The Institute for Crisis Management  (ICM) comes out every year with its list of crises. I always find it interesting to see how the year adds up. As our research shows, reputations tumble primarily because of executive and managerial misconduct. In 2007, ICM found that over half (52%) of major crises were caused by management. Employees accounted for 29% of crises in 2007 and outside forces contributed to the remaining 19%. ICM has been monitoring crisis types for many years going back to 1990. This year it found that three crisis types had risen – recalls, workplace violence and class action lawsuits. Undoubtedly, the horrific shootings at Virginia Tech accounted for the peak in workplace violence and the many toy, pet food and other product recalls contributed to the big 44% increase from the year earlier. The most crisis prone industries in 2007 were:

1. Software Makers
2. Pharmaceutical companies
3. Petroleum Reining
4. Natural Gas Companies
5. Security Brokers/Dealers
6. Banking
7. Telecommunications
8. Automotive Manufacturing
9. Airlines
10. Computer Manufacturers

Another fact caught my eye because it is one of the main tenants of my work on reputation protection and recovery. ICM found that over the past 10 years, most crises were caused by smoldering issues vs. sudden events (65% vs. 35%, respectively). I could not agree more. You can always point to a red flag way before a crisis erupts into public view. Then it’s time to hold up the white flag!

Reputation is all about having advocates to support you in time of crisis. An article in today’s Wall Street Journal on Lehman Brothers CFO, Erin Callan, supports this side benefit of building relationships before you need them. “To squash fears that Lehman could face the same kind of liquidity squeeze as Bear (now being acquired by J.P. Morgan Chase & Co.), Ms. Callan has had hundreds of face-to-face meetings and phone calls with investors and trading partners. She aggressively roots out rumors, even while pushing her bosses to disclose more financial information.” Sounds to me like she is out winning the vote every day.

The risk is often worth the reward.

I guess there is something for everyone and every profession. I have blogged before about reputationdefender. The company (whose slogan is “watch your back”) helps individuals and families defend their reputations by getting negative comments taken down from the Internet, lowered in the search rankings or explained more accurately. They counsel individual and organizations on strategies for removing harmful information which is ultimately a good thing. Now there is politiciandefender.com for those politicos who need to counter negative or untrue bloggerisms with truthful messages. As the site says, “The program is designed to build personal branding online and minimize harmful blog posts that would influence an election. Our company allows politicians to hire our bloggers to create posts on social media venues and blogs throughout the Internet in an effort to get the target message across.” In essence, the company will counterpunch or should I say counterpost right back when a politician’s reputation is being pummeled. I guess there truly is something for everyone and expect soon to see celebritydefender, professordefender, prdefender, lawyerdefender, doctordefender, cashierdefender, computerhelplinedefender, etc. You see where this is going. 

On another subject, I am often asked what companies should do to reduce their ever-mounting reputation risk. As corruption, fraud, recalls, security breaches, tainted products and financial wrongdoing continues to escalate, one idea that deserves serious consideration is assigning reputation risk responsibilities to company boards, officers or outside firms. UBS recently announced that they would establish a stand-alone risk committee as part of their board restructuring. This committee would be responsible for assessing and being informed about management’s strategy for monitoring and managing corporate reputation threats.  Financial Week has an excellent article by Jeff Nash on how companies are now in the hunt for hiring chief risk officers and fully understanding their own risk scenarios today. He quotes Spencer Stuart who told him that only 3% of S&P 500 companies had stand-alone risk committees as of 2007. That is not encouraging. Apparently Bear Stearns and Northern Rock had separate board risk committees which does not fill me with much confidence that they work as well as they should.

So what are the alternatives? I like the other ideas that surfaced in Nash’s article. Pitney Bowes reportedly has a list of 60 risk categories which are assigned to individuals who report about them to a board committee. Pitney Bowes thinks that when a particular risk or two is assigned to an individual, they are more likely to be accountable and take this oversight seriously. I agree that being able to focus on a few risks makes more sense in determining threat-levels than having to worry about 60+ risks all at once.  The article also raises an idea from a governance expert who suggests that a non-board risk committee comprised of select company executives and outside risk experts could work. I definitely see value in that idea as well because outside points of view are often critical in shaking up organizations who are rightfully concentrating on the next quarter and next customer demand. It is not easy.  

