Reputation trends

I think bad news comes in threes. Thinking about President Obama and the recent bad news he has received regarding the terrorist attack in Benghazi, the IRS targeting of conservative groups and the secretly snatched AP reporters’ phone records, it has to be true. It is the culmination and convergence of these three reputation hits that changed the political balance in favor of the Republicans and Tea Party members for a change. Not a full tilt but enough to rain on the President’s parade.

When I talk to company leaders about what drives a reputation into the ground, I often use the baseball metaphor that all it takes is three strikes and you are out. The first mistake happens to just about everyone these days. The second reputation hit is basically unforgivable but no one wants to put you out of business. The third hit takes you down because it is clear that leadership was absent and judgement was non-existent or negligent (even worse). When I think of the perfect example of the Three Strike Reputation Rule, I think of BP. First, they were tied to 15 deaths when the Texas Refinery blew up in 2005 in the US. Second, an oil leak in Alaska from their pipeline in Prudhoe Bay captured negative attention. But third, and for the final straw, the horrific Gulf of Mexico oil spill that ultimately drove their reputation into the ground, along with their CEO’s Tony Hayward. After the third strike, it’s time to call it quits.

Yet, from what I’ve been reading, President Obama’s approval ratings have barely budged from their high marks. Perhaps we will see the proof in the pudding at the next election cycle. Hard to tell. And BP, after much soul searching, is coming back again with new leadership, better values and a new heartbeat. The rest is yet to come.

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.

I spoke on a panel one week ago organized by the Association of Corporate Counsel (ACC) in Connecticut. The topic was “Can They Really Say That About Me?” I was joined by terrific panelists….John Hines of Clark Hill (Online Reputation: Legal Perspective), Polly Wood of Reputation.com (Protecting Your Online Reputation), Dr. Pamela Newman of Aon‘s Newman Team (Insuring Reputation) and Stephen Schultze of the Princeton Center for Information Technology Policy (Policy Perspective on Reputation).  We all had a terrific time learning from one another since we all approached reputation from different angles. I approached reputation from a company point of view, John from a legal point of view, Polly from an individual point of view, Pamela from an insurance perspective and Stephen from a policy angle. John Hines organized the event and we are hoping to take the show on the road to Chicago.

Stephen brought up a question that has been lingering in my mind since the session ended. He asked whether society was perpetuating a “reputation gap.” He posed the idea that there is a divide between those that can police their reputation and those that cannot. It costs money, time, resources and know-how to protect your reputation, build positive mentions to push down the negative, open new domains and populate social media to create good first impressions. The “have nots” do not have the same access to information and Internet savvy to protect their reputations, balance the positive with the negative or hire an online reputation management specialist to help better situate their reputations. Just yesterday I wrote on this blog that nearly $1.6 billion was spent in 2012 managing reputations online. With figures like this, Stephen Schultze has to be right asking whether there is a reputation gap. The answer is clearly “yes.”  Perhaps some of these online reputation management companies should provide services pro bono for some of the unfortunate who are maligned online and do not know where to turn to for support.

As for me being in the reputation business myself, I do make it my business to help people whose reputations have been tarnished by explaining what they can do and where they might seek help. So I hope that I am doing my bit to narrow the reputation gap.

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!

Warren Buffett, the CEO of Berkshire Hathaway, said the company’s next chief executive officer will bolster the company’s reputation as a source of stability in times of crisis. Talk about a shot of credibility if your company is in crisis or in doubt. He was referring to his infusion of funds into leading financial institutions when their stocks were slipping during the Great Recession.

At the company’s annual meeting in Nebraska, Buffet said the following:

“Berkshire is the 800-number when there’s really sort of panic in markets.”

Today I am speaking at an event with the Association of Corporate Counsel on reputation. The title is Can They Really Say That About Me? As I was preparing I looked at how much the term “reputation” had grown in the past 5 and 10 years. Listen to these numbers. Wow. In the past five years, the increase in use of the term “reputation” on Google rose 3,647%. Looking over a 10 year span, the increase was 13,056%. Incredible.

Just thought I’d share as the morning begins.

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.

Lately I have been wondering if reputation is going the way of sustainability. Years ago, sustainability and corporate social responsibility was on everyone’s agendas in corporate American and around the world. It was hard to distinguish what was the difference between corporate social responsibility, corporate responsibility, community development, philantrophy, charitable giving,  sustainability and all the other terms that were increasingly undefined, bundled together and fuzzy around the edges. Today, nearly all companies have CSR reports and it is expected of leading companies. CEOs too agree that CSR is critical to their business. A recent Accenture/UN Global Compact study found that 93% of global CEOs believe that sustainability issues will be critical to the future success of their business and 72% cite “brand, trust and reputation” as one of the top three factors driving them to take action on sustainability issues. Revenue growth and cost reduction are second at 44%. Everywhere you turn, sustainability is on the agenda. All in all, that’s a good thing. However, I still think that the terms have been interchangeable and are used indiscriminately except by those really in the know.

