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.

 

Reputation damaging close calls

Always good practice to learn from crises or disasters. If they have to happen and tragedy occurs, at least we can try to apply lessons from them going forward. Crises, disasters or issues are sure to come to companies or organizations at one time or another. No one is immune -- every company faces their 15 minutes of shame, not just their 15 minutes of fame. The derailment of Metro-North Railroad in the Bronx one week ago today that killed four people and injured many is rightfully capturing a lot of attention on how to make trains safer.

I was reading this article about the derailment on my subway trip home Friday night and at its close, I came across this important best practice. "The railroad administration instructed the authority to adopt a confidential system to report 'close call' incidents." Many companies could do a better job of understanding their close calls. Close calls are similar to "near misses" which are defined this way according to the National Safety Council:

A Near Miss is an unplanned event that did not result in injury, illness, or damage – but had the potential to do so. Only a fortunate break in the chain of events prevented an injury, fatality or damage; in other words, a miss that was nonetheless very near.

A faulty process or management system invariably is the root cause for the increased risk that leads to the near miss and should be the focus of improvement. Other familiar terms for these events are a “close call,” a “narrow escape,” or in the case of moving objects, “near collision” or a “near hit.”

If companies could include "close call" discussions on their internal monthly or quarterly calls, they'd be in far better shape to deal with disasters that do arise. Management could do better by discussing how they might handle near misses, how to make sure they do not happen, who else should be included in the discussion to prevent them and how to prepare should they actually happen. It could be an informal or formal hearing or process. A more formal best practice is sponsored by the American College of Physicians and the New York Chapter of the American College of Physicians -- The Near Miss Registry. The online registry collects medical near misses before they actually occur with patients. The registry allows healthcare workers to voluntarily report medical "near miss" events” using a web based tool located at www.nearmiss.org  and hosted by NYACP.

Unfortunately the tendency is to bury the near misses in the hopes that they do not reach top management. However, that's exactly the point. If top management does not know how close a call they missed, they won't be able to prevent them.

I think it is a good step that Metro-North is adopting this process.

 

reputation exposed

BusinessValuations Reputation matters and has grown in importance to companies and their leaders. In a recent article in ABA Banking Journal on the banking industry's reputation, the topic of intangibles came up that I thought was worth emphasizing.

Years ago, investors only cared about financial performance but it is now clear from some research that 80% of the value of S&P companies is attributable to intangibles like reputation. This estimate is similar to what I have been using for years since I first learned about intangibles vs tangible assets and the enormous influence of reputation on market value. Social media has now made those intangibles easier to access and therefore opened up to most of us how companies treat their employees, build leaders and brands, follow codes of conduct, treat intellectual property, disclose information, care about communities, etc. The article pointed out that Bloomberg terminals provide information on more than 120 environmental, social and governance measures that help investors value the intangibles that drive reputation. This is an important point because whereas financial performance is based on looking backwards, intangibles now available on these types of data aggregators are more forward-looking and give a clearer picture of what might lay ahead for particular companies. The article points to another data aggregator called CSRHub which looks at companies through the lens of metrics including "best of" and "worst of" awards and rankings. As the article says, "Since the market calculates the value of businesses based on anticipated future earnings, poor reputation can be an indicator of systemic problems, which can have an adverse effect on revenues." It is hard for me to remember a company whose reputation failed and where when the digging began, there weren't any warning signs ready for the asking. Sometimes I go to Glassdoor.com to just read about where those early warning signs might be for particular companies and wonder why no one has investigated further what employees are only to quick to tell the world. Apparently there's a banking industry site with reviews called MyBankTracker which was new to me.

Would we have known about Enron's demise if Glassdoor.com or some other similar site had existed when Enron imploded? I sometimes wonder about that.

 

Reputation-driven bonuses

bonusHow is this for a headline from Bloomberg: Goldman Sachs Links Bonuses to Protecting Firm Reputation. I like it. Apparently Goldman Sachs is reviewing employees’ efforts annually to protect its reputation and build back clients’ trust. Makes total sense to me as a reputation observer.

In May, the company issued a report titled the “Business Standards Committee Impact Report” which laid out 39 recommendations. The report says it was the most extensive review of  the firm's business standards in its 144 years.  The CEO, Lloyd Blankfein, led 23 three-hour sessions in 2011 and 2012 with partners and managing directors on personal accountability and included a case study about communications within the firm and with clients, according to the report. It  represented "tens  of  thousands  of  hours  of  discussion,  analysis,  planning,  execution,  and,  importantly, training and professional development which, alone, totaled approximately 100,000 hours.  The BSC held 17  formal committee meetings.   The Board Committee overseeing  the BSC met 13 times.  The  BSC  Implementation  Oversight  Group  held  11  meetings  and  made  five presentations to the Board of Directors.  It also met three times with a separate subcommittee of the  Board’s  Corporate  Governance  and  Nominating  Committee  which  provided  ongoing oversight of the BSC implementation." They also identified three themes that reached across all the recommendations and one of them was "reputational sensitivity and awareness and its importance in everything we do."

Because I regularly report on how companies recover from reputaional loss, I thought it was important to readers to hear about how one company was finding its way after its reputation was hurt. This report probably represents a good roadmap for other companies that want to strengthen their business practices and reputation. It is also important to note that the CEO has played a major role in getting the committee's findings infused into the organization.

