Interesting Reputation Sidebars

Just a few bullets that caught my eye over the past few weeks on the topic of reputation.

  • In a wickedly well-written and snarky article in The Economist on CEOs living in glass houses (no kidding), especially in this new social world, a few things stood out. First, a mention about research among Wharton researchers that found that the most emailed articles among 7,000 articles from The New York Times over a three month period had to do with topics that evoked fear, anger and anxiety. As the author said, perfect click bait for “evil CEOs.”
  • From that same article mentioned above, a fascinating stat which I am saving for my folder on Why Crises Are Bad News? is this one: “The stock market is more sensitive to reputational disasters than ever before. In the two weeks after the 1989 Exxon Valdez oil spill in Prince William Sound, in Alaska, Exxon’s shares dropped 3.9% but quickly rebounded. In the two months after the Gulf of Mexico spill in 2010 BP’s shares fell by half (and have still to recover fully).”
  • The Hay Group, who conducts the World’s Most Admired Companies (WMAC) Survey for Fortune every year, reports that internal and external reputation management is the most significant factor in consistently enabling the WMACs to outperform their peers. And to add in another good proof point, 75% of these most admired companies worldwide regularly communicate the importance of their company’s reputation to their workforce.  
  • Also from the Hay Group article, a statement which surprised me. They say that the world’s most admired companies now have “much greater control over their reputations” compared to five years ago. I think that this is a perception that could be easily debated and I’ve be in several of them lately.  On one hand, companies might feel that they have less reputation-control due to the rise of the Internet, NGOs and the never ending media-frenzy but you could also say that with disintermediation, companies now have more tools in their arsenal to bypass the media to get their messages out and to listen early on to stakeholders before the conversation turns viral and damaging. A great topic for a debate. I might save it for a panel discussion.

Hope to add more to my collection of interesting reputation nuggets in due time.


How Leadership Shapes Crisis

Andrew Hill of the Financial Times recently wrote about managing crises and how all the planning required today cannot suffice when a situation is beyond catastrophic. He uses lessons learned from a second site in Japan that was equally overcome by the earthquake and subsequent tsunami that hit the island in March 2011 as the Fukushima nuclear reactors. Hill says, "managing in a crisis is not just about planning."

He cites an article in Harvard Business Review about how a sister plant of Fukushima Daiichi dealt with similar events to their nuclear reactors after the disastrous tsunami reached them. At this second plant, three of the four reactors lacked the power to run the necessary cooling systems after the waves knocked them out. Nothing prepared the site superintendent and his team for what was happening. As events spun out of control, the site superintendent took to the whiteboard and wrote down what the team knew and didn't know. He turned incidents into data by writing on a whiteboard the frequency and magnitude of the aftershocks in the hope that it would show that they were decreasing. He soon saw that this was not the case. But by using the whiteboard, the superintendent and his team collectively were able to make sense of the senseless and the unknowable. The superintendent also forced himself not to supply answers or try to reduce uncertainty for his team by pretending he had a plan when everyone was shaken to the core wondering if their family members were alive or if they'd make it out alive altogether. The use of the whiteboard fascinated me because it became a mechanism to control the chaos. It became a personal self-organizing system to ward off crippling ambiguity and a way to replace uncertainty with facts, even if they were not what he wanted them to be. Because the team faced the threat of a radioactive breach if they could not rig up a cooling system in time, his whiteboard writings of events and numbers exposed patterns to the madness and most probably, helped the team feel that they were making sense out of fear.  At one point, the superintendent returned to his whiteboard and "ordered a subordinate to write up the overall picture of the plant and an outline of the recovery strategy. He was determined to share information with his workers as it became available, slowly replacing uncertainty with meaning."

The article is a good reminder that crisis response is shaped by leaders in unimaginable ways. Reputations are built on the large and small ways we respond.

