The Reputation Institute (RI) has built an entire franchise around how the reputation of the world's largest companies are perceived by consumers around the world. When RI was asked to take a look at the CEOs ranked by Harvard Business Review for providing the greatest contribution to shareholder performance and market capitalization and re-rank them according to non-financial measures, RI decided to develop a non-financial performance reputation index. The HBR blog post where I found this was written by RI chairman Charles Fombrun, someone I have known for many years and respect. It used to be that financial performance was thought to contribute nearly 80% to reputation and maybe 20% to non-financial metrics. Non-financial metrics include willingness to recommend the company as a good place to work or recommend a company's products/services, give the company the benefit of a doubt in crisis or buy the company's stock. Yet today it is growing increasingly obvious that this 80/20 rule is not the case. Many of the non-financial measures matter and in fact, matter a lot.
RI asked some solid questions while compiling their intangibles index. For example, how do you arrive at a "net" effect of a CEO's tenure? What does Mr. or Ms. CEO leave reputation-wise when they depart or what is the sum of all that they did while in charge? Did they build a company that is renown as a good corporate citizen, having the best talent, innovation at its heart or top flight management training? What carries more weight ultimately--financial or non-financial--when it comes to building reputation? Is it possible to strike the right balance now and for the future?
What did they learn:
- RI found that there is not a direct correlation between financial and non-financial performance measures. You can be a fantastic bottom-line performer but that does not mean that you as a leader impart a positive corporate reputation with the public. Equally so, you can have a great CEO reputation according to HBR's ranking but not such a great a one when it comes to public support and people's willingness to go out of their way for you. Financial performance is necessary but not sufficient to build a good reputation.
- RI posits the true measure of a CEO's reputation "is the amount of public support they helped to create for their companies during their tenures." A noble idea that I heartily endorse. Companies and their leaders need to be in the public's good graces to operate and survive these days.
- And here is the drumbeat.....RI's statistical analysis revealed that 35% of a CEO's legacy can be attributed to financial performance and 65% to non-financial performance. Be mindful that this index is based on public support. With this weighting, the HBR rankings ended up getting re-ordered and a different picture emerged as to which CEOs and their companies are doing the right things for their companies' destinies.
The last line of the blog post by Charles is this: "A great CEO's legacy is never as one-dimensional as the ledger." Well said. And thanks for giving us the yardstick that reflects today's realities, not yesteryear's.