Ethics

Last week I came across something that stopped me in my tracks. Actually I was going nowhere because I was on the subway but it struck me (and I shuddered) that I had a moment of insight into a news story that had tremendous implications for companies and their abilities to create lasting reputations. The Pulitzers were announced last week and The New York Times won four. What was so startling to me was that two of the highly prestigious and acclaimed Pulitizers (50%) were for indepth, investigative reporting on the overseas behavior of two different companies. One was a series of reports on alleged corruption at one company and another Pulitzer was won on the costs of human capital in a company’s manufacturing products abroad.

Here is why this is so important — leading companies, the best we have to offer, must safeguard their reputations at all times and not let up for one minute because the spotlight on them is only growing brighter. And just because business operates differently in other cultures or regions, if the behavior does not align with the company’s values or is morally correct, it’s reputation-damaging and wrong no matter where on earth it happens. Earning the right to operate is given to companies through governments or regulators but the license to operate is still very much dependent on the perceptions of communities and consuming public around them and online. How a company behaves matters today and consumers buy based on how companies treat their employees, vendors, customers, communities and others everywhere. Our recent research on the company behind the brand shows that in spades.

These Pulitizers are an early warning sign to companies to carefully consider their behavior on all counts if they want their reputations to be shatterless.

Reputation mandate. The new CEO of Barclays made it clear to employees at the beginning of the year what it would now take to repair the bank’s reputation and equally clear about what they did not want. The new CEO pointedly said in his memo to 140,000 employees that things were going to be different now and employees should know that…”The rules have changed. You won’t feel comfortable at Barclays and, to be frank, we won’t feel comfortable with you as colleagues.” Anthony Jenkins took over from CEO Robert Diamond who resigned when news broke out about Libor manipulation or rate-rigging.

Jenkins believes that the prior regime put short-term profits ahead of values.  Now that he was in charge, people have to commit to their reputation restoration program or hand in their IDs. Their program is called the TRANSFORM program and is based on living their values to restore Barclay’s reputation, not just to restore their bottom line. As part of their rebuild, all employees viewed a film of the bank’s history (“Made by Barclays”). Their new values and purpose, developed by their senior leadership group and Executive Committee along with many others, were also unveiled. Their Purpose is to help people achieve their ambitions “in the right way.” Their five values are Respect, Integrity, Service, Excellence and Stewardship. As this new program rolls out, people will be measured and rewarded according to these values. Sounds good. Ambitious. Doable. Will be watching.

A new reputation study by Pam Cohen, a behavioral economist for Dix & Eaton, was recently released. It appears that they are looking at various industries and chose the financial sectoras the first one. For this analysis, she drew on over two dozen data sources, government statistical information and industry rankings and surveys. Of the nine drivers of reputation, the top five that impacted corporate reputation in this industry were shareholder investment (ROI), CSR, transparency, sustainability and image. Cohen remarked: “While it is no surprise that ROI shows up among the top drivers of financial institution reputation, more telling is that corporate social responsibility is the number-two driver, and sustainability number four. This, of course, highlights our culture’s return to grass roots despite – or perhaps because of – the downturn in the economy. Values are viewed as being critical to organizational success and acceptance.” Cohen also mentions her surprise that “image” rose back into the top ranks of reputation drivers, a spot it has not held since a decade ago. To me, image is a peculiar term in many ways. When I first started in the reputation business, people used to respond to my answer about what I did as “oh, you do image or impression management.” That used to make me irritable because reputation is so much deeper than image and they were missing the point obviously. I think of image as fleeting, temporary and shallow whereas reputation mobilizes people to support a good company by investing in them, recommending them, believing in them and listening to them. But for this study, I am confident that image was a catch-all for reputation, trust and admiration, all of which Cohen references. I also found it interesting that “transparency” was third in the list of drivers of reputational impact which speaks to the importance of telling it like it is, not saying “no comment,” and being timely and relevant in company communications. Fascinating to me was that “ethics” or “good ethical conduct” did not appear on the list since ethical behavior has been so important in valuing companies of late. Perhaps ethical behavior falls into some of the other drivers and that information was not mentioned in the release.

The second industry they analyzed is retail. Using somewhat different criteria for reputational impact, Cohen found that the leading ones here were overall satisfaction, quality of goods and services, price/value, trust and problem resolution. They also looked at sustainability efforts, convenience and variety. Cohen used social media in this analysis which makes sense considering that social media can go a long way in resolving issues and refining products. When it comes to retail, the quality of products and services nearly always goes first. Makes sense.

