Archive for September, 2011

Globalization. Everything is different and everything is the same.

In an interview with the Dean of Harvard Business School, Nitrin Nohria noted: “When I came to Harvard Business School in the 1980s, the vast majority of people were interested in studying America, because this is where they hoped to have job opportunities. As late as 1988, when I joined, less than 5% of our case [studies] were outside of the United States. Last year more than a third of our cases were global.” Similarly, Fortune‘s Most Admired Companies survey used to be broken into the America’s Most Admired and World’s Most Admired lists as if they were two different beasts. Fortune now combines them into one big list of the World’s Most Admired and rightfully so. As we are seeing with the ups and downs of the stock market, we are all interconnected. The reputation of UBS or Sony or Procter & Gamble matters the world over.

Global everything is on my mind because I am off to Asia to give a speech on reputation and how to build it, safeguard it and defend it. I’ve been catching up on how reputation plays out in Asia Pacific so that I can be a bit more relevant to my audience. As I am preparing, an article I found struck me as a good example of how things are the same and yet different.

As a keen observer on how reputations get damaged in a crisis, I am always on the lookout for estimates of that damage.  A recent article provided me with some valuable information on how Chinese companies perform when scandal touches them. Scandal plays out slightly differently in China and on their balance sheets than it does in the US and Europe/EMEA. An academic study examined hundreds of scandals linked to companies traded on the Shanghai and Shenzhen stock exchanges between 1997 and 2005. Revelations of financial fraud and various other similar crimes, such as embezzlement and kickbacks, definitely impacted share price as it does in the US.  The researchers found, however, that to really create a cataclysmic collapse of a company’s stock among Chinese companies, there had to be an additional element. “The study found that companies caught up in mere accounting scandals saw their shares drop by an average of 8.8% over the six months on either side of the incident. In those involving the bribery of government officials or theft of state assets, on the other hand, the stock fell by almost a third.” As they conclude, “In China and other less developed markets….business is done on the basis of political and social relationships, not numbers.”  Companies are all impacted by financial scandal but if you undermine the government in China or any of its officials, expect that your financial damage will be compounded by losing discounted financing, access to trusted suppliers, loss of customers, land acquisitions and other benefits that can come with good government relations. Thus, being on good terms with government is critical to success in China. In many ways, this is also becoming the norm in the US as government plays a more visible hand in business affairs.

  Do cities and countries recover their reputations after their images have been tarnished or damaged by natural disaster? This question is bound to be answered as we see what happens to London after the August riots.  A market research firm analyst Simon Anholt studies the reputation of cities and reports on them annually for Gfk Roper.  When asked what he thought about how much cities are affected by reputational issues, Anholt said “not much.” He thought that if it did, he would have seen more change in reputational perceptions of New York, London and Tokyo than he has seen so far. Essentially, memories are short. Some proof of what he says comes from The European Tour Operators Association who report having only 0.2% cancellations on visits to London immediately after the riots. Additionally, property prices have not seen any negative effects among investors or large real estate firms.  There always is a silver lining when it comes to politics, however. The mayor of London said that the riots this past summer showcased London’s resilience. There is no doubt that city reputations get bruised when these types of events occur but the impact does not seem long-lasting. Is that a sign of the times?

In the aftermath of Japan’s earthquake, tsunami and subsequent nuclear accident, the city of Tokyo has seen no significant erosion to its city image according to the 2011 Anholt-GfK Roper City Brands Index^SM just mentioned above. Among the top ten cities in the 2011 survey, Paris ranks as the top overall city “brand”, and  Tokyo ranks 10^th among 50 cities measured. There you go.

But I must add that there was one thing that truly saved London’s reputation and set an example that may have lasting power — the “broom armies.”  Groups of people took to the streets afterwards with brooms, dust bins, cleaning gloves and garbage bags to sweep away the broken glass and debris left after the looting.  As someone said, it was the “perfect symbol for the civilised majority.” And another said it was a “shared response” to fear and uncertainty. Best of all, it started with a simple Twitter campaign among stranges, #riotcleanup.  Twitter again comes to the rescue to mobilize people to do the right thing, not just the bad. We can expect to see more of this in 2011 and 2012.  People will fight back to reclaim their shared decency, city citizens will mobilize to stabilize their home streets and reputations will repair themselves through the deeds of ordinary people who barely know each other.