What the Pulitzers have to do with reputation

pulitzerLast week I came across something that stopped me in my tracks. Actually I was going nowhere because I was on the subway but it struck me (and I shuddered) that I had a moment of insight into a news story that had tremendous implications for companies and their abilities to create lasting reputations. The Pulitzers were announced last week and The New York Times won four. What was so startling to me was that two of the highly prestigious and acclaimed Pulitizers (50%) were for indepth, investigative reporting on the overseas behavior of two different companies. One was a series of reports on alleged corruption at one company and another Pulitzer was won on the costs of human capital in a company's manufacturing products abroad. Here is why this is so important -- leading companies, the best we have to offer, must safeguard their reputations at all times and not let up for one minute because the spotlight on them is only growing brighter. And just because business operates differently in other cultures or regions, if the behavior does not align with the company's values or is morally correct, it's reputation-damaging and wrong no matter where on earth it happens. Earning the right to operate is given to companies through governments or regulators but the license to operate is still very much dependent on the perceptions of communities and consuming public around them and online. How a company behaves matters today and consumers buy based on how companies treat their employees, vendors, customers, communities and others everywhere. Our recent research on the company behind the brand shows that in spades.

These Pulitizers are an early warning sign to companies to carefully consider their behavior on all counts if they want their reputations to be shatterless.

Plan to recover reputation

jdI was eager to read JPMorgan Chase CEO Jamie Dimon's Letter to Shareholders this year. Considering the London Whale episode of the past year, I thought his Letter would be revealing. He clearly did not skirt the issue. I cut and paste some quotes below which are direct, apologetic and conciliatory. Also, I used the picture from the Letter to Shareholders here because it was surprising in that it almost looked like a man running for office but mostly because it is something that we advise clients which is to make better use of photos of their CEOs and execs with people (preferably employees) and not alone in some corner office isolated and solitary. You can't know what is going on in your company by spending too much time in the office. It derails CEOs all the time. What I like was how he presented his lessons learned for his reputation recovery plan. They are bulleted below as follows and include a favorite piece of advice of mine -- problems don't age well:

  • Fight Complaceny
  • Overcome conflict avoidance
  • Risk Management 101: Controls must match risk
  • Trust and verify
  • Problems don’t age well
  • Continue to share what you know when you know it
  • Mistakes have consequences
  • Never lose sight of the main mission: serving clients

On Responsibility: "I also  want our shareholders to know that I take  personal responsibility for what happened. I deeply apologize to you, our shareholders, and to others, including our regulators, who were affected by this mistake."

On Complacency: "Complacency sets in when you start assuming that tomorrow will look more or less like today – and when you stop looking at yourself and your colleagues with a tough, honest, critical eye. Avoiding complacency means inviting others to question your logic and decisions in a disciplined way. Even when – and especially when – things have been going well for a long time, rigorous reviews must always take place."

On the Aftermath: "There are a few things, however, that occurred this past year that we are not proud of. The “London Whale” episode not only cost us money — it was extremely embarrassing, opened us up to severe criticism, damaged our reputation and resulted in litigation and investigations that are still ongoing."

On Reputation Committees: "That’s why we have a risk committee framework within the firm with extremely detailed reporting and many other checks and balances (like reputation committees, underwriting committees and others) to make sure we have a disciplined process in place to question our own thinking so we can spot mistakes before they do real damage."

Protecting Reputation in Peace Time

Some good points on how to protect reputation from Bloomberg BusinessWeek. The article reminded me of the piece I wrote for HBR, Reputation Warfare. My article made the point that companies no longer have to just sit there as their reputations get pummeled. There are strategies that can be deployed to get your side of the story on the record. Plus it always helps to respond in the same format (YouTube, Facebook, blogs, etc) as your opponents. This BusinessWeek article by Felix Gillette says: "If there’s any solace to shareholders, in the endless push-and-pull between company critics and corporate defenders, the media environment seems lately to have handed an unlikely advantage to brands." Gillette makes the point that brands can create their own messages now and get them out in defense. So what can a company do to protect its reputation and get its point of view across as swiftly as their biggest critics. Here are a few pointers that are discussed in the article: 1.  Craft Your Brand Image in Peace Time. Get your content ready to go during quiet times and push it out aggressively when the spotlight is on your company. “The idea of producing a bank of preemptive content—about how we produce our food, how we pay our employees, how we run our diversity policies—and then activating them with paid media at the moment that the controversy arrives is almost a prerequisite strategy for everyone now," says a media buyer CEO.

2. Buy Ads & Keywords on Google that counteract boycotts or protests. If you search for BP oil spill on Google, you will come across a site from BP on their preparedness. Get those sites up and ready before you need them.

3. Do a vulnerability audit before crisis strikes. Plan ahead of time for your deficits and what you need to do to defuse the situation when it happens. Vet yourself. Most crises are self-inflicted and companies know ahead of time what their weak links are. There really should be no surprises.

4. Get your Advocates in order. This again is good old common sense. Make sure that you know who is likely to defend you in time of need. Keep in touch with your supporters. Today I saw the CEO of TDAmeritrade quoted saying a few good things about trading group Knight Capital who practically melted down this week when their computer system went amok executing trades.

5. Get your monitoring software in place. The article points out that having the right monitoring software in place can now help companies know how many people are actually expressing outrage over an event and whether the anger is rising or falling. As we all know, the news cycle is less than 12 hours today so maybe those 10 critics are going to move on to the next fiasco. If you can measure it, you can manage it.