I met Pam Cohen years ago when she was at the Ernst & Young Center for Innovation. Some of the research that I did back then on CEO reputation was fed into her analysis which was featured in Forbes. Glad to see that she is still working the reputation angle because her research is top-notch.

Barron’s World’s Most Respected Companies came out last week.  It is a highly coveted list for companies and must please CEOs and boards.  Barron’s lists are definitely worth following because the ratings are gathered from money managers, not consumers which seem to be the stakeholder of choice these days. Apple was number 1 this year which is not a great surprise.  Interestingly, the writer mentions that the problems Apple has faced with FoxConn appear to only be a distraction for now. As always, the ups and downs of company reputations are revealing, particularly among this money-centric set.  As much as I like the list, I like the write up more because there are usually interesting nuggets of information.  This year, these stood out:

·         Investors gave more thumbs ups to US based multi-nationals.  Barron’s says that this is because of the outperformance of domestic stocks in a year of global tumult and the outperformance of quality mega-cap shares as global growth expectations diminished.  Six of the top 10 are among the 30 members of the DJIA.  This was more pronounced than usual.  Even though the money manager sample is US based, Nestle managed to sneak into the top 10 which says a lot for that company’s prospects.

·         What drives perceptions of the world’s most respected companies among this select set? Strong management and sound business strategy top the list, followed by business ethics, product innovation and then financial performance.  In the past two weeks, it seems that I have had more conversations about Ethics and reputation than I usually do. I have been asked to define business ethics, trust and reputation and how they are interchangeable and need better defining.  And as you see below, ethics ranks #3 among money managers in their respect for companies.

·         Russian and Chinese companies did not perform well in the rankings. Clearly there is a perception of “untrustworthiness,” says Barron’s.

·         They predict that the global healthcare companies might be due for a reputational upgrade.  Barron’s says that right now all the pharma companies are cast into one big “ugly” bucket of drug-patent expiration, reimbursement head winds and weak development pipelines.  “Funny, it would seem a forward-looking investor could make the case that aging populations in the developed world and growing medical spending among the emerging middle-class could boost these giants’ fortunes in the coming years.”

Am stealing shamelessly here because I found this so interesting. The survey is from the Luxury Institute and this is their press release. Traditional media is still an important source to wealthier consumers when it comes to learning about CSR efforts by companies but watch out, social media platforms are gaining. However, according to this survey, even the wealthiest are being careful about costs, no matter how ethical a company is.  

“In a new survey by the independent and objective New York-based Luxury Institute, “Corporate Social Responsibility: The Wealthy Consumer’s Viewpoint,” U.S. consumers earning at least $150,000 per year define socially responsible corporate behavior, rate companies and divulge importance of socially responsible practices in shaping purchase decisions. Responses were compared to those from the same survey in 2007.

Most (82%) wealthy Americans define social responsibility by a company behaving ethically with employees, customers and suppliers. Environmental behavior and philanthropic actions are both named by respondents as an essential component of CSR (58%).

Almost half (45%) of wealthy consumers say they seek out brands with high ethical standards, but only 39% of these shoppers would be willing to pay a premium. That’s down from 56% who would pay a premium in 2007. Apple, BMW, Coach, Lexus, Mercedes-Benz, Nordstrom, Starbucks and Whole Foods are frequently cited as highly ethical standouts.

Twenty-seven percent of wealthy consumers learn about companies’ socially responsible behavior via Facebook or Twitter. That’s up from 8% who received their information from social media in 2007. Reading news articles is the most popular (52%) way to learn of CSR efforts, down from 64% five years ago.

“Even wealthy consumers have de-emphasized social responsibility as this economy focuses everyone on price/value and away from social issues,” says Luxury Institute CEO Milton Pedraza. “Nevertheless, we see that luxury and premium brands that are socially responsible do better even during recessions because doing well by doing good is a universal and timeless concept.”

Respondents reported average income of $307,000 and average net worth of $3.1 million.

A few things from my week worth sharing. Some more important than others but certainly worth my musing about when it comes to reputational issues.

RED CURLY HAIR. I have been fascinated by the new movie Brave and what I have read about how they fashioned the red curly hair of the first female leading protagonist for Pixar named Merida. “Merida’s explosion of fiery ringlets started as a series of springs on a computer. The Pixar team created many kinds of springs, including short, long, fat, thin, stretched, compressed, bouncy and stiff. In order to give Merida’s hair volume, the springs were entered on the computer screen in layers. The layers varied the length, size and flexibility of each curl. We used 1,500 hand-placed, sculpted individual curls. There is this weird paradox where a ‘spring’ of hair needs to remain stiff in order to hold its curl, but it also has to remain soft in its movement.” Since I have red curly hair that does moves this way, I found it fascinating how challenging they found it to do when I see it live every day. It is a miracle of physics and hair-raising proportions (Merida has more than 1500 individually sculpted, curly red strands that generate about 111700 total hairs!) And also, I have a niece named Merida. My sister visited Mexico many years ago and decided that she loved the name. Apparently the Pixar people had the same experience because I read that it is a name found in both Spain and Mexico’s Yucatan peninsula. Merida will be the new Ariel. Red curly hair is going to break through and have a reputation of its own.

