Archive for July, 2009

A few items crossed my desk [or should I say desktop] this week having to do with corporate governance. The first is an interesting article in the Financial Times about banning blackberries from boardrooms. The argument is that board members are charged with fiduciary responsibilities to shareholders and blackberrying or texting during meetings might be considered a breach of contract.  Board members are not doing their jobs if they are busy typing replies or reading scores of emails in meetings. I enjoyed the article because authors’ David Beatty and J Mark Weber also got into the idea of “inattention blindness” and how that might interfere with the weighty decisions required of board members in this tough business climate. One neuroscientist in the article is quoted saying that humans can not concentrate on two things at once.  I recall reading that people can only hold seven things in their head at once which is a reason most of us experience infofog a good part of the time.  At least I do. Anyhow, the point is that board members need to pay full  attention during board meetings today, particularly when the stakes are so high, and responding to electronic messages can only direct attention away from the hard work at hand.  Since board reputations are already in jeopary as one company after another failed this year, I wholeheartedly agree with the authors’ advice that boards enact “no wireless” policies in meetings for now.

I was also reading Karen Kane’s blog on corporate governance and totally concurr with a quote from Stephen Davis of the Yale Millstein Center that she cited.  Davis said that today “directors need the tools of a politician.” In other words, as Kane says, they need to persuade and explain why they took the actions they did. I think that in the future we will be seeing more explaining as Obamanomics works its way down to boards.  Greater transparency and clarification for stakeholders as well as shareholders will become more common in the years ahead. 

Now to tie the two items above together….if President Obama can do without his blackberry at times, so can board members.

  I was reminded today of some information I read a few months ago about President Obama. Apparently his correspondence director makes sure that Obama sees 10 letters or emails every day from average Americans. Some of these letters are positive and some negative but they are clear reminders of how Americans are suffering and thriving today. President Obama also reads them aloud at certain meetings when he looks around and notices that people are losing touch with the common man or woman. I am sure they come in handy.

When I wrote my first book on CEO reputation (CEO Capital), I mentioned a CEO who started every weekly management meeting with a tape recording from a call center where people complained about the company’s service. The CEO felt that it was important to remind his team that there was still plenty of room for improvement. The Obama example above is similar to the company CEO one I told.

I think that this act of customer awareness is a practice that could help many CEOs who sometimes forget that the purpose of a business is to create a customer, to quote from the late Peter Drucker.

Both presidential and CEO leadership needs to be reminded who they serve to safely steer their country or company reputations in the right direction, especially in these tough times.

 A woman living in the Chicago is being sued for allegedly Twittering that her management company is okay with moldy apartments where she lives. Horizon Group Management sued her this week for publishing “a false and defamatory tweet” on Twitter. According to the suit the woman Twittered “Who said sleeping in a moldy apartment was bad for you? Horizon realty thinks it’s okay.” Horizon Group Management is suing because it says it has been greatly injured in its reputation as a landlord. How much? In excess of $50,000 in damages.

Reputation injury law suits a la Twitter are starting. Wonder what the law says about Twitter defamation.

Maybe it took me a long time but the word “reset” has become awfully popular. I first noticed when it was used by GE’s Jeff Immelt in his Letter to Shareholders about the effects of the economy and how GE needed to reset itself in response to the global economy. I found it an effective word because it brought to mind a reset button. 

IMMELT: “I believe we are going through more than a cycle. The global economy, and capitalism, will be “reset” in several important ways. The interaction between government and business will change forever. In a reset economy, the government will be a regulator; and also an industry policy champion, a financier, and a key partner […] I think this environment presents an opportunity of a lifetime. We get a chance to reset the core of GE and focus on what we do best.”

Then I noticed President Obama using “reset” in reference to his visit with Russian President Medvedev. “I think that there has been a time over the last several years where Russian-U.S. relations were not as strong as they should be. What I said coming in is that I wanted to press the reset button on relations between the United States and Russia.”

Since I liked the term, especially for talking about my favorite subject of reputation, I decided to investigate whether it has been around for a long time or was fairly new.  In the chart below, you can see that the word reset has jumped 337% since 2000. As expected, the greatest jump occurred between 2007 and 2008.

Unfortunately I was not the only one to notice this trend. The New York Times Magazine columnist William Safire wrote about this popular new word in April 2009. I found the article online when I was searching to see if others were thinking the same thoughts. Apparently the reset button idea bloomed during the U.S. presidential election when it was used repeatedly by VP hopeful Joe Biden and President-elect Obama to describe their campaign strategy. Even secretary of state Hillary Clinton has taken to using the phrase now.  As Safire writes, Washington Post columnist Anne Applebaum mentioned the growing ubiquity, “Press the reset button. Is there any phrase more enticing in the modern lexicon? We all know what it means: Press the reset button, watch your computer reboot and presto! A nice, clean screen appears, and you start again from scratch.”

I am glad that “reset” is a trend and intend to use it as often as I can for describing reputation-building.  You have to reset your reputation now.  Until you press the reset button, your reputation will be ground zero. Resetting your reputation is the right thing to do. If you don’t like the word reset, you can always substitute reboot.