High cost of reputation loss in China

Reputation loss is everywhere. Just saw this article about reputational issues in China and the importance of building trust in products and services and providing a foundation built on social responsibility. "According to official data, corporate trust failures in China are causing economic losses of around 100 billion U.S. dollars each year. Companies' abandonment of corporate social responsibility in search of maximum profits clearly hurts not only the individuals operators, but China's economy far more broadly." The article advises companies to build reputation or else their sector will be hurt with "irreparable loss."

One has to wonder why Chinese companies do not recognize the downside of reputation failure. I thought this was universal. Here is why: "Feng Zhongsheng, an official at the National Development and Reform Commission, said that the major reason for widespread consumer distrust is because companies or individuals pay a very low cost for their misconduct."  However, even if there is no formal punishment for misconduct such as fines or lost sales or bad media coverage or CEO ousters, a company's values and code of conduct should be enough to guide corporate reputation-building and navigating the thorny issues facing businesses today. 

The article in Xinhua News says that the central government intends to change this outlook on reputation and that there are signs that responsible companies will be asked by the government to explain who they are, how they intend to build trust and positively reflect on China's national character. They mention that companies may be required to stand up to what is in their annual reports and provide contact names and more information than has been made available up to now.

Change will come.

Crisis tips when reputation is on fire

Two perennial crisis-related questions look like they have some answers. How long does it take for a reputation to recover and when in crisis, should companies lay low or communicate aggressively and engage like mad?  

Answer to #1: In research by CoreBrand and Brunswick, it took four years for 16 crisis-stricken Fortune 500 companies to restore their reputations. CoreBrand has an extensive database that has been in existence for 24 years and looks at over 1,000 companies across 54 industries. The four year mark matches with executives' perceptions of recovery time in research we have done at Weber Shandwick. Interestingly, their research added two additional dimensions:

  • It took nearly two years to rebuild perceptions of investment potential ( :( says the stock market)
  • Average time to return to pre-crisis brand equity was somewhat over one year ( :( says CMOs)

Answer to #2: Super fascinating to me. When they looked at the 16 companies, 7 began engaging and communicating with stakeholders soon after the crisis erupted. Yet, the other 9 kept a low profile and stayed out of the news, presumably to deprive "the crisis of additional oxygen" until it subsided. So what does the research reveal about the best route to recovery? Not what you may have guessed off the bat. Here's what they learned. "The low flyer (quiet pattern) companies actually suffered slightly fewer hits to their favorability and overall reputation. And perceptions of management took only half the hit that they took among the engaged ones (classic pattern). At first blush – and ethical considerations aside – it appears that flying low is a stronger strategy. But, there’s a catch. The low flyers appear to suffer a longer downturn in their brand equity. The brand strength of those hunkering down, as measured by CoreBrand, took longer to bounce back. Whereas the engaged group actually began to repair their brand after one year, the disengaged group were still stuck in negative territory with losses in brand equity as a percentage of market cap. The “fly low” strategy has other potential drawbacks. There are greater threats of government intervention as stakeholders demand more accountability, and there are the quiet and negative impacts of corporate silence on internal morale. Even in the age of transparency, disengagement may be a valid short-term survival strategy, but it appears to pose greater challenges to the health of the brand. Silence is not always golden."

These are invaluable lessons to be learned on how to communicate after a crisis. The natural instinct is to hope it blows over, to engage as little as possible and to go radio silent. But these findings show that over the long-term, heightened communications is the best way to go. Perhaps the fact that the news is so transient today and a crisis lingers for only so long before it is displaced by someone else's crisis, the best approach is to go on the record as having spoken up, defended your side of the story and shown that you can be trusted to do the right thing. People will remember that you were not silent and could be counted on when it matters. 

Should be mandatory

When it comes to crises and recovery, I am always all ears. Having written a book on how companies recover and restore their reputations, I am always looking at new advice on spreading lessons learned post-crisis. I just read an interesting way that BP has taken their lessons for others to learn from. CEO Bob Dudley said that they give presentations around the world to policy makers, government officials, industry experts and academics on what they learned from the Gulf of Mexico oil spill. As I think of this, this activity should be mandatory when crises occur that are catastrophic like this one was where lives were lost, business closed and economies threatened. The lessons learned should not just be kept internal but externalized so others can learn and refine their own crisis standards and protocols. BP is doing the right thing. Wish I could get a copy. Wish I could have added into my book. 

