Why reputation continues to matter

We all know that bad reputation costs and good reputation pays. Thought this survey of more than 1,000 people in North America demonstrated those attitudes once again.

  • Nearly half of employees say they would need a 50% increase in compensation to join a company that does not have a good reputation. Women would require more than men in terms of pay increases to make such a leap.
  • Nearly everyone (93%) would leave their jobs today to work for a company with a good reputation. To do so, they’d need an approximate 33% increase in pay.
  • And wow, slightly more than three-quarters (76%) would not take a job – even if unemployed – from a company with a poor reputation. That’s an argument if ever there was one for reputation-building.
  • And a hefty 72% consider it important to work for a company whose CEO cares about societal or environmental issues. This is even more important to women than men (75% vs. 69%, respectively). In research we’ve done over the years, we consistently find that corporate citizenship is more important to women than men in their employment preferences.

Another powerful argument for why reputation matters.

 

 

Society Brand Reputation

A Society Brand. That's an interesting way of phrasing the importance of corporate responsibility for companies and its impact on stakeholders. An article in PRWeek described a study by StockWell where they interviewed 26 financial leaders in the UK -- financial analysts, investment bankers,  investors, brokers, risk officers and IR directors -- about corporate reputation today. Interestingly, they learned that financial performance is not the end-all be-all of what drives a company's reputation. Although financial value is fundamental to a company's reputation, the relationship with the wider community is now recognized as having the potential to put that reputation and financial value at risk, especially if tampered with. The moneyed group now strongly believes that reputation is more important than ever and that a strong "society brand" is critical to a company’s long-term commercial future. As the report says, "...non-financial performance factors now have a significant bearing on corporate valuations and investment decisions."

However, this group is very sceptical of CSR initiatives and CSR reports and do not see them as solving reputational challenges. Yet, that does not surprise me when it comes to financial perspectives on CSR. Although they may be perceived as window dressing, CSR is not. It focuses leadership and as government directs fewer resources towards citizen well-being such as health and education, companies have a critical role in safeguarding families and communities in these areas. What surprised me was that nearly half of these financial leaders could not name three companies that had reputable Society Brand reputations and 12% could not even name one company that fit this bill. Paltry to say the least.

  • Almost all (96%) saw reputation as having increased in importance over the past few years.
  • Over two-thirds (69%) considered reputation a critical area for corporate risk management.
  • Four-fifths (80%) agree that a strong Society Brand is critical to a company’s long term commercial future.
  • More than half felt there was too much emphasis on the Financial Brand.
  • 81% saw Society Brand as relevant to all investors, not just SRI funds.
  • 46% felt that a Society Brand was reasonably or very relevant to investment decisions.
  • 46% couldn’t list three companies with a good Society Brand.
  • 61% agreed that companies with a poor Society Brand trade at a discount as markets and analysts build in reputational risk.

 

CEOs and CSR: A Mismatch?

Last week I was in Berlin speaking at Humboldt University's Conference on Corporate Sustainability and Responsibility. It was the 6th annual conference convened by the very admirable and scholarly Professor Dr. Joachim Schwalbach. I was a little embarrassed because he kept telling me how well-known I was my reputation work and how people were attending to see me!

I had been asked to keynote a morning session on CEO Reputation, CSR and Thought Leadership and participate in the panel discussion afterwards. The panel focused on the importance of CEOs in the world of CSR and sustainable practices. If you want to read more about the conference, please read Elaine Cohen's synopsis which does a terrific job summing it up. She is a much better note-taker than me. Elaine was the moderator for two of the panels I was on and she did an excellent job making them compelling, stimulating and useful for attendees.  She blogs and runs her own social and environmental business consulting firm, specializing in CSR strategy, reporting and assurance. 

For my part, I spoke about the importance of CEO reputation when it comes to CSR. As I see it, CEOs are responsible for assigning their resources to different strategies and pathways. If the CEO wants to commit to sustainability and make the resources available, it will happen. If not, the CEO might just make sure that a CSR report is written and distributed and call it a day. 

The panel that followed my keynote was lively. One of our panel members was a senior executive from Egon Zehnder, the highly reputable executive recruiting firm. We all gasped when she told us that CSR capabilities, expertise, and interest are not qualities that companies ask for when looking to hire CEOs. As Elaine quoted her in her round up, "Instead, CEOs are hired for traditional qualities such as decision-making, P&L orientation, experience, profit maximization etc." It was a rude awakening to a CSR-fest audience and unfortunately, I do not doubt what she said. My sense is that boards spend more time focusing on what the CEO candidate can deliver to the bottom line than how many CSR reports they've signed their name to.  I am not that naive to think that financial performance is less important that CSR. However, the stark realization that CSR is not on board agendas when looking for new CEOs was crushing to a room full of do-gooders (hate the word but you get my drift) and believers.

To my disappointment, CSR has always been a laggard when it comes to what drives corporate reputation. For the many years that I have studied corporate reputation and CEOs, the leading criteria are quality products and services, financial performance, management quality, the ability to build and lead teams and having the right stuff to motivate others. Honest and ethical conduct also figure high in the list of what matters. CSR usually falls in the bottom tier of drivers no matter how important it has become over the past decade and how important it should be considering that the planet is spinning on borrowed time. 

Here is what I think. It still might not be at the top of the list of drivers for executives, boards and other influentials but it is becoming critically important to future consumers. Responsible consuming or buying products and services based on being a good corporate citizen is only going to increase over time as our resources stop replenishing themselves and the younger generations begin populating our ivory towers. The Millennial generation will have to see to it.  When that happens, it will matter to boards of directors and subsequently to those in the CEO consideration set. Time will tell. 