  Corporate responsibility is an integral component of reputation.  Even more so than ever because it matters to so many stakeholders – employees, customers, government, prospective talent, academics, media, bloggers and NGOs.  I think it might even matter to the financial community although perhaps to a lesser degree.  However, analysts have noticed its importance as we have seen with the proliferation of socially responsible investing funds.

In 2008, Weber Shandwick’s Planet 2050 corporate responsibility and sustainability practice conducted a proprietary analysis that demonstrated the rising prominence of corporate responsibility on leadership agendas. Corporate responsibility mentions in global Fortune 100 annual report CEO Letters to Shareholders increased 18 percent from 2003 to 2007. In 2007, energy efficiency and carbon emissions were the dominant corporate responsibility agenda initiatives addressed in Global 100 CEO Letters to Shareholders. These topics barely figured in CEO annual report Letter mentions in 2003. To a lesser extent, but still noteworthy, leaders in 2007 highlighted their eco-friendly products—such as hybrid cars and healthy food products—in their Letters to Shareholders. Volunteerism, a topic featured in 2003 CEO annual report Letters, appeared less frequently in 2007.

As business leaders seemed to increasingly  commit  to corporate responsibility initiatives prior to the economic meltdown, we thought we’d look into whether such efforts helped soften the financial blow of the stock market collapse in 2008.

Using the 2008 Fortune Most Accountable Companies list as the measure of corporate commitment to social and environmental goals, Weber Shandwick explored the relationship between accountability  and stock price performance within the Fortune Global 100. The Accountability Rating was first developed by AccountAbility and Csrnetwork and designed with Asset4.  Since nearly every company on this list experienced a share price decline during 2008, the analysis focused on the average percentage change of closing prices on December 31, 2007 and December 31, 2008. It was of particular interest that 9 out of the top 10 most accountable companies were European (GE was the only American company).

We found that the top 10 most accountable global companies performed better than the overall global Fortune 500 in terms of share price and profitability.  When compared to the 10 least accountable companies, the most accountable ones performed better. We were a bit surprised by the +1% lift in profitability among the least accountable and discovered that two highly profitable companies – Petronis at #99 and Berkshire Hathaway at #100 – were on the list, therefore driving the 1% increase. Even when we take Berkshire Hathaway out of the group, the difference is not as dramatic as we expected. The nine least accountable companies fell to -3% in terms of profitability. If Petronis and Berkshire Hathaway both come out the eight least accountable companies fall to -16%.

The analysis shows that even in an unprecedented  year like 2008, the most responsible companies  outperformed their peers. As my fellow colleague and founder of Planet2050 Brendan May said, “It is not surprising that effective and genuine corporate responsibility impacts the bottom line, in good times and bad.” Companies cannot afford to abandon their corporate responsibility efforts although it is understandable if progress slows in this economy.  Companies that abandon corporate responsibility and sustainability efforts are proof positive that it was all for show in the first place.

  If you read Jim Collins’ new book, How the Mighty Fall, one of the stages of decline is “hubris born of success.” In fact, this is stage one. He says that the once admired lose sight of their vulnerabilities because they are insulated by their successes. “Stage 1 kicks in when people become arrogant, regarding success virtually as an entitlement, and they lose sight of the underlying factors that created success in the first place.”  However, if caught early enough, decline can be dampened. Therefore it was with great interest that I read comments in the WSJ from Yoshimi Inaba,  the new head of North America Toyota.  As most people know, Toyota is suffering in the U.S. market, its largest (U.S. sales fell 38% in the first six months of this year).  The WSJ said that Mr. Inaba said that “…elements of complacency and arrogance infiltrated the company.”  It takes a unique company to admit to mistakes such as these. How many companies worldwide would make these admissions? Mr. Inaba who just arrived to run the NA operation intends to listen carefully to its customers, dealers and market to restore Toyota’s reputation. Sounds like the right start.

 Took a vacation last week in the Berkshires. If you live in the Northeast of the U.S., you know that the weather was gloriously sunny and summery.  I am a lousy vacationer in the traditional sense.  All I wanted to do this vacation was catch up on my mile high reading pile. There are so many distractions and demands at work that I never feel that I am focusing enough on new ideas and insights that come from those random odd moments when a new idea jumps from a page into your head.  So I took my reading pile and dumped it all into a big LLBean canvas bag and got down to work after stocking the house with food and plenty.  I read Jim Collins’ popular new book How the Mighty Fall, several HBRs, BusinessWeeks, Fortunes, Forbes, The Conference Board Review, The Week, and several binder-clipped downloadable presentations and white papers on reputation and leadership that I wanted to review.  I can’t say I read everything but I did glance through what was going on in the world of business performance, reputation, public relations, internal communications, leadership, CEOdom, online everything, and so forth.  I was pleased with my own personal reading performance and think I mayhave hit on a new idea for vacationing – the reading retreat.  I bet there are many people who just want to sit without a laptop or smartphone and kick back with hard print. Maybe I am revealing my age but it sure was easy to concentrate and tumble ideas in my head that might have some sway in the months ahead at home and work.  My own reputation might be damaged from my reclusive behavior but I feel rested and relaxed.

