reputation damage

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.

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.

There has been a fair amount of news this year about people who risk everything and ultimately lose their whole reputation.  Why would anyone take that risk?  An article on “What makes a rogue trader?” made me think about people who take risks without realizing that they have so much to lose.  Also the news today about Illinois Governor Rod Blagojevich being sentenced to 14 years in jail for corruption made me wonder what drove him to this pitiful situation. Money? Power? Just because he could do it. Interestingly, the article posits one theory….”What matters most of all is not how much a gamble alters their wealth, but where they start –whether they are already satisfied, or have suffered loss. Their overriding trait is their inability to accept loss.” Thus, these people are compelled to do whatever they have to in the name of gaining more wealth or achieving political office to avoid loss of their stature or status or sense that they are okay human beings. The loss seems to always outweigh what they sought in the first place. And these risk-takers lose all remnants of reputation and respect in the end. Something that you can’t even put a price on. Makes you think about Bernie Madoff. What was he thinking? His reputation is in shreds, at best.

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.”

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.

  It has been a very hectic week as we travel around to the many markets in EMEA to discuss Socializing Your Brand, our new research on what it takes to be truly social today. As always, I try to keep up with other news and events and that has been harder than usual as my laptop crashed between markets.

Caught an article citing Michael Silverleaf, legal counsel hired by News Corp., saying that it would be harmful to air information related to “a culture of illegal information access” because it would be “extremely damaging to NGN’s public reputation.”  (NGN=News Group Newspapers) I had a double take when I read the last two words of this sentence. Is there such a thing anymore as a public vs. private reputation? It seems to me that there is no longer a divide between private and public. There are no secrets and we are all public figures and public institutions. Let`s get real.

The other article that caught my eye came about while taking a train with my colleague to a mountain top village near Geneva.  Instead of day dreaming as I had hoped, this brought me back to reality. The article is terribly interesting because it is about women CEOs and how their husbands support them in their quest to the top.  James Stewart wrote it probably because he was thinking about the new female CEO of IBM who recently joined the exclusive – and small — club of women CEOs.

“Asked at a Barnard College conference what men could do to help advance women’s leadership, Rosabeth Moss Kanter, a professor at Harvard Business School and author of the landmark “Men and Women of the Corporation,” answered, “The laundry.””

Hah. If only it were that simple. Made me realize that I had to get back to the hotel and get some laundry done quickly for the next leg of the tour.

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.”

 This week we launched our excellent survey on what it takes to socialize a brand. It is among top marketing and communications executives in companies around the world. One of the drivers of world class social brands is being ever so careful about the assaults on a brand’s reputation.  We learned in the survey conducted with Forbes Insights that executives of world class social brand companies are 35% more likely than the average global company to report that their brand experienced an online crisis in the past year that affected its reputation. These social champions who have dealt with a recent online crisis are no stranger to the risks of the hyper-connected world — two-thirds (66%) report that they deal with negative online commentary on a daily basis (vs. 51% of total global companies). The latter point was good news to me although perhaps not so for companies. The reason I say that is because I often get asked about how often companies experience reputation crises and I quickly respond “daily.” Our research reveals that nearly two-thirds of socially aware companies are dealing with reputation threats and its just the tip of the iceberg. Just this week we saw Netflix and RIM in the news — some self-inflicted and some not.  If you want to read more about the blackberry crisis and my comments, go here. These types of online crises will only increase as the world gets smaller, more people go online and more are eager to share their opinion about brands.  Being vigilant is the job of everyone. Lets not fool ourselves — we all have to play cop.

Have Asia on my mind as I am soon airborn. A few facts and stories I just learned as I am preparing to go and talk about reputation trends. These are all China-based for now….

• In four years, more than 700 million people in China will be watching online video sites. Youku, similar to our YouTube, is one such leading site. (McKinsey Quarterly, 2011). Pretty dazzling if you ask me.
• Even during the global recession, sales of luxury goods in China rose by 16%. (McKinsey Quarterly, 2011).
• An interesting incident that caught my attention. Apparently the CEO of DangDang (China’s Amazon) exploded at his bankers in a profanity-filled tirade blaming them for an IPO that undervalued his firm. The language was so profane that when reported there were alot of ****s. This all appeared on Sina Weibo, China’s Twitter.  Apparently some employees of the bankers fired back on Weibo although now there are reports saying they were not employees. Whatever the story, what I found interesting is that we focus so much on social media guidelines for employees and perhaps its time to develop them for CEOs too! Not exactly a reputation-building story.

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.