In a new book I just heard about, The Nature Of The Future: Dispatches From
The Socialstructed World by Marina Gorbis, she argues that in the future we may start to see Reputation Statement Accounts just like we get from the bank. But these monthly statements will not inform you of your monetary transactions, but will tell you “how much you’ve earned by contributing to sites such as Wikipedia or Flickr, how many points you’ve earned by providing rankings or ratings on various community sites, or how much social currency you’ve spent by
asking someone for advice.” We already have these kinds of ratings through Kred and Klout although somewhat different.

Her book also refers to the Whuffie Bank which is a nonprofit built on a new reputation currency that can be redeemed for real and virtual products and services. “The Whuffie Bank issues whuffies based on a reputation algorithm that blends information from different social networks and provides an accurate reflection of people’s web reputations. And as the Internet and social networks become a large part of people’s lives, your web influence will become an increasingly accurate reflection of you.” That sure is the truth looking us in the eye.

I am afraid to say that everyone is a reputation expert today. Reputation means so many things that it is getting harder and harder to pin down. And I hope it does not become the new sustainability which has meaning depending on who you are talking to.

On to the future.

I know I should get out of the house (the sun is shining) but I was so excited to read in the Wall Street Journal about a reputation committee being formed at Goldman Sachs. The lead director James Schiro is heading this effort as the lead director on the board and is apparenlty VERY focused on reputation, according to his first letter to shareholders. Reason I am excited? Because I am a chief reputation strategist, I am always looking for trends and firmly believe that reputation committees are going to being popping up in more Fortune 500 companies than in years past. For a speech I gave before women-directors-to-be a few weeks ago, I mentioned two companies who had reputation committees but that was all I could easily find in a quick search. Board attention to reputation is long overdue. Reputation is a form of wealth, a type of equity that you get to dip into when your company is in trouble or facing issues. You need a good stockpile to weather the everyday assaults most companies are facing day in and day out.  It is heartening to see reputation recognized for the worth it is. Here are a few quotes I pulled from the WSJ article that give me hope.

“He [Schiro] said the board clarified the duties of its governance committee to manage Goldman’s relationships with the outside, guard its reputation and review philanthropic and educational initiatives.”

“We continue to be very focused on the reputation of the firm,” Mr. Schiro said in his letter. A “public responsibilities” subcommittee of the board’s governance committee was formed to focus on reputation, chaired by William George, he said.”

I was eager to read JPMorgan Chase CEO Jamie Dimon’s Letter to Shareholders this year. Considering the London Whale episode of the past year, I thought his Letter would be revealing. He clearly did not skirt the issue. I cut and paste some quotes below which are direct, apologetic and conciliatory. Also, I used the picture from the Letter to Shareholders here because it was surprising in that it almost looked like a man running for office but mostly because it is something that we advise clients which is to make better use of photos of their CEOs and execs with people (preferably employees) and not alone in some corner office isolated and solitary. You can’t know what is going on in your company by spending too much time in the office. It derails CEOs all the time.

What I like was how he presented his lessons learned for his reputation recovery plan. They are bulleted below as follows and include a favorite piece of advice of mine — problems don’t age well:

• Fight Complaceny
• Overcome conflict avoidance
• Risk Management 101: Controls must match risk
• Trust and verify
• Problems don’t age well
• Continue to share what you know when you know it
• Mistakes have consequences
• Never lose sight of the main mission: serving clients

On Responsibility: “I also  want our shareholders to know that I take  personal responsibility for what happened. I deeply apologize to you, our shareholders, and to others, including our regulators, who were affected by this mistake.”

On Complacency: “Complacency sets in when you start assuming that tomorrow will look more or less like today – and when you stop looking at yourself and your colleagues with a tough, honest, critical eye. Avoiding complacency means inviting others to question your logic and decisions in a disciplined way. Even when – and especially when – things have been going well for a long time, rigorous reviews must always take place.”

On the Aftermath: “There are a few things, however, that occurred this past year that we are not proud of. The “London Whale” episode not only cost us money — it was extremely embarrassing, opened us up to severe criticism, damaged our reputation and resulted in litigation and investigations that are still ongoing.”

On Reputation Committees: “That’s why we have a risk committee framework within the firm with extremely detailed reporting and many other checks and balances (like reputation committees, underwriting committees and others) to make sure we have a disciplined process in place to question our own thinking so we can spot mistakes before they do real damage.”