Posts Tagged ‘reputation damage’

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.

What is the cost of reputational harm? The New York Times has a back of the envelope calculation from recent crises making the news. Here is what they say?

“It would be too crude to conclude from this analysis that reputation is worth 11 to 14 percent of market capitalization…” and concludes the following: “What is clear, though, is that reputation has huge value. Companies need to guard theirs vigilantly.”

Somewhere in my many investigations on reputation, I have seen a similar calculation that reputation (not reputational harm) places a 10 to 14% premium on a company’s market value. So the Times might just be right.

[By the way, back from vacation. Back to work.]

   An article in yesterday’s WSJ (need subscription) had a smart opening paragraph. It was an oped by Peter Hart and Dan McGinn, well-known pollsters and strategists, about the oil spill in the Gulf of Mexico and the impact on reputation. The play on the Andy Warhol quote is a true keeper. Here it is:

Pop artist Andy Warhol predicted in the 1960s that “in the future everyone will be world famous for 15 minutes.” Well, the future turned Warhol’s prediction on its head: 15 minutes of shame has replaced 15 minutes of fame.

This sentiment marks why I wrote my book on reputation recovery. Every company can expect their 15 minutes of shame today. It may be 15 minutes, 15 hours, 15 days, 15 weeks or 15 months. I did not want to start the holiday weekend here in the U.S. without mentioning that this is at the core of reputation management today and the need to be prepared.  Enjoy the weekend. I intend to.

  With all the coverage and discussion on oil spills, I keep thinking about a conversation I had a few years ago with the head of communications at an oil major in Europe. We were talking about crises that the industry had suffered and he mentioned that there was nothing like the “panda effect.” I told him I was not sure what he meant. Now I do. He said that in high risk industries such as oil, safety risks are just part of the job. Deaths are expected and they happen. But, he said, when animals or wildlife are harmed and the pictures are blasted across the media, the “panda effect” does its most serious damage.  Hard not to see his point as visual after visual pictures wildlife affected by the recent Gulf of Mexico oil spill. 

On a similar note, I was talking to someone just this past weekend about the oil spill and she mentioned birds she saw on TV covered in oil slick.  “I am an environmentalist and this really upsets me,” she said. I reminded her that 11 families lost their loved ones as well and somehow that single fact does not get the same attention and outrage from the public and media.  She looked at me somewhat sheepishly and I felt a bit guilty for making the point. But here was an example of the panda effect in action.

The panda effect on reputation is unavoidable but now more powerful than ever with the spread of news online.  Every day I am reminded of  this one fact.

Quite the week on many counts. For one, I was quoted in the WSJ on the Tiger Woods crisis. The best part about being quoted besides seeing what the writer ends up taking from your conversation and how it fits into the piece is the time spent on thinking about the question you are likely to be asked. I would say that most times, I can never tell what will be quoted after a 20 minute conversation. I knew that the writer would have to start out wiht the crisis lesson 101 that everyone has been talking about which is to get out in front of the news. So I did not feel required to say that. Anyhow, we covered many topics and she quoted me about sometimes ignoring your counsellors and following what your core values say are important (that of the company).  The question was what lessons does the Tiger Woods crisis provide for companies?  And there are plenty. My friend Joy Sever, another reputation expert, sent me this excerpt in our late night exchange on the topic from Bill Moyers’ interview with author Jeanette Winterson about heroes. Thought it was worth repeating here.

BILL MOYERS: What intrigues me about the Greek gods, Romans too, is that they do great deeds. But also they get drunk, and as you say, they womanize, they lie, they negotiate with the Gods of the underworld. It’s true, isn’t it, that if you find the hero in mythology, you also discover the monster?

JEANETTE WINTERSON: Always, yes. The thing is double faced. It’s as though these people are hinged in the center, and that the good and the bad have folded back, touching each other in each person. But you know, that’s what so strikingly true, isn’t it, about the human condition? That we’re not one or the other, or very rarely. Often, the people who do achieve great things, are also people who have fatal flaws. All heroes have fatal flaws as well as reprehensible conduct. … when you read the hero myths, the things that brings them down are always very trivial. It’s always the thing in themselves that they can’t control. And there is also a truth about the hero, that they can never be killed, or destroyed by anything simply from the outside. They have somewhere to collude in their own death or destruction.

Then I got an email mid-week from Del Jones at USA Today on second generation CEOs. He was writing about the Comcast acquisition of GE’s NBC Universal and the prospects for CEO Brian Roberts. I’ve always had a special interest in family businesses because it seems that my entire extended family was involved in one for ever and a day. It’s what got me so interested in business in the first place. So when asked about my thoughts on Roberts, I remembered the saying that I heard from my dad which was that the first generation starts a business, the second generation runs it, and the third generation ruins it. That’s the quote he used in the article .  In retrospect, it was the right thing for me to say although at the time I was not so sure.