In the June 2009 Harvard Business Review, I found an interesting interview with Alice Waters, founder of  the highly reputable restaurant Chez Panisse in Berkeley, California.  She has a smart way to retain and motivate staff.  Work cultures are critical to reputation-building and Waters definitely hit the right chord with her recruiting method. “The main chefs downstairs each work six months on and six months off, but I pay them for the whole year.  Not as much as a superstar chef, but pretty well. When they’re not working at Chez Panisse, they’re in France. One teaches in Bordeaux, and the other goes to Paris. They travel and then come back to the restaurant.”  As Waters says, the returning chefs bring back new ideas, new energy and new excitement into the kitchen.  When asked if she would keep this idea going despite the rough economy, she said absolutely yes. 

Most companies could not afford to pay people for taking half the year off but what is important to note is that job flexibility can do wonders in building a company or organizational reputation that benefits everyone – employees, bosses and customers.

    The letter from well-known New York attorney Marc Dreier to the Judge regarding his sentencing is illuminating. Dreier committed fraud of nearly $400 million and this week was recommended by the government to receive a sentence of 145 years behind bars. The good news is that he wrote this letter explaining how his ponzi scheme started and ultimately ended when he was caught red-handed. At least Dreier provided a window into why someone would harm so many people and ruin so many lives only to be recognized more. He says he felt that he was not receiving the recognition and financial rewards that he deserved at age 40. Dreier said he wanted to make the letter available to all so that others might learn from it. The letter might provide some insight into why Bernie Madoff did what he did. Madoff must have suffered from the same disease of needing to prove that he was more than he was. Sadly, Dreier’s letter is an example of the downside of reputation building. Reputation is earned. Reputation at any cost is deadly. Reputation without merit is a falsehood.

   I have been thinking a lot about celebrity lately. Perhaps all the media coverage on Michael Jackson has got me thinking about how different today is from the early days when Michael Jackson started his stardom. Today everyone is a brand and has their 15 minutes of fame.

There used to just be entertainment celebrities and sports celebrities. Then came the celebrity CEOs along with the dot com era.  There was always a handful of political celebrities like the Clintons and Kennedys.  Now there are celebrity journalists, bloggers, twitterers, political leaders, scientists, authors, late night TV hosts, comics, governors mommies, and dog whisperers.

The reason that there are so many celebrities today is that every thing is being marketed and every one is marketable. The Internet has allowed most anyone the ability to market themselves on Facebook, YouTube or Twitter.  When I wrote my books, the lesson learned in terms of success was that it was not the book’s content that mattered as much as how well  it was marketed.  Marketing made the difference between being known and unknown.  When  I wrote my first book, CEO Capital, I attended a seminar of well-known writers. One writer said that the hardest part was not the book writing but the marketing afterwards – the interviews, book tours, websites, editorials, and all the media.  He found it very distasteful.  Unfortunately, a book does not go far without marketing dollars. For that reason, there are many book publicists for hire.

I am pleased to see that there are not as many CEO celebrities as there once was. It is easy to see that it would be hard to do so considering the economic woes brought on by the misguided judgement of a few CEOs.  As seen in our research, the reputation of CEOs could not be lower. Why would anyone want to raise their hand in this environment?  In fact, a majority of CEOs are not superstars and do not even want to be. CEOs are leaving the pop idol acclaim to political leaders such as the Obama. The celebrity angel dust is luckily spreading elsewhere.

The good news is that reputation is not built on celebrity. Reputation is enduring and lasting; celebrity is fleeting and superficial.

I have posted about scenario planning before and wrote about it in my last book as well.  Scenario planning is a good way to plot what your leadership might do when their reputation falls off a cliff. I have always been fascinated by the process, especially when it works.  In fact, I have a recent Royal Dutch Shell Scenario Planning book that I bought from Amazon about three years ago. I keep it out on my desk as a reminder of a smart way to plan. It was amazing to me that it sold commercially.
Today’s WSJ had an article on the return of scenario planning. It was very popular after 9-11 when companies felt the urgent need to prepare for such sudden disasters. Apparently it lost some favor as the economy became bullish and everyone lost their senses. A study by Bain & Co. which I have used in presentations showed that  scenario planning had soared from 1999 to 2002 as a risk management tool (up 30%) among senior executives.  Now it is back on the upswing as we face unprecedented economic challenges.

I did not realize that scenario planning first surfaced in the US Military in the 1950s and became popular with companies such as GE and Shell in the 1970s. My mistake for believing that Royal Dutch Shell was the source.

Peter Schwartz, a partner at the Monitor Group and former head of the Global Business Network where I first learned about him, says that scenario planning is a learning tool and for making informed decisions. Not just a tool for the worst case scenario but a process for learning how to make the right and avoid the wrong decisions. The article ends on an upbeat note – that perhaps scenario planning can be used to plot possible responses to a business upturn.

Same could be said about reputation recovery. Time to start. Never too early. Only too late.