Whatever the merits on both sides, I wanted to point out here that what I thought was happening in the reputation warfare field is actually coming to pass.  Increasingly more companies are fighting back when they believe their reputations are at stake. Perhaps companies recognize that public opinion might be on their side as the general public loses trust in institutions. But without a doubt, companies are not necessarily turning the other cheek when they think their reputations have been unfairly damaged. In this blog, I have mentioned the increasing frequency of company documentaries that serve to tell their side of the story. Today’s article about Del Monte’s public spat with food regulators over restrictions on its cantalope imports underscores the trend.  To quote from the article,

“The company, which is one of the country’s largest produce marketers, says the restrictions could damage its reputation, and it has sued the Food and Drug Administration to lift them.”

“But advocates of safe food said that it was extremely rare for a major food company to take such a publicly aggressive stance, and that they suspected Del Monte Fresh Produce was trying to bully regulators into thinking twice before pursuing recalls in the future.”

Expect to see more of this in the future.

  The trading scandal at UBS brings to mind the long journey that companies undertake to recover and restore reputations. UBS is now back at square one as they deal with the recently revealed $2.3 billion rogue trading. This reputation disaster brought me back to the days of the Societe Generale SA rogue-trading incident three years ago. If you recall, Jerome Kerviel managed to lose $7.2 billion on his derivatives scheme. The reputation drag on SocGen’s reputation today and on UBS tomorrow is quite real. The SocGen scandal has not entirely faded in the past three years. In fact, everytime one reads about what happened last week at UBS, the SocGen scandal gets replayed. This is unfortunate for those who go down the path of reputation recovery like SocGen. SocGen’s recovery program was quite extensive when you look at it from a three year vantage point – they dismissed Kerviel’s bosses, demanded that the bank move slower as new security systems were put into place and launched an internal controls program called “Fighting Back.”  In addition, other measures were set forth such as spending on new IT security, starting a newly independent accounting group, beginning a SAFE (Security and Anti-Fraud Expertise) program to oversee financial operations and training 7,800 employees about fraud. Ultimately the CEO and chairman stepped down one year later.  All these remedies for recovering reputation came from an article in yesterday’s WSJ and I was glad to be able to list these steps for other companies contemplating what to do when faced with sky rocket type scandals.

Yesterday morning started off with an email to me from Netflix’s CEO Reed Hastings. I immediately went to the Netflix‘s CEO apology on the blog.   What confused me however was the tone of the video. Although I am a loyal customer and fierce advocate of what Netflix has done for delivering movies to my home, I thought that the video apology was abit too cheery (outdoors in sunny California. albeit a parking lot) and efficient.  Maybe too rehearsed is the right word. I did not get the sense that this was a very repentent CEO who had seen his stock value decline 52% since the change in pricing occurred. But what really threw me was that he did not share the stage alone. In the video, CEO Reed Hastings had the new head of the DVD spinoff, Qwikster, Andy Rendich, joining him.  I always say that CEOs get all the credit when things go right but all the blame when things go wrong. Why did Hastings deflect some of that blame on this poor soul. I cannot remember the last time (if ever) I witnessed a CEO apology tied to the announcement of a new spinoff. I sincerely doubt that was a good launch plan for Qwikster. My sense is that there’s more apologizing to come. This poor guy Andy looked like he too was somehow responsible for the communciations debacle.

Despite these ramblings, the article on the Netflix problem in today’s New York Times made me smile. The authors wrote, “But in the short term, the risk to corporate reputations is palpable.”  It is not often that I even see the words “corporate reputation” in a top tier publication. Usually it is referred to as brand health or brand reputation or positioning.  It is fairly rare to see corporate reputation used as a commonly understood concept.  My two cents is that short term feels like long term these days when you are in the spotlight. As someone said to me, it’s like a nuclear assault whether it is 6 days, 6 weeks or 6 months. Ultimately, Netflix will be forgiven but like the SocGen example above, reputation damage takes its toll and lingers longer than most CEOs care to imagine.

As I mentioned in my WSJ Europe post on tips on defending your digital reputation, video has taken off and is an excellent means of communications and telling your business narrative for CEOs. Especially for getting CEOs comfortable with social media in general. As I quoted in the article, 75% of Internet traffic will be video this year. In our research on Socializing Your CEO, we talk about the benefits of using video for your CEO, particularly the ones who are wary of too much attention and visibility.

Therefore I nodded to myself when I read about the major expansion of the WSJ’s video unit. Now it is producing 3 1/2 hours of live daily programming. I did not realize that the Journal produces more live video than other newspapers in the US. I think we will be seeing a WSJ business network soon that rivals CNBC (who they partner with) and Fox (their parent company’s network).  Will be interesting to watch and as I said, a good opportunity for CEOs as well. How much trouble can you get in three minutes live?

