industry reputation

Many clients ask what is the potential impact of a crisis. How long will it last? When will the scrutiny die down? How does it compare to other scandals or crises? How much will it impact my reputation? When should we start the recovery process? The New York Times’ insanely smart Nate Silver who writes the FiveThirtyEight blog had an interesting post yesterday on which political scandal — the IRS targeting of conservative groups or the Benghazi attack in Libya — would be longer-lasting and possibly impact the next election cycle. Silver chooses the former (the IRS scandal) and explains so in his article. More importantly for my interests and for those that follow me was Silver’s five questions that he developed on whether a scandal “has legs.”  He credits Bill James’ Keltner list for the initial questions. To determine whether reputational injury will be enduring, these questions are a good place for companies, leaders and others to start:

1. Can the potential scandal be described with one sentence, but not easily refuted with one sentence? Using the 140 character Twitter test is one good way to see if the scandal has legs. Can you say it in 140 characters. Or try it with as few as 16 words which if you recall is all it took to sink former President Bush in 2003 when he said in his State of the Union Address, “The British Government has learned that Saddam Hussein recently sought significant quantitites of uranium from Africa.” Silver’s argument that if it cannot be easily refuted in a similarly short string of words, you have a problem on your hands. I might add that it could be even less than one sentence…it could be a video or photo today.

2. Does the scandal cut against a core element of the candidate’s brand?  The word candidate could be substituted for company or CEO. In this case, a company that proclaims transparency but is caught doing damage to the environment behind the scenes or engaging in financial manipulation is going to lose its credibility 1-2-3. Think about Enron and their much heralded reputation for innovation at the time. It turns out that their innovativeness was in their financial shenanigans, not in reinventing business processes that led to success. Even though Enron was long recognized by Fortune as one of the most admired and innovative companies in the world, the scandal essentially decimated that impression. In fact, it took its leaders from pinstripes to prison strips.

3. Does the scandal reinforce a core negative perception about the candidate? Or company/CEO in this case. As Silver says, “A scandal can be equally dangerous if, rather than undermining a candidate’s strengths, it reminds voters of what they like least about him.”  I think that Congressman Anthony Weiner’s late night racy Twitter sexting reminded people of his unlikeability and brashness. Perceptions that confirm what you already thought of a person or company are hard to shake loose. Another example would be BP’s then CEO, Tony Haywood, who at the time said that he wanted his life back while oil was spilling into the Gulf of Mexico. Unfortunately, the general perception was that BP did not care about the damage being done to the environment by the oil spill and the CEO’s statement only reinforced that negative reputation.

4. Can the scandal be employed readily by the opposition without their looking hypocritical, risking retribution or giving life to a damaging counter-claim? Most competitors in business do not take advantage when their peers are knocked down by scanal. Companies today easily recognize that a scandal for one company affects all and impacts the entire industry. The question for company reputation is “Can this scandal spread to peers and further damage the industry sector that might already be struggling?” Not a perfect example I fear but an example that comes to mind might be the quality issues that emerged years ago in China when lead paint was supposedly found in children’s toys. That perception continues to linger for products manufactured out of China today. I was recently in a children’s store when a customer asked the cashier where a T-shirt was made because she only bought children’s clothing made in the USA.

5. Is the potential scandal occurring amid an otherwise slow news cyle? This is a good question to ask when a potential reputation disaster emerges. There are countless examples of company reputation debacles that get drowned out by other news that draw the media’s attention. I always think about how some recalls get scant coverage when bigger business stories are erupting. Or how some stories are not uncovered until the cycle is very slow and investigative reporting resumes.  Silver mentions how the crude measure of a Google search shows that today, American’s appetite for political news stories is at an eight year low. So President Obama and the Democrats might just avert the sting from the IRS scandal because it’s not the tantalizing subject for readers as it might have been eight or nine months ago. Perhaps when the Dow is reaching 15,000, some stories just fade away.

A quick note for a Saturday. In this article, I read that small and medium sized business spent nearly $1.6 billion in 2012 managing their reputations online. This figure is expected to reach more than $2.9 billion in 2017. I imagine that if you added in large sized businesses, you’d be closer to $4 billion. (Just estimating) in 2012. This confirms that there is an entirely robust online reputation management industry that has just gotten started.  And the reasons behind this new cottage industry are strong when you take into consideration that nearly 94% of people do not move beyond the first page of Google or Bing to get what they were looking for. Last I had heard, the number was closer to 89% but it certainly is creeping up. I bet it hits 100% in no time.