COMMUNICATING ETHICS. I attended a conference this week on best practices in ethics communications. The conference was sponsored by Ethisphere and others. Several companies presented how they have built a culture of integrity and ethical conduct and communicated it successfully. What was most telling was how much work and persistence went into building ethics-minded cultures. Presentations came from AFLAC, GE, AECOM, Realogy, Fluor and a few others. Every company had the usual communications vehicles to show such as posters, contests, wallet fold outs, web sites, internal awards, Q&As, banners, videos, newsletters, logos, screensavers, full weeks dedicated to compliance, and so forth but you could tell that ethics was baked deep within each company and there was zero tolerance for misbehavior or wrong-doing.  Moreover, these companies were willing to tackle the hard questions that get raised when ethics is discussed and confronted. Once a company goes down this road, there is no looking back.  Interestingly, AECOM spoke about a global advisory board which included business and political leaders that they posed questions to and asked for feedback. They found it useful when confronting the challenges of different cultures around the world.  Another great example of a truly imprinted ethics program came from the Panama Canal Authority.  Their program was stellar. GE representatives also spoke about their in-depth initiative which they refer to as The Spirit (Ethics) & The Letter (Compliance) and the importance of tone at the top. Amen.  For all the best practices presented, the CEOs were directly involved and critical to success, particularly because budgets have to be set aside for these kinds of initiatives. GE also spoke about the “need to get caught doing some good things,” having the courage to follow through and recognizing that there are no half measures. Fluor’s efforts were compellingly presented because they are a “quiet” company that made a big public commitment when they helped found the Partnership Against Corruption Initiative (PACI) in 2004 at the World Economic Forum.

STORYTELLING. Just to close the week, I was reading an article in The Economist on my way home last night about how Japanese companies could do a better job of storytelling and marketing their companies. It talked about the cultural bias where making things is considered more virtuous than selling them. It closed with an interesting quote that sums it all up. “In Japan, people say: the nail that sticks up gets hammered down—an engineer’s view. In the West: the squeaky wheel gets oiled—a salesman’s mantra. In a crowded global marketplace, even the best-engineered wheels need to squeak.” Food for thought.

Woke up to the New York Times and an article on the WalMart shareholders meeting in Benton. I was curious how the meeting was going to go because of the recent alleged scandal involving Mexico bribery corruption. And I was particularly intrigued by the backdrop they used for for the presentations. It was an adaptation of the first 5 &10 cent store of Sam Walton. I have always had a soft spot for WalMart because when I was at Fortune, Sam Walton was revered as a hero of small and big business. And John Huey, the editor at the time, had written a book on Sam Walton that really resonated with me. So I was also abit taken aback when the article mentioned a question asked by an analyst at Raymond James. He asked executives what they though the effect of the Mexican problem would be on the company’s reputation. CEO Mike Duke responded, We will be a better company because of this.”  Because of my long history in the reputation field, I am still surprised when questions about “reputation” get asked as if it was the same as what’s the weather going to be tomorrow? or what did you have for breakfast today? It is such a natural question today of most CEOs and leaders (how’s your reputation? what’s your klout score? whose reputation do you admire the most?). Reputation-asking has become an ordinary, humdrum, conversational, colloquial question. At least there are people around like me who still know that years ago, this would not have been the case. And it was particularly interesting that the analyst was asking it since analysts are usually thought of being the first to ask about a problem’s impact on the bottom line and share price. Not on a company’s reputation. They usually are not defenders of intangibles.  So let’s just say that progress is being made and reputation is now squarely on the business agenda. 

Just came across some research from ReputationInc that holds some very interesting information. Here are the main facts they discovered by examining the curriculums of the leading Executive MBA programs identified by the Financial Times. They were looking to see how reputation was incorporated into the course work.