Risk radar is increasingly imperative today. Have no doubt about it.

An article in last week’s Wall Street Journal reported on Unilever’s decision to only purchase palm oil for its Dove soap brand from vendors that do not harm the rain forests. This decision was said to be directly related to Greenpeace’s efforts to save the rain forests in Indonesia and call attention (as it should) to how deforestation harms wildlife and wildlands. It is hard to figure out who came to the table first but one thing is for sure and was noted in the article by Greenpeace’s executive director John Sauven.  He said “It targeted Dove soaps and skin creams because ‘everyone has heard of those brands.’”

One of the clearest trends in the reputation landscape has to do with the danger of being number one or two among the most admired companies.  Although other companies are surely guilty of clearing rain forests to plant palms for producing the oil, the best-known brands are expected to know better and to take the heat by virtue of their standing, size and stature.

I just thought it was worth noting that Greenpeace’s head director confirmed my belief that when it comes to building reputation, be careful what you wish for (meaning being among the most admired). Leaders in corporate reputation carry great responsibility — they must set the course and must justify all their decisions in public. The pressure upon them is immense. It goes with the territory.

Thought I should report on some analysis we did with Planet2050, Weber Shandwick’s corporate responsibility and sustainability arm led by my friend Brendan May. As you know, annual reports often begin with a Letter from the CEO and/or Chairman to company stakeholders. When it comes time to learning about companies, I always read the CEO Letter since it encapsulates what is on the minds of company leadership and the business environment overall. These Letters always contain some clue as to what might is important in terms of company priorities.

Since corporate responsibility is increasingly in the news, it seemed that we could determine how permanent corporate responsibility really was from reading Letters to Shareholders. It would be interesting to discover whether the world’s largest company CEOs were acknowledging corporate responsibility initiatives now vs. several years ago. To just underscore the growing importance of sustainability in shaping corporate reputations today, think about this week’s announcement that KKR, the private equity leveraged buy-out firm, is teaming with Environmental Defense Fund to incorporate sustainability measures into its business operations and practices. This action is a continuation of KKR’s smart efforts to listen carefully to environmentalists as it did when it bought Texas utility TXU last year and reduced the number of coal-burning plants to minimize environmental harm.

Back to the Shareholder Letters, what did we find?

• Corporate responsibility mentions in CEO Letters to Shareholders increased 18 percent from 2003 to 2007.  I agree with Brendan when he said, “Clearly, CEOs in the second half of this decade have embraced corporate responsibility as a critical driver of business strategy and reputation-building.”
• Interestingly, broad environmental issues were the most frequently mentioned corporate responsibility initiatives mentioned back in 2003 CEO Letters to Shareholders. In 2007, energy efficiency and carbon emissions were the most common corporate responsibility agenda initiatives. Volunteerism, a topic featured in 2003 CEO annual report Letters, appeared less frequently in 2007.

When I used to review the findings from the Fortune Most Admired Companies survey a decade ago, I would be distressed that corporate responsibility was always the least important factor in driving corporate reputation.  Now we see that is permanently on the CEO agenda. That’s a good thing.

Hard to ignore Warren Buffett quotes. They are always so “right on.” Have been meaning to write this one down for the record and here goes:

“I don’t want an easy business for competitors. I want a business with a moat around it. I want a very valuable castle in the middle, and then I want a duke who is in charge of that castle to be very honest, hardworking, and able. Then I want a moat around that castle.”

Buffett is making the point that differentiation and the right leader make all the difference between a successful company and one doomed to fail. Our stumble rate (over three-quarters –79 percent– of the world’s number-one most admired companies lost their crowns over the past five years in their respective industries) makes it increasingly clear how hard it is for companies today to maintain a castle, moat and duke that keeps a good reputation afloat.