More tomorrow!

Weber Shandwick’s annual calculation of reputation loss – the “stumble rate” – finds that a few more of the world’s largest companies retained their esteemed status as their industries’ #1 most admired company during 2012. This is good news.

Each year Weber Shandwick measures the rate at which companies lose their #1 most admired position in their respective industries on the Fortune World’s Most Admired Companies survey. We call this the stumble rate. Between 2012 and 2013, 46% of the world’s largest companies experienced a stumble, slightly down from last year’s 49%. These companies did not have too great a stumble, however. On average, they dropped two places, falling from number one to number three in their respective industries. However, for those companies that did fall from their perches, the loss is agonizing. Boards of directors and CEOs will want to understand why their reputations eroded and why their competitors leaped upwards. Explanations will be in order.

Of course, the bright side of the coin is the non-stumble rate of 54%. This means that more than half of the industries in the Most Admired survey boast companies with durable reputations.

In addition to calculating the stumble rate, we also dig through the data, including the nine drivers of reputation, to glean some interesting insights about stumblers and non-stumblers. A stumbler is an industry whose top company last year is no longer the top company this year. What is interesting this year?

• 22 industries (out of nearly 60, give or take depending on the year) have never had a stumbler since we started monitoring the stumble rate in 2010. The most admired companies in these industries have been stalwarts of reputation: Automotive Retailing; Building Materials-Glass; Computer Peripherals; Consumer Food Products; Electric & Gas Utilities; Electronics; Entertainment; Household & Personal Products; Information Technology Services; Property & Casualty Insurance; Internet Services & Retailing; Metal Products; Mining, Crude Oil Production; Oil & Gas Equipment Services; Pipelines; Newspapers & Magazines Publishing; Railroads; Semiconductors; Apparel Retailers; Diversified Retailers; Food & Grocery Wholesalers; Office Equipment & Electronics Wholesalers.
• 13 industries have stumbled at least three times since 2010. The most volatile, with four stumblers each, are: Airlines, Energy and Life & Health Insurance. Those with three stumblers are: Computer Software; Consumer Credit Card & Services; Financial Data Services; Food & Drug Stores; Medical Equipment; Motor Vehicle Parts; Petroleum Refining; Telecom; Tobacco; Health Care Wholesalers.
• No one particular driver of reputation took a big hit or could be said to be the culprit for reputation erosion. The worst average declines among drivers across all stumblers were experienced only by two drivers – management quality and long-term investment. All other drivers declined by just one ranking position, on average. Perhaps some stabilization on what positively and negatively affects reputation is taking hold.
• However, four stumblers lost rank on all nine drivers. The hardest hit was the Airlines industry. The company that stumbled took the greatest blow on its quality of management driver (dropping 6 ranking spots). Ouch. Other hard-hit drivers for this company were innovation, social responsibility, long-term investment, product/service quality and global competitiveness (a loss of 5 positions on each of these qualities). The company that supplanted this stumbler improved on all of its nine drivers in impressive fashion, rising at least two rankings positions on each driver and four spots on two drivers (financial soundness and global competitiveness). This does not mean that this new “king of Airlines reputation” will necessary remain so…this particular company was also tops two years ago and, as discussed earlier, Airlines is among the three most volatile industries.
• From zero to hero in 12 months. One stumbler lost its enviable top position to a company that is a newcomer to the World’s Most Admired evaluation. This goes to show that even the most reputable companies need to be on guard from all angles – not just their traditional competitors.

Am trying to keep my eyes open. I arrived in Tokyo late last night or should I say early this morning and hoping to adjust before I hit the road visiting our offices, talking to media, presenting research on social CEOs and meeting clients. I thought it would be a good idea to look at The New York Times and understand a headline I saw about “fire ice” in Japan. Why that would necessarily keep me awake, I can’t explain. Perhaps I thought it would distract me from wanting to sleep.

