process hits all CEOs that are trying to undo reputation damage. There are many stumbles along the way that feel like someone yelled  “lights out.” CEOs might remember that recovery takes several years, not 12 months, and the only way to see the horizon is to make the long journey. Additionally, most CEOs who turn around their company reputations say that it was worth the trip since failure usually equates with opportunity.

Blake also mentioned in the interview that he began a survey asking stores to rate how well company HQ was doing. I thought that was a smart way to get feedback, tough as it might be to face the music. Blake honestly comments on their grade: “…unfortunately our scores are not very good. If a store got the same score, we would consider it underperforming and we would be flipping out.”

The interview provides three important lessons about the recovery process when reputations are in the danger zone. First, plow through the dark days. Second, try the hard things such as asking your employees to rate how you are doing. Three, overdose on rewards and recognition. Regarding the last lesson, Blake asks stores to send him examples of employees doing extraordinary things and he writes personal handwritten notes thanking them for their efforts.

Have not written in a while. Returned from Asia and thenoff to vacation.

Just back from one week off and promise to get down to business shortly. lgr