In May I am speaking about reputation at a conference hosted by ID Analytics.  I am looking forward to it because the more I learn about identity theft and loss, the more I see the enormous threat to personal and corporate reputation. Two things this week crossed my desk (or should I say desktop) that highlighted the strong correlation between identity theft and risk to reputation:

• A new product is being rolled out by insurance broker Lockton and Lloyd – Data Breach Reputation Guard. “When a data breach is followed by adverse media attention, the Data Breach Reputation Guard element of the policy will reimburse a business for reputational harm.”
• The second identity loss-related piece of information was something I read on Marketing Pilgrim noting a CNet article on new research among information security professionals. The survey by Frost & Sullivan (I could not find on their web site, so sorry) found that a whopping three-quarters of IT security execs report that avoiding reputation damage to their organization is a top priority.

Our research at Weber Shandwick found that security breaches were among the top five reasons why companies lose reputation today. The number of stolen identities is only increasing.  The connection between identity theft and reputation could not be more apparent. Am glad to know that my comments will resonate with those in the audience. Certainly fits the times.

 This is not at all profound but it seems to me that the group losing out during the Democratic presidential nominee process is not Obama or Hillary or even Bush. In my view, the media is the organization that is suffering the most damage. Over the past several years, several studies have indicated that there is waning trust in the fifth estate. After several scandals and declining revenues, the media is front and center again during this electoral process and getting poor reviews.  Some critics are claiming that the media is too easy on Obama (possibly not the case lately). Other critics are blaming the televised debate in Philadelphia between the two democratic candidates on the questions asked by ABC News’ Charlie Gibson and George Stephanopoulos. The endless nighttime chatter about the candidates’ war of words continues to hash the same information over and over and are engaged in a he-said, she-said stream of consciousness.

We have many more months ahead as the election race heats up and it might be the right time for the media to consider how it can reclaim its status at the top of the most admired professions. 

UBS just released an internal report ahead of this week’s upcoming shareholder meeting in the hopes of explaining how they lost $37 billion due to subprime loans. There were several articles in the papers and online about the release. Wisely, UBS mentions the report on their Web site’s home page. That was a good sign. Thankfully, the online report is only 50+ pages long since to someone outside the financial sector, it contains lots of inside baseball or should I say inside francs. There is a helpful glossary that explains all the alphabet soup products and regulatory bodies that are Greek (and Latin) to me.  The findings are particularly straightforward and downright honest. The New York Times’ reporter Uta Harnischfeger commented, “Analysts said the finished product, which reads like a detective novel on reckless banking, could, in the end, help UBS by demonstrating transparency.” Transparent is the right word. Some of the failures that led to the ouster of the chairman and tarnished reputation include (and these are just some):  

• Fragmented approval structure:
• Absence of risk management:Incomplete risk control methodologies:
• Lack of monitoring / visibility:Distraction for Senior Management:
• Inappropriate risk metrics used in strategic planning and assessment:
• Failure to demand a holistic risk assessment:
• Resistance to hard limits:
• Gaps in risk management expertise / experience at the IB Senior Business Management level:
• Failure to respond to wider industry concerns:Lack of response / speed of reaction:
• Lack of challenge to business:
• Lack of strategic coordination:
• Shortcomings in approach:
• Inability to accurately assess valuation risk on a timely basis:
• Insufficient incentives to protect the UBS franchise long-term: 

It is interesting that companies in distress are increasingly using independent internal reports as an early reputation solution. These reports go far in airing the dirty laundry and pre-empting penalties and fines. However, they go even farther in terms of recovering company reputation.  They lay the ground work for the next chairman or CEO on what went wrong and what needs changing in order to get the company back on its feet and off the respirator.  

Loved the headline in this week’s Financial Times. I was flying back from Madrid on Wednesday, April 16th, and as I pulled my FT out of my bag, I saw the premier headline:

“UBS FACES THREE-YEAR FIGHT FOR REPUTATION”

UBS’ new chairman Peter Kurer is quoted as saying:

“We shouldn’t fool ourselves. We can’t pretend  that there has been no reputational damage. Experience says it goes away after two or three years.”

I wish Mr. Kurer had called me. I could have told him that research found that it takes approximately 3.5 years to recover a damaged reputation. So he was close. Perhaps I should send him my book.