But I was glad because I also found an uplifting oped from David Brooks. I was drawn into it because he started out talking about how he goes to conferences hoping they will provide him with fodder for his twice-a-week columns. His conclusion is that these conference conveners are the same ones that make it on the glossy covers of business magazines and other upscale publications. They are flashes in the pan. He then goes on to say that all those quiet, unassuming, downhome executives are the real movers and shakers we should be hoping to learn from. He says the following as way of contrast with the cover boys:

“Meanwhile, the anonymous drudges at American farming corporations are exporting $135 billion worth of products every year and transforming the American Midwest. The unfashionable executive at petrochemical companies have been uprooting plants from places like Chile, relocating them to places like Louisiana, transforming economic prospects in the Southeast. Most important of all, the boring old oil and gas engineers have transformed the global balance of power.”

Brooks pays homage to the “Material Boys” — the people who grow grain, drill for fuel and lay pipeline. He calls them the real winners. This peaked my interest because it was unusual to read such reputational support for the oil and gas industry but here it was. The oil and gas industry is usually a fairly maligned sector but Brooks gives them a thumbs up for providing jobs, keeping emissions down and making us energy independent in a big way. Always good to see a reputation shot in the arm.

I was taking a look at the new Harris Poll RQ study that was released this week. Reputations of U.S. companies are always important to review in order to see how companies or sectors are improving while others are declining. The survey has some reptuational nuggets worth sharing here.

This year, 16% of the U.S. public said that the reputation of corporate America was improving, an increase of 7% over one year earlier. That is positive news despite the fact that 49% of consumers say it is declining. That is not a surprise because trust in business has reached its lowest depths over the past few years of economic decline. But it is a good sign that reputations are making somewhat of a comeback.

But what really has left me thinking twice is not the finding that Amazon.com is the most highly reputable company in America this year, a notch above Apple. What has me in a state of awesome disbelief is that Amazon earned nearly 100% positive ratings on all measures related to Trust and that among Americans who have discussed Amazon with their family and friends, nearly 100% of these conversations were positive about the online retailer. I have rarely, if ever, seen a company ever get that close to 100%. I’ve been conducting research for a long long time and this is an amazing feat. 100% satisfaction! A rarity.

The Harris Poll also found that more than 60% of consumers say that they now “proactively try to learn more about how a company conducts itself”  before they consider buying that company’s products and services. Again, the world of reputation is seriously changing when people care this much about a company’s treatment of employees, customers and communities. Values are increasingly playing a greater role in reputational perceptions and this market force is only going to continue. Mark my words.

Reputation is often high on agendas these days.  Years ago, it was not usually number one but among the top three to five items that kept boards and CEOs up at night. This week someone sent me an issue of Operational Risk and Regulation and I quickly breezed through the table of contents online when I noticed that they had an article describing a risk survey among operational risk managers. This is not usually the typical stakeholder group I get asked about so I took a look at the various types of risks that were keeping them up at night or at least, stressed out during the day. Reputational damage was at the top of their top 10 list for 2013.  When I turned to the fuller description on reputational damage, the first sentence was quite boldly stated. “A good reputation has never been easier to lose — though this may not be a problem for much of the financial sector, as it doesn’t have one.” I understand where the author is going with this statement but the financial sector does have a reputation, just not a particularly good one. A company or sector can have a good or bad reputation and in some cases, somewhere in between. Most every sector, person and organization has a reputation. And just as a company can lose reputation over night or in seconds, so can it begin the process of redeeming itself by beginning the process of being straightforward, transparent and communicative. The financial sector, like many others, has certainly been battered but it does not mean that it is not crawling back and trying to restore its credibility. If anything, the financial crisis of the past few years has taught the financial sector to be more humble and that might just be a good place to start.

Ordnance Survey, in association with Operational Risk & Regulation

I attended a Council of PR Firms Critical Issues Forum about one week ago. However, I can now only think in terms of PHS (pre-Hurricane Sandy) and PostHS.  It feels like the world has been turned upside down since life has not yet to normal. My neighborhood is basically fine (meaning we have power) but everything seems different in some indescribable way. Since I cannot get to the office, I have been working at home. We will see what Monday brings.

