Reputation crisis

Yesterday I was asked to talk about what I do at Weber Shandwick to our Crisis and Issues group in New York. It was an end of the week get together to take the edge off of all the long hours. I talked about reputational issues and answered several questions. It was a nice opportunity for me to reflect too.

I was asked where all the celebrity CEOs had gone which made me recall my first book on CEO reputation. The book was released at the height of the dot com boom when 22 year old CEOs were the norm and celebrity CEOs were plentiful.  In my book, I tried to make the point that it was not CEO celebrity that mattered but CEO credibility. As I was answering this question, I realized that I hit on some of the right notes as to why CEO celebrity was not the same today but missed a few. In fact, I mentioned that being CEO today was not  an easy job whatsoever. CEOs are much more embattled.  Here are some of the reasons I talked about yesterday but others as well taken from an Economist article I was saving to post about.

• CEO tenure is shorter than it used to be (on average 6.6 years, according to Booz’s research).  They usually come into office with great fanfare. They get approximately two years of grace when they start out (more like 18 months), 2 years to provide evidence that their strategy is working and two years to get pushed out. After six years like this, it’s best to be a CEO nobody.
• CEOs don’t have all the power anymore. Most CEOs now have separate chairmans that are looking over their shoulders and asking a lot of questions.  Booz found that in 2002 48% of incoming CEOs were also chairmen.  In 2009, that number dropped to 12%.  Hard to be a celebrity when there is power sharing going on.
• CEO compensation is always a headline and increasingly links the CEO title to perceptions of greed. CEO compensation is actually declining.
• Shareholders and stakeholders are not sitting idle. They are much more aggressive.  Some hedge funds are actively browbeating CEO and corporate decisions and in executives’ faces. The ridicule can get strenuous.
• Boards are more active too. They don’t want their reputations shamed either by poor CEO decisions or poor behavior. And according to Korn Ferry, new board members are more likely to be deep in international experience and have worked abroad. They are not necessarily golfing buddies like board members of yore. Angry birds maybe, but not necessarily tee time!

With all these barriers in place to curb the power of CEOs, celebrity CEOs can hardly flourish. Instead, we are looking at a new world of convening CEOs who communicate internally to employees, communicate online or through video to netizens, travel to speak to customers and influencers at forums they convene themselves (IBM‘s Smarter Planet  method), partner with third parties and government to problem solve on today’s economic woes and so forth.

In a piece I wrote for The HuffingtonPost for 2012, I forecasted that reputation blackmail would show its hand this year. Lo and behold, a front page article in yesterday’s paper headlined “Hackers-For-Hire Are Easy to Find.”  The article had to do with two feuding brothers from Kuwaiti who were suing one another over business they held. One of the billionaire brothers found someone to hack into his brother’s account and post online all his brother’s personal emails including finances, legal affairs, pharmacy bills and everything else that you can imagine gets sent and received from one’s personal account. The cost: $400. Hackers to hire are that cheap and apparently easy to find. One of the reasons there has not been much on this topic where reputations can be easily lost is that people do not want to report this type of reputation blackmail and generate even more attention.

In this instance, the one brother hired Invisible Hacking Group located in China and here is how it works:

“It requested the target person’s email address, the names of friends or colleagues, and examples of topics that interest them. The hackers would then send an email to the target that sounded as if it came from an acquaintance, but which actually installed malicious software on the target’s computer. The software would let the hackers capture the target’s email password.”

You get the picture.

Reputation blackmail presents a very scary scenario. Not only is privacy damaged but reputations which take a long time to rebuild get decimated.  Reputation protection can only go so far. Risk management and reputation warfare gets more complicated by the day.

A few interesting things crossed my mind and desk this week that I thought I would share. All reputation-related of course.