 

CFO perspectives on CSR

As I mentioned in my last post, I have CSR on my mind because of a conference I am speaking at in Berlin in a few weeks. In recent years, when people ask me if companies in the U.S. were CSR-mindful, I would often say absolutely yes. It seemed to me that American corporations had fully embraced the need for CSR initiatives and reporting in the same way that European companies had years earlier. As proof, I would cite research such as this: In 2013, 72% of S&P companies published sustainability reports compared to 53% in 2012 and 20% in 2011 (Governance & Accountability Institute). However, I do have to add that I had started to notice that the topic of corporate sustainability seemed to be plateauing -- still important but essentially table stakes at this point for most companies. I was not sure if I was right or if I was just noticing the tail end effect of the great recession here in the U.S. With this in mind, I came across an article in The Wall Street Journal that provided some missing clues to what I was sensing.

The WSJ article notes that if you ask European CFOs about investors' interest in sustainability issues, they would most likely say that they absolutely shape their company's communications around ESG (environmental, social and governance) strategies. They would add that European investors believe that if a company has solid ESG goals and actions in place, its financial results will also outperform over the long-term.  And to underscore the seriousness of CSR in the European Union, 500+ employee companies in Europe will be required to publish annual non-financial reports by 2017 that disclose company progress on sustainability, human rights, diversity in management and suppliers. "The planet typically trumps short-term profits."

The article also makes its point by highlighting a study done by Duke University's Fuqua School of Business that found that American CFOs were indeed less interested in CSR than their European counterparts. "Nearly half of U.S. chief financial officers rate CSR and sustainability as moderately important or very important items in their business strategies. By contrast, the rating in Europe is 63 percent, 67 percent in Asia, 76 percent in Latin America and 83 percent in Africa." Clearly, investors in the U.S. are not demanding that U.S. CFOs articulate their sustainability targets for the next 10 years or more American CFOs would be digging deep into their CSR storytelling. Instead, we can presume that U.S. investors are merely asking about quarterly results and not much else. 

Interesting counterpoints. 

Reputation drives corporate-NGO partnerships

A few interesting notes here on corporate responsibility perspectives that I came across this week:

1. When it comes to the reasoning behind corporate-NGO (non-governmental organization) partnerships, reputation and credibility leads the list for corporations while access to funds tops the list for NGOs as driving factors. For corporations, the second most important factor in what makes these partnerships work is achieving long-term stability and impact that while for NGOs, access to people and contacts is ranked second in importance. The two partners seem at odds when it comes to what they consider their ROI from these partnerships which surprised me. Understandably, each is getting something out of the partnership that the other dearly needs and which is nearly priceless. A jolt to your reputation is worth its weight in gold and access to funds is critical to NGOs who only thrive when they have support. However, despite these opposite points of views, the two organizations are quite confident that their strategic partnerships are meeting their objectives -- 93% of NGOs say they are very or quite confident in these unions and 89% of corporations say the same.  Another interesting fact from this study by C&E Advisory was that corporations are better at regular evaluations than NGOs. Nearly two-thirds of corporates (63%) measure their collaborations every year compared with only 40% of NGOs who say the same. 

2. An article in Ad Age this week by Paul Klein (founder of Impakt) says that CSR reports produce no value. "Why is something that is so inconsequential so well-resourced?" he asks. He suggests some ways to improve this deeply embedded trend in most corporations around the world. Who doesn't have a CSR report these days? He suggest that communities themselves become the authors of CSR reports and are given a chance to rate the companies themselves. Second, let advocacy groups have their say in company CSR reports since they seem to be the only ones reading them (his quote). And third, create an interactive portal where there is real time reporting and real time response. Sounds like CSR reports need their reputations tweaked.

3. I have reputation and CSR on my mind this weekend because I am getting ready to speak at a well-esteemed conference on Reputation and CSR at Humboldt University in Berlin. It is the sixth annual conference on corporate sustainability and responsibility. Looks like a terrific event.

 

 

Reputation Actions That Absolve

In a recent post, I talked about new research that demonstrates how companies can repair their reputations by communicating their good deeds and what actions they intend to take to remedy their failure to (represent their numbers accurately, i.e. restatements). In the research report from Stanford and Emory University, there is an appendix of examples that companies took to improve corporate governance post-crisis and absolve themselves as well as regain financial value. I thought they were worth listing here as a reminder of the goodwill actions that get companies on the way to reputation rejuvenation:

Board of Director Actions

  1. Appointing new independent directors
  2. Require that board members obtain permission to serve on other boards
  3. Continuing education for board members
  4. Shortened board tenures
  5. Increased number of votes required for new board members
  6. Shareholders allowed to call special meetings via two-thirds vote
  7. Eliminating anti-takeover provisions
  8. Minimum stock ownership guidelines
  9. Technology/software for board members to access board materials remotely

Incentive/Internal Control System Actions

  1. Hire Chief Compliance and Business Ethics Officer reporting directly to BOD
  2. Remediation plans to address internal control deficiencies
  3. A different tone with respect to internal communications regarding application of GAAP
  4. Hire Chief Risk Officer 
  5. Hire Chief Regulatory Officer 
  6. New Statement of Principles and strengthened Code of Conduct

Restructuring/Reorganizing

  1. A strategic refocusing
  2. New operating structures to align and clarify accountability

Customer Actions

  1. New worldwide re-branding
  2. New 10 day warranty on products, warranty extensions
  3. Announcement of various industry awards

Employee Actions

  1. New employee policies to cultivate a culture of compliance
  2. Announcing high ratings in best place to work surveys

Community Actions

  1. Announcement of charitable programs 
  2. Announcement of contributions to a grant program