When qualitative reputation is just as good

There is an intriguing blog post on the HBR Blog Network titled "Don't Trust Your Company's Reputation to the Quants." Considering all the hoopla around Big Data, I was immediately curious about how they would frame an argument about also relying on non-quantitative data when the world seems so enamored of stats and scores. Of course, companies are right to care about making their numbers and the bottom line but there is another side to the story when it comes to reputation risk. "Reputation will always be too impressionistic, and too long-term in its impact, to be left to your Quants. Indeed, if you do leave it to the Quants, it will most likely be neglected, along with other risks that involve intangibles." Quants can often neglect the commonsense solution that protects reputation or overlook how the public might react to and protest a company action. Qualitative insights and experience often adds a dimension to corporate behavior that is not only sufficient but imperative to safeguard reputation. Their advice is for boards and senior executives to listen to the Qualts as much as the Quants. Qualts are defined as those in the organization who "have internalized the values and larger purpose of the organization, and grasp how powerful these are in maintaining healthy connections between the company, its customers, employees, and other stakeholders." This reminds me of an article I just read by BP's CEO Bob Dudley on the BP oil spill in the Gulf of Mexico. Quantitatively, you could say they should have negotiated settlements through the courts but instead they waived the $75 million statutory liability cap and agreed publicly to pay all legitimate claims. They listened to their qualitative side by not delaying acceptance of responsibility and creating long delays before people affected by the disaster received payment. The qualitative side of their character and their focus on reputation came before strenuously litigating from the start of the crisis.

The authors have a good close to their post: "But Qualts appreciate more than anyone else how succumbing to immediate financial temptations can mortgage a reputation, creating reputational debt. They maintain and evolve decision-making models that guide those decisions with clear reputational standards that remain inviolate up, down, and across the extended enterprise." This is where understanding what your company stands for, how it behaves and the value of reputation for the long-term comes into play.

No one is arguing that quantitative inspection is not important. It is just that reputation is not black and white but as someone once told me, plaid. It is very complex and the fabric of reputation is made up of many patterns, colors, threads and how well its owner takes care of it. 

Reputation lessons from space

For those of you interested in crisis, this article on the tragic Challenger and Columbia space shuttles is a reminder of how things can easily go wrong. Even for the best and most revered of organizations. NASA’s reputation never truly recovered from these failures.  We have come to learn, even from pre-Internet days, that the tiniest link or problem can cause the greatest of catastrophes. The article cited the theory of  “normalization of deviance “ from Diane Vaughan, a sociologist, who was on the commission investigating the 2003 Columbia disaster. When I was writing my book on reputation recovery, I read many of her articles about the 1986 Challenger disaster and how some risks became accepted as part of how business gets done. People just get used to or should I say immune to risk-taking.  Vaughan uses the example from the Challenger where the O rings’ erosion had been known on earlier launches of spacecraft and simply became routine, hence the normalization of deviance. As Vaughan says, “They applied all the usual rules in a situation where the usual rules didn’t apply.”

The challenge for companies is figuring out how to not become immune to the everyday risks that go with doing certain jobs such as in manufacturing, food and beverages, pharmaceuticals, automotive, mining, oil, just about everything if you start listing them out like I am doing. This brought to mind what it must be like working on oil rigs and how the risks to safety are there each and every day. How the most minor short cut turn on a dime to be the final blow. How do companies train their employees to not take minor glitches for granted – lives and reputations could be at stake if they ever so slightly deviate.  Another question to ask is how do companies make sure that they listen hard to grumblings from employees? Maybe there is a kernel of truth to be had. Perhaps companies need a Bad News Officer who is Mr or Ms Gloom and Doom. That person could be responsible for bringing all the bad news that no one wants to hear or tell and put it on display for leaders to cope with. The hard truth might be tough to hear but the least expensive way to run a company, maybe even save lives.