Archive for July, 2010
Who would have thought that who you lunch with matters? A new way to pick stocks is revealed in BusinessWeek. Research found that if you bet on the CEOs that President Obama has dined with since taking office, you’d be outperforming the S&P 500 index. The six luncheon set of CEOs he has met with outperformed the S&P by more than two percentage points. The article points out the the President is obviously only going to dine with winners, not losers or scandalized companies, so it makes commonsense. Although this strategy for stockpicking is not recommended, it is hard not to think that there is some smart thinking behind the CEO luncheon invitations. Just get out your list of most admired CEOs and see if they are dining at the White House and away you go.
Forget that economics or business degree. This may be a lot easier.
Interesting fact about BP CEO Tony Hayward’s departure and I have to agree with the WSJ here. He is not departing the position with a huge payoff as many other big time CEOs do. Yes, he is getting a severance package but it is not even close to what we have seen over the years when troubled CEOs leave their offices. As the Journal says: “While Hayward may, inwardly, be smarting, he is stepping down with dignity. A lesson other corporates would do well to note.”
I think that CEOs who act with dignity and integrity can help restore the state of CEO reputations today. Of course, as the Journal points out, there are many other reasons that this may have come to past but I think that the message is clear that BP now starts the recovery period of repairing their once-esteemed reputation and even a departing CEO can play a role beyond his or her tenure.
Accenture just completed an impressive research study among global CEOs and other influentials around the world for the UN Global Compact Leaders Summit in 2010. They say that it is the largest survey ever among CEOs on sustainability. Some of the key findings are worth thinking about as sustainability defines the corporate reputation landscape in a few short years to come:
1. Brand/trust/reputation is the strongest reason why CEOs say they are taking action on sustainability (72% say so). The next best reason lags fairly far behind at 44% – potential for revenue growth and cost reduction. Reputation seems to be behind the motivation for many CEO and corporate actions these days.
2. CEOs recognize that the consumer is the most influential stakeholder on the issues of sustainability in the years ahead — 58% of CEOs say so and it is a perception that ranks even higher than employees (45%). They believe that consumers are King despite the mixed evidence on whether consumers are demanding products that are sustainability-true (a word I just made up).
3. Collaboration is critical to the sustainability movement. Here I have to agree since I am seeing a greater focus among clients on partnerships and coalitions in all areas, including CSR. As Accenture writes, “…global challenges are too broad and too complex to go it alone.” Multi-stakeholder partnerships are the new trend in corporate reputation building.
4. One of the more significant findings was that 81% of CEOs say that sustainability is now embedded into the strategy and operations of their companies — a big jump from 50 percent three years ago. New to me was that sustainability is being built into executive compensation packages today.
5. CEOs believe that by 2015, sustainability will be fully integrated into company footprints. A large 80% believe that by then, this dynamic will be commonplace. That is not far away and it is about time. I was telling someone who interviewed me recently that although 2015 feels as if it is upon us, the truth is that this has been a long way coming. I recall back in 1990 when I first learned more about the Fortune Most Admired Companies survey how surprised I was that environmental/social responsibility was so low on the totem pole of reputation drivers. I thought there had to be a mistake. But that is what it was then. All in all, it has been a long progression to get to 2015.
What is the cost of reputational harm? The New York Times has a back of the envelope calculation from recent crises making the news. Here is what they say?
“It would be too crude to conclude from this analysis that reputation is worth 11 to 14 percent of market capitalization…” and concludes the following: “What is clear, though, is that reputation has huge value. Companies need to guard theirs vigilantly.”
Somewhere in my many investigations on reputation, I have seen a similar calculation that reputation (not reputational harm) places a 10 to 14% premium on a company’s market value. So the Times might just be right.
[By the way, back from vacation. Back to work.]