When I was researching and writing an article  on safeguarding your digital reputation for the Wall Street Journal Europe’s website this week, I found this interesting article on how the International Olympic Comittee (IOC) had issued social media guidelines for “athletes and other accredited persons” for the 2012 games. Now we all know that many companies and organizations have such guidelines, but this was different in that the IOC made it clear it would be monitoring online content and would withdraw accreditation “without notice, at the discretion of the IOC, for purposes of ensuring compliance with these Guidelines.”  That will surely keep athletes and any other accredited individuals from using social media for commercial purposes and harming the reputation of the games and committee. At first I thought this was a bit harsh but on second thought, many companies and organizations monitor what employees are saying but don’t outright admit it. Sounds like the IOC is being very transparent about keeping its reputation clear.

I only wish they had defined “accredited” persons.  They have a definition of terms at the end of the guidelines but do not define what it exactly means. I assume they mean third-parties but I did not have much luck online figuring it out either. Does that mean only third-parties must follow the social policies set forth? What about fourth or fifth parties — meaning four or five degrees of separation away from the first and second parties? I guess I am getting too technical and asking too many questions. But I think it would help to know if a vendor or supplier is an accredited person of interest!

Anyhow, please read my article on digital defense and the five essential tips to safeguarding your reputation.

Industry reputation is always changing. One of the major shifts in reputation today is the collateral damage that one company can inflict on its entire industry. Wish there was a more positive incline in how consumers see American business and government. Gallup’s recent analysis is now out and provides a look into who is up and who is down. It is no surprise that the real estate industry reputation has declined preciptiously from 2001. Even my own industry — PR — has witnessed a decline besides the fact that it is doing well.  The computer and Internet industry look like they are surviving the best with positive lifts in reputation among US consumers.  

The drop in perception of government, the deepest decline, seems to the theme of the day. To learn more about why that might be…take a look at our research on Civility in America. It says it all. [Have to add that the CEO of Yahoo, Carol Bartz, was fired via a telephone call. How civil is that? Regardless of what was happening at the company, what happened to the pink slip?]

  As you know from reading my blog, one of my great interests is online reputation management, particularly in times of crisis. At Weber Shandwick, we have conducted research starting way back on this topic….from Safeguarding Reputation to Risky Business: Reputations Online to Reputation Warfare and more to come. This past week I learned of some new research from Altimeter Group, authored by Jeremiah Owyang. They surveyed 144 social business program managers as well as conducting interviews with 63 corporate practitioners and providers. This included our very own David Krejci in our Digital Communications group about our social media crisis simulator Firebell.  I liked David’s quote (“experience the paralysis”) which is what Firebell does – it gives you the heart attack moment when social media has your company in its sights.  Since digital defense has been an important element of what we do, we were delighted to share information on this resource.  Some of the facts (read the full report here) worth noting are as follows:

• Be prepared. More than three-quarters of  social media crises could have been diminished or averted if companies had invested their resources internally and strategically. Of the advanced companies identified by Altimeter, 13 of the 18 have a clearly defined crisis plan with clear roles, responsibilities and action steps.  But they found that 56% of all companies had no clearly defined plan (that’s when the paralysis sets in).
• Companies need social media policies. These policies guide employees on how to participate in the social universe.  Left unguided, employees are uncertain or oblivious how to participate online and probably do so and go off the guard rails. Reputational risk is heightened, not lessened, when no social media policy is in place. In their survey, 83% of all companies they surveyed had a formal policy in place but among the more advanced ones, all 18 or 100% did. Interestingly, 8% had a policy specifically prohibiting employees from engaging on behalf of their companies. While I have traveled around the world, I have seen this to be true but it does not seem to deter most people and in fact, most definitely increases anonymity online. 
• Ongoing education is critical to managing online crises well. I found this section of the report very helpful because there is so much more that companies can do.  An example was given of a company that has a certification program with over 60 online courses.  Companies could certainly do better at social media training, whether it be brown bag lunches, speaker series, internal newsletters, etc.
• Create a scalable hub and spoke system to lead the social media strategy. The more advanced companies have a center of excellence at the hub with oversight for strategy, governance, training and education, measurement and vendor identification.  The centralized hub works closely with the cross-functional and cross-business unit support teams (the spokes) to support the overarching strategy and common policies. The hub is usually operated through marketing and/or corporate communications. This corporate social media team typically consists of 11 people. 

There is a lot of good common sense and best practice advice in this report. Take a look. We have a lot of work ahead of us to make our companies digitally safe.