1. The World Economic Forum released its report on the top risks facing the world in 2012. Social unrest and income inequity were at the top. Natural disasters such as the earthquake in Japan were also high on the risk list. And as pointed out, one risk affects another creating a domino effect. “The Internet, meanwhile, can magnify and spread the effects of a disaster in other ways. Rumors, even if incorrect, spread quickly on social networking sites — sometimes more rapidly than emergency services can communicate accurate information. As word of disasters like the terror attacks of Sept. 11 or the earthquake in Japan spreads globally, consumers hunker down in front of their computer screens or televisions, rather than going about their daily lives. This increases the economic effects of a crisis, even in areas far removed from the source.”  Disasters such as the horrific earthquake, tragic 9-11, death-defying financial crisis, massive oil spills and nasty ash clouds coming from Iceland all heighten other risks in some way. And risk spells reputation damage depending on how a company or country responds and solves the problem.

2. The report from WEF also mentioned that risks are on the horizon as leadership transitions are in full force this year. It is not just the U.S. presidential election that poses risk and stirs up emotional angst. There are leadership transitions underway this year in France, Russia and China as well. Add to that the sudden transitions in the Arab world this past year and we see upheaval and uncertainty. When CEO transitions are underway, the first few months can be risky so as we see world leaders change, tighten your seatbelts. The public will be more socially active than ever. We’ve already seen that in Russia.

3. I’ve written here about rankings and so-called “worst of” lists where companies, CEOs and environmental records are put on notice that they are not making the grade. In most Januarys, TripAdvisor.com comes out with its “dirtiest hotels” in the world.  No more. The CEO Stephen Kaufer says, “We want to stay more on the positive side, so we’ll continue to feature the best destinations, the top hotels.  We’re slicing and dicing the ‘best of’ in different ways this year, more than focusing on the negative.”  Although the article where I learned about this says there were potential legal considerations and competitive reasons for abandoning the January list, it also mentioned that the original “worst of” list was done for PR reasons and that TripAdvisor is less interested in that now.  Perhaps there is a reputation-reason afoot here. There is so much negativity online on some of these sites and it is so easy to find what you are looking for that a list of the 10 worst may be hardly worth alienating visitors to your site. Everyone worries about the detractors and the praisers. Maybe it is time to just worry about the average site visitor who does not want snarky comments and lists, but just the plain old straight forward facts to plan a plain old relaxing get-away.

It has been an unusually warm couple of months here in New York. I can’t    help but think that global warming is staring me right in the face.  I often think of myself as a bear that hibernates when cold weather arrives. I often joke with my neighbors that they won’t see me until spring because I’ll be going into my bear cave for my “winter sleep” when the first chill arrives.  So the past couple of months have been an anomaly as I have wandered out doors more often than usual on the weekends. Of course I have to go to work and do the ordinary errands that surround my life but given the choice, I stay inside. Maybe that is why I like to write about reputation because it gives me an excuse to sit in my little office cave that is closed off to the world.

All of this got me to thinking about how climate change gets communicated today when there is criticism about  the science after controversies arose from the release of stolen emails from the Climatic Research Unit (CRU) at the University of East Anglia. This happened a year or two ago.  Undoubtedly this is the perfect case study for how an industry (climate change scientists) suffered reputational damage and now has to recover and restore reputational equity. Climate change skeptics were fairly adept at effectively persuading many in the general public to doubt the scientific validity of global warming.

I was glad to see an article in the New Scientist (sorry, you need a subscription) by Robert Ward (policy and communications director at the Grantham Research Institute on Climate Change and the Environment at London School of Economics) on how some of the reputation recovery methods that I recommend in my book might be applied to regain confidence and trust in climate science.  He sees the situation right, “Even if the claims of misconduct and incompetence are eventually proven to be largely untrue, or confined to a few bad apples, mud sticks.”  This is a truism — no matter how much science you have on your side, it is sometimes never enough when it comes to public opinion.  Sometimes the facts just don’t matter as much as they should in a perfect world.

Ward is right that hope is not a solution to rebuilding reputation. Many CEOs used to think they could outlast controversy but in fact learn the hard way that it only extends the problem.  ”Communicating tirelessly” — one of my recommendations — is the right path forward.  ”No comment” does not work as it used to. Whether it is finding neutral partners or independent coalitions to bring additional voices into the discussion or actually training climate scientists to transparently talk about and defend the science — its certainties and uncertainties, communications will do more good than harm in this digital world.