In both articles this week, I was the closer. I wonder what that means.

   Crisis is the ultimate reputation destroyer. Rarely does any company exit without a bruise. For those communications professionals at the heart of the crisis, the lessons learned take you to unimaginable places and arm you with irreplacable insights and experience. Jon Harmon, a former Ford corporate communications executive and someone I know,  just released his aptly titled book, Feeding Frenzy, about the well-publicized Ford-Firestone crisis. Jon provides more information about the book on his blog as well. Jon tells the tale of the two companies — Ford and Firestone – colliding over deadly tire and safety issues that grabbed headlines and public attention for weeks on end. His minute to minute descriptions of the frenzy keeps you on the edge of your seat (if that is how you read).  I remember hearing that the corporate communications department received 800 calls or more within minutes of the news breaking. Managing reputation when your house is on fire is one hell of a job.

For all of us anticipating or living through reputation recoveries and crises now, it is a must read.

  There is a new officer title emerging that includes reputation as one of its responsibilities. I learned about this in an article on CSOonline.  The new (and not so new) title is Chief Security Officer and although it is still about business continuity and enterprise risk, it is quickly evolving to include brand protection and reputation security. We just have to be reminded of the Dominos incident to realize how important brand protection and integrity is nowadays. In addition, just think about what happens to your reputation when email scams, copyright infringement, phishing, brand high jacking, etc., accelerating even more.  As the head of global security at Caterpillar rightfully said: “With the proliferation of social interaction tools any company’s brand could be put under attack for a multitude of reasons. We all have to be very, very astute about watching for those emerging risks and to be able to deal with them.” 

The need for CSOs is all the more urgent. Our research among executives around the world about online reputation management found that confidential document leaks and negative employee chatter are keeping leaders up at night. [I read today that the federal deficit is keeping Obama up at night these days. High on his risk agenda I presume.] Companies need to do much more to protect their reputational integrity as well as that of their employees, partners, and supply chains.

Aon annually reports on global risks facing industries and is cited in the CSO article. Reputation damage is among the top 10 greatest risks that executives are concerned about. The survey was taken last fall when the economic news was fairly catastrophic and the U.S. presidential election was close. Therefore not surprising how high the first three risks are below.

The Top Ten Risks Around the World
1. Economic slowdown
2. Regulatory/legislative changes
3. Business interruption
4. Increasing competition
5. Commodity price risk
6. Damage to reputation
7. Cash flow/liquidity risk
8. Distribution or supply chain failure
9. Third-party liability
10. Failure to attract or retain top talent

Maybe we just need more CROs…chief reputation officers to combat this increasingly menacing reputation infection.

It seems like everyone is coming out with their lists for “best and worst of” for 2008. There sure are plenty “worst of” cases.  Reputations have taken major hits this year.  I was contemplating who took the biggest beating and why. I would have to say that the financial sector wins the award for worst reputation damage of the year. There is no end to the thoughtlessness that has caused irreparable harm and anguish to people the world over. The economic meltdown caused by subprime losses, greed, fraud, lack of oversight and sheer idiocy makes one speechless.  Although I cannot predict when our financial institutions will recover, I can say that it will take years to rebuild the massive amounts of trust that they have squandered.  The Bernie Madoff scandal ends the year on a very dour note. My family knows people who have had their life savings wiped out overnight. One woman we know was getting 18% on her accounts every year. Many people are now putting their homes on the market and praying for the best although the worst has arrived at their doorstep.

I have been quoted a fair amount the past few months on CEO apologies. In fact, tomorrow I was intereviewed on NPR on CEO apologies in 2008. The absence of these regrets has caused the media to question why and what it takes to simply say I am sorry.  Most people believe that CEOs are to blame when companies go awry or entire sectors detonate. As I have said before, apologizing can be seen as a sign of strength, not weaknesses.  If CEOs carefully adhere to the values they ask everyone to follow, they can easily see that apologies are often the “right thing” to do.  Here are some guidelines for all those reputation-busters thinking that an apology might be in order:

1.       Move quickly

2.       Accept accountability

3.       Refer to what was wronged so it is clear you know what was done

4.       Apologize for outcome/express regret

5.       Share the pain

6.       Be transparent

7.       Be sincere

8.       State plan for making sure the event never happens again and what that is

9.       Spare the finger pointing

10.   Issue regular progress reports

Eating humble pie never hurt anyone.