It must be Saturday. My head is clearing after a short week’s work. Got some work done this morning which is why I can now blog guiltlessly. Wish I knew more about James LeBron so I could comment here on his reputational downfall on the streets of New York? Or I could move on to comment on the nuclear reputational fallout of Mel Gibson after a new domestic violence incident circulated this week. Oh, I forgot Lindsay Lohan who I saw in a newspaper headline while on the subway crying about spending 90 days in jail for bad behavior. On the whole, celebrity reputation does not interest me as much as company and CEO reputation and there’s plenty to think about when it comes to that misbehavior. Seems like the heat wave has fried celebrity brains this week (wherever they were) or they are jealous of the corporate scandals grabbing all the attention.
Back to the real stuff. A new study by NYSE Euronext found that 3 out of 4 CEOs believe that they are doing a reasonable job protecting their company reputations. That’s a pretty confident group because if you asked me, I’d say that if that is the case, why are there so many reputation stumbles every day? I would need more than two hands to count how many major reputation disasters occur in a week’s time. And those CEOs would probably swap 90 days in the slammer with Lindsay Lohan if someone could tell them that there would be an end to all he scrutiny on their reputations. Reputation damaging headlines linger for far more than 90 days with the Internet’s neverending longevity of wrongdoing.
The study also found that the leading criteria of building positive company reputation are Honesty, Integrity, Ethics, Transparency and Leadership By Example. These qualities never seem to change (for good reason) although I would hasten to add that Integrity is making a comeback as a reputation driver. Certain words come and go and I have not heard Integrity for some time…so welcome back. Transparency, Ethics, Honesty, Transparency and Leadership have made their rounds for some time now. As many of you who read my blog know, I think that Effective Communications deserves more credit as well as anything to do with promoting a reputation for Safety. Post 9-11, safety as a reputation driver is key whether it is keeping food safe, our privacy safe, our shores safe, our medicines safe, our toys safe, our kids safe, and our skies safe. I could go on and on.
The new CEO at Nalco, Erik Fyrwald has this to say about being an outsider CEO and getting up to speed. I think that all this advice is right on target, especially his statement about thinking you have all the answers at the start and then unlearning those assumptions so you can learn how things really are. Fortune interviewed him about water and carbon but I liked the part about being a new CEO best. Most outsider CEOs come into a job knowing what the board has told them. As we know, the board is usually the last to know (so says Warren Buffett). In my research, I have heard over and over from CEOs that their perspective 100 days later is usually 360 degrees different from what they thought day one. This probably goes for anyone starting a new job. If you want to build a good internal CEO reputation, try to keep your opinions to yourself for a couple of months until you REALLY know what you are talking about. First impressions are usually just that, first impressions.
You came into Nalco as CEO from the outside. What was at the top of your to-do list?
I spent the first weeks and months listening a lot — to the leadership of Nalco, talking to people across the organization. Traveled a lot. Got out there with customers all over the world trying to understand what we do well, what we didn’t do well, where they saw the opportunities. Spent time with my leadership team, getting their view on what we needed to do and also assessing the leadership and who we really needed, and what other capabilities we needed to bring in.
A lot of people in your position, coming in as CEO, have told me that focusing on the team is critical …
… and in many cases focusing on the culture. From the outside you’ll see that it needs to be steered a little bit. Was that the case?
Yeah. The positive is, we had a great culture to build on, a culture of service, customer comes first. But we had not been nearly aggressive enough going after the growth geographies and bringing more of the water system solution to the customer. Talking to the leadership, it was very clear that that was a huge opportunity.
You only get one chance at those first few months. When you look back, what did you learn?
I learned that as you get into the job and start to think you know the answers, don’t get locked in. You haven’t been in the company that long. You think because you’ve been in other places that you can figure it out quickly, start to form a theory of what the right answer is. Keep testing that theory, because it does two things. One, it gets the management team aligned. And two, you can get deeper into the organization, you can get customers connected to it, and then you get a much better answer. So don’t make conclusions too quickly. At first I thought I knew the answers, but then the answers got much better as we dug deeper. That was very important.