An interesting analysis of temperature records appeared in an article in The Economist  which speaks to the importance of bringing in a third, fourth or fifth party opinion to validate scientific findings.  I read it on a plane to Europe in November but kept it because it made commonsense as an approach to understanding the climate change debate — is it getting warmer or not?  Let me just add here that the topic of global warming is a lot more complicated than I will ever understand — gaps in readings, different criteria, different types of thermometers, urban settings where temperatures might be recorder higher, etc.  But interestingly, the Berkeley Earth Surface Temperature project stepped into the argument on climate change 18 months ago to test existing analyses. And they did so with the addition of skeptical scientists and funders as well as Nobel prize winners. As it is often said, let’s open the kimono and thus they did. And they found that the existing temperature records that the earth was warming was not far off the mark from what had been previously reported.  A peer review is underway and I look forward to learning more about that when it is released.  Next up, however, for climate scientists and institutions affiliated with climate change,would be communicating openly and collectively (and maybe relentlessly) to explain how the newest findings answer questions, raise new ones and guide us as to what we need to be doing Now not Later.

Took me a few days but finally found a chance to read a fascinating review in the Financial Times of the impact of the insider trading scandal at management consultant McKinsey & Company and its impact on their reputation. Andrew Hill did a fine job providing a historical review of McKinsey’s ups and downs over the many years of its storied existence and finding former partners and employees to offer their perspectives. As you already know from the trial of Raj Rajaratnam of Galleon Group, the hedge fund CEO is accused of insider trading using tips from former McKinsey partners’ Anil Kumar and Rajat Gupta, global managing partner who left after several terms in 2003.  What intrigued me of course was how McKinsey was recovering from this reputation catastrophe and how it fit with the best practices in my book on reputation recovery. This is not just a bruise but a serious injury to McKinsey’s reputation. Here is what they did so far:

• Communicated regularly with employees and former employees
• Initiated an independent inquiry with the help of a law firm
• Improved processes over protecting confidential client information
• Reviewed its ethics policies and standards
• Redefined what constitutes ”material non-public informtion”
• Built a formal “stop-list” of client stocks that no McKinsey person can trade (not just those assigned to the account)
• Added new training procedures
• Strengthened governance

True to its highly analytical way of attacking corporate challenges (they work for 90 of the top 100 companies in the world, among others), they looked back at how they handled prior problems. Coincidentally, the article points out that they had been putting together a comprehensive internal history of the firm which luckily offered them insights on how they have historically dealt with challenges to their reputation and livelihood. The latter best practice is one I highly recommend to others. In my book, I talk about the importance of the Rewind period where companies study their mistakes to from the past to create a better future. Lord John Browne of BP did so after the refinery fire in Texas City and asked the question of how they did not see the pattern of errors that turned deadly sooner. Looking in the rearview mirror may take time that leaders do not think they have but critical warning signs are often present. Retromining is a critical piece of recovering reputation. As the new McKinsey global managing director, Dominic Barton, also did, he studied other thriving cultures that failed. As Barton said in the article, he had been “thinking what happened with the suppression of the Jesuits in the 1700s. This may seem strange, but [it was] an organisation that was thriving and doing well and all of a sudden was severely challenged.”

We recently released an interesting exploration on the relationship between top corporate communications officers and legal counsel when it comes to reputation management. I have already posted about this relationship where these two senior corporate officers seem to be working together more than ever. In light of the multiplying crises that companies and its leaders are facing on an hourly basis, the relationship between the two officers including outside counsel has to be strong and respectful.  As we say in the report, “general counsels (GCs) and chief communications officers (CCOs) are now finding themselves participating in the same reputation management strategy meetings, conference calls and contingency planning sessions. GCs, external legal advisors and CCOs now have no choice but to trust and understand each other.”

