Reputation Gets Respect

Barron's came out on June 28th with its World's Most Respected Companies list.  They ask institutional analysts to rank the world's 100 largest companies, as measured by total stock market capitalization. The cut off for the list was a cool market value of $78.2 billion. So these are what you would call mega-companies. Barron's aptly writes that this annual ranking "...usually resembles a game of Chutes and Ladders, as some corporate reputations improve while others slide." So true. As I have noted many times before, our world's corporate royalty are no longer invincible and years ago, no one would have believed that they would have parted with their crowns. But we have learned that they fall like the rest of us.

The companies in the survey are judged on Respect which means different things to different people. Since investors are given space to write in why they give some companies higher respect ratings than others, we can gleam how reputations are being shaped these days. To me, this is where reputation gets interesting and reflects back what's important in building and restoring reputation today.

In the chart below that came from the article itself, management quality tops the list as what constitutes respect today, followed very closely by ethics. Again, this is proof positive that leadership -- be it visible or just symbolic -- drive reputation and respect. Additionally, reading between the lines (what Barron's provided in its text), some investors also base their ratings on the bottom line and stock price performance. Some others vote according to whether management is a good steward of shareholder capital and can think strategically. Other hints include handling difficulties effectively and dealing with complexity. Respect even gets a bit squishy. As Barron's writes, "Other determinants of respect for corporations involve harder-to-define concepts, such as value to society and treatment of 'stakeholders,' including not only shareholders but also customers, employees, suppliers, and even the environment. Stakeholder stance has gained currency since the financial crisis." The past few years have shown us that HOW others are treated by a corporation translates into worth and should not be ignored. 

Barron's World's Most Respected Companies, 2014

Barron's World's Most Respected Companies, 2014

Here are some other trends worth noting from this year's survey results: 

  • The pharma industry rebounded from its doldrums one year ago. Several of the pharma companies have moved up the respect ladder.
  • Russian and Chinese companies continue to score low on investor respect, possibly because of the perceived lack of transparency which Barron's says "scared many money managers away from these stocks."
  • While a bit more than one half of the world's largest publicly traded companies are headquartered overseas, U.S. corporations account for 19 of the top 20 scorers. This alone says a lot about the quality of U.S. corporations in building solid reputations that have lasting power.

Reputations continue to rise and fall and the intangibles are increasingly worth their weight in gold. 

Technorati take a reputation detour

I've always said that every industry gets its turn at reputation downfalls. Every industry has to be prepared for clearing its name when crisis strikes. We've seen that in the oil industry, financial services industry, auto industry, pharma industry and so on. The one industry that seems to always fare well in the best industry rankings is technology. However, according to an article in The Economist on what to expect in 2014, we should be getting ready to witness a tech-lashing. The reputation of the Silicon Valley elite are soon meet their due if the tech-party extravaganzas and limosine crowd continue full throttle as they are. As Adrian Wooldridge of The Economist says, "Geeks have turned out to be some of the most ruthless capitalists around....The lords of cyberspace have done everything possible to reduce their earthly costs. They employ remarkably few people: with a market cap of $290 billion Google is about six times bigger than GM but employs only around a fifth as many workers. At the same time the tech tycoons have displayed a banker-like enthusiasm for hoovering up public subsidies and then avoiding taxes. The American government laid the foundations of the tech revolution by investing heavily in the creation of everything from the internet to digital personal assistants. But tech giants have structured their businesses so that they give as little back as possible." These are not kind remarks about an industry that has been revered for so long. Wooldridge might be onto to something as more information seeps into the public's consciousness and the inequality divide starts to gain notice. One example cited