•       1 in 5 leading EMBA programs teach none of the 10 core reputation disciplines

•       Just one of the 50 leading EMBAs has ‘Reputation’ as a core module

•       Communications & relationship building skills are taught in less than 20% of programs

•       Government & policy relations is covered by fewer than 1 in 5 EMBA program

•       Governance and ethics is the most popular reputation discipline being taught to business leaders today (no surprise there)

ReputationInc cites McKinsey research that found that one-half of global CEOs say managing external affairs is one of their top-three priorities. Yet one fifth of the world’s top 50 global Executive MBA programs do not offer any training in the core disciplines of reputation management. They report that the missing disciplines include CSR, stakeholder engagement, government relations, communications, and reputation management strategy.

More worrying still, just two of the top 50 business schools surveyed offer a dedicated reputation

module and 80% offer no training on either public affairs or external communications – the two core “hands-on” skills executives need to build reputation. “The results reveal a frightening gap between the reputation skills business leaders must possess in 2012 and the cursory attention they get in the traditional executive MBA.” 

The programs with the highest ranked scores for including reputation are Henley Business School, Essec/Mannheim, and the University of Texas at Austin: McCombs.

I wholeheartedly agree with this statement: “On this evidence, companies and shareholders should be concerned that Executive MBA programmes risk creating ineffective business leaders who leave academia without the skills to actively manage the precious asset of corporate reputation,” said John Mahony, CEO, ReputationInc.  “Reputation management skills are vital for today’s CEO who sets the tone and mood for a corporation and must lead from the front in communicating the purpose of the brand and its value to society. Many managers are not born ready to meet this challenge and will benefit from coaching and confidence building in reputation, something today’s Executive MBA courses fail to adequately provide.”

I was lucky enough to attend the Arthur W. Page Society meeting a few weeks ago and hear some thought-producing  speakers on reputational issues in a complex world. I believe I promised in my last blog post that I would write more about the 10 lessons learned from the global corporate communications officer at Toyota, Jim Wisemen.  One of the statements he made which deeply resonated with me was how he used to think that he was among the top corporate crisis counselors – pre-recall, that is.  He candidly and I must say very humbly said that he learned once the crisis began that he had a thing or two to learn about crisis in today’s world.  Wisemen said that when the recall began, they were receiving 500 calls a day from the media! And although they had a 1-800 number for customers to call regarding the recalls and that they had been used to getting 3,000 calls daily on average, that figure jumped to 100,000 per day when the recall began.  And this 800 number had only been programmed to manage 15,000 per day.  Imagine managing in this type of reputation-on-fire environment.  So here are the 10 lessons he gave to the audience of senior corporate communications officers at the meeting. Worth keeping in a safe place to pull out when the fire bell rings at your company. His lessons are good guides to our collective futures. Thank you to Jim for sharing with us.

1. Listen to customers
2. Communicate internally, fast and frequently
3. The new media breeds hysteria, deal with it
4. Get help from friends
5. Understand the politics and fight back
6. Swallow pride and communicate with legal (you are now joined at the hip)
7. Educate the media (consider informing reporters on automotive issues beforehand such as safety)
8. Emphasize social media
9. Stay true to your principles (The Toyota Way)
10. Don’t let it ruin your life –try not to take it personally

A double whammy this week.

Just saw that a new corporate reputation survey by Prophet come out today and tomorrow Fortune’s World’s Most Admired Companies survey hits the airwaves. Prophet surveyed consumers in the U.S. and found that “attributes related to openness, ethics, and the kind of public dialog companies foster in response to marketplace events and circumstances were deemed most important.” Companies’ behavior in response to crisis and difficult times apparently makes a difference in perceptions.  How people deal with adversity matters in our perceptions of friends and colleagues, why not companies? I was not surprised reading this since a company’s character and values are most on display when companies are under assault or scrutiny. You learn alot about people and companies when they are in the spotlight or shadows.

I finally found a moment on the train to read McKinsey’s latest research on how well companies manage their government relations. In fact, today I was talking to someone about this so it was definitely top of mind. He made the point that reputation matters even more today because government has such a big role in business affairs and can affect economic outcomes.  There is one CEO I quote often who said that government affairs was his 7th line of business. Love that line.

The McKinsey survey was conducted among corporate executives around the world and this was my favorite part. When asked which stakeholders would have the greatest effect on corporate economic value over the next 3 to 5 years, 74% named customers. Makes sense. But second on the list came government/regulators at 53%.  This highly influential group ranked higher than employees (49%), investors (28%), suppliers (17%), media (measley 9%, ouch), NGOs (mere 3%, ouch) and organized labor (2%, definitely ouch).  When you look at industries such as health care, energy and financial, government/regulators are #1 for each….ahead of customers and all the rest when these executives are thinking out 3 to 5 years from now. Now that says something about where reputation will be headed too.