There are several noteworthy insights and best practices in “Managing Legal and Reputation Risk” but two stand out for me in particular. The first is that you can’t prepare enough and expect surprises. …”executives still find the nature or intensity of the situations they’ve managed to be unfamiliar or unanticipated on some level.” This is so true. There is always something overlooked or unexpected.  In fact, it seems to me that it is getting harder to find precedence for some of the crises that arise. For example, the Olympus crisis has few precedents.  For this very reason, being ready, practicing a few scenarios ahead of time and giving time to “near misses” are sensible readiness processes to have in place.

Another finding that resonated with me was how general counsels appeared more willing today to balance the interests of the business with legal priorities. They said this, not just me. There are times when the short term hit (such as apologizing or admitting that the company could have done better and will do better in the future) outweighs the costs of winning or losing in a court of law down the road. The fact that many of the legal counsels we interviewed agreed that the “short-term pain for long-term gain” is often the right strategy demonstrated the transformation in communications-legal circles that we explored.

Another stat to add to the many on how long it takes to recover reputation. Actually I should say…to add to the few. There really are not that many besides the one we did some research on that shows it takes about three to four years after a crisis. However, I found this one from the Ponemon Institute and Experian that says that nearly 850 executives say that it takes about one year to restore an organization’s reputation after a data breach.  It also found, depending on the type of breach, that the average loss ranges from $184 million to over $330 million. Or put another way– the minimum brand damage is a 12% loss which could increase to 25% of the brand value if the breach was horrific.

Just as disturbing is the lack of data breach preparedness according to the research. A fairly large 43% had no plan in place to deal with a breach of confidential leak or theft of customer data.  Perhaps this is why there seem to be so many. Most companies are unprepared and do not think of a data breach in the same way they do another type of crisis that is more common. Either way, it is critical to be prepared since if you really want to make your customers mad, a data breach is a surefire way to make that happen.

  Just returned from a multi-city tour of Europe where my colleagues and I talked about socializing your brand. This was based on our (Weber Shandwick) new recent research. We spoke to many clients and prospects about digital communications and the rewards and risks that come with this new territory.  Someone asked how you balance the reward-risk ratio when your senior management does not recognize that digital is so important to reputation today. In fact, our research found senior marketing/brand/comms executives saying that over half (52%) of a brand reputation today is attributed to how social it is. And this figure is expected to grow exponentially as time goes by. This gentleman said that being a social brand is akin to surfing with sharks. I loved the analogy because it explains how great it can feel to employ digital to communicate and give voice to a brand’s story and yet how unexpected it can be when you feel that shark ripping into your reputation.

The answer of course is being prepared. That’s what the best of companies do. Crisis readiness gives you the head start you need today, in both a digital and non-digital world. Reputation is increasingly hard to manage while swimming with the unknown.

Reed Hastings, CEO of Netflix, in response to recovering their reputation after several recent missteps:

“The focus is on bringing back our reputation and brand strength, but it won’t happen through grand gestures.”

  I just recently saw the term “reputation laundering” in an article I was reading on the plane (which is where I seem to spend alot of time these days). I always like to mention new phrases that involve the word reputation. It is one of my favorite pursuits (which is pretty pathetic if you think too much about it). So I went to search for the term to find the article again and came across over six thousand mentions of the term.  The Guardian seemed most closely associated with the term because of their reporting on the practice in the UK, so they say.  What is it? It is the practice by institutions or individuals to disguise the source behind wrong-doing. Not a good thing. Just thought I’d call attention to the phrase in case anyone else found it interesting.

On another note, a colleague sent me an example of reputation response and recovery (thanks J). It an interesting interchange from the CEO of Deutsche Bank. Apparently Foodwatch approached Germany’s largest bank to warn them about the bank’s speculation in the agricultural market that they said was increasing hunger and poverty worldwide. Now what was different here is that the playbook changed. The CEO — Josef Ackermann — rarely responds to these types of criticisms.  At first, the bank rejected the accusations in Foodwatch’s report and petition. But in short order, the CEO responded in a letter to the head of Foodwatch by saying he shared their concern and would review the bank’s activities in the trading of agricultural commodities: “I share your sadness that so many people on our planet continue to live in poverty and must go hungry.” And Ackermann wrote in his letter:

“No business is worth risking the reputation of Deutsche Bank.”