I wanted to write about the survey that Harris Interactive did with the Council on the connection between brand and corporate reputation. This topic was the theme of the forum. As you know, this is a subject we at Weber Shandwick also know well — take a look at our report on The Company Behind the Brand: In Reputation We Trust.  The Harris Interactive study analyzed results from several of their own studies (50,000 consumers) and VP Robert Fronk concluded: “Marketers might profitably think of themselves as operating in the corporate reputation business, while corporate communicators might think of themselves as operating more deeply in the product marketing business.” As we also found, brand and corporate reputation are now indivisible. The Harris Interactive analysis looked at three industries — auto, B2B and Food/Beverage. It is worth looking at their brochure, Hidden Harmony, which I highlighted above because it shows what drives purchase consideration and recommendation. To give you a taste, below are the drivers of purchase consideration for the auto industry. I was fascinated by the importance given by consumers of how employees are treated when it comes to perceptions of reputation in the auto industry. And no surprise that trust is high on the list for both brand and reputation. Brand consideration appears to be very me-centric (how it fits with my own image, seeing it everywhere, brand is exciting). For reputation, in constrast, the drivers are very company-centric. They are different but when strengthened together, they are a powerful punch. They should not be siloed.

I wanted to mention an example of a new movie about fracking with Matt Damon that is soon to be released, Promised Land. The reason I want to post about it is that I predicted a few years back that this would become a trend in the reputation landscape and it has. I also like to use my blog as an archive on all things reputation. Lately I have found that when I have a presentation or speech coming up, I can find good examples to use to make my case.  So this blog comes in handy in many ways. 

Promised Land is about a natural gas company salesman, Matt Damon, in rural Pennsylvania and his plan to lease natural gas drilling rights there. The movie, to be released at the end of December, is already raising concerns in the energy industry (according to this article) and they are reportedly distributing research, information about fracking on social media and preparing brochures about fracking to educate the public. It is not clear if the movie takes a stand on fracking but sides seem to be lining up.

The article I read about Promised Land also mentioned an HBO documentary called Gasland on fracking’s impact on the environment and a subsequent energy association documentary in response, Truthland.

All of this is on my mind because of the article I wrote on Reputation Warfare for HBR and how companies can imitate adversaries’ reputational assaults and need not remain defenseless.

I wanted to keep this blog as a bookmark for how reputation strategies are changing over time as companies increasingly take on their opponents. My, how the world of business is changing.

Totally fascinating to me that China releases a list of its wealthiest citizens, similar to the Forbes 400. The list, Hurun Report, had some amazing facts worth sharing and which I learned about reading The Economist. The leading source of wealth came from individuals making their living off of manufacturing and not real estate as it was one year ago.  There were also interesting correlations between wealth and zodiac signs with those born in the year of the Rabbit outranking those born in the year of the Snake (2^nd) and year of the Dragon (3^rd). At the bottom of China’s wealthiest 1000 individuals are those born in the year of the Ox. The reputation of the Ox is in danger.

But most interesting was the downfall of some of those who make the Hurun or the Forbes Wealthiest people list. There is greater scrutiny from tax collectors, regulators and the public. There is even a book titled “The Curse of Forbes” which describes the problems that surface when being lauded as one of the nation’s richest.  In a report that the article cites, researchers found that those companies headed by entrepreneurs who make the list find that their market value declines sharply three years afterwards.  Clearly, being on a rich list in China brings the bad with the good and puts reputations in jeopardy.  The Economist title was “To Get Rich Is Not Always Glorious.” An apt headline.

Not surprising but always important to remember that reputation can deter customers away from something as basic as a checking account or other product.  In a survey by Datamonitor’s Financial Services Insights group, consumers in the U.K. – a large 78% or just imagine nearly 8 in 10 – say that a bank needs an untarnished reputation for them to use them. This high figure is up from 53% in 2011.  That is a very large jump in perception on the importance of reputation in the banking sector. Clearly, the banking scandals of the past 12 months or so have hurt the reputation of the banking sector in the U.K, if not all around the world.  I wish I could find the link to the actual report but when I looked, the reports were expensive so this link that reports the finding will just have to do.  Regardless, the point is made. Consumers are increasingly thinking about whether their banking institutions have a good reputation or not before they decide to do business with them. Years ago, it would have been unheard of for an institution like Lehman Bros. to close down.  Since that catastrophic event and the many others that followed, consumers do not want to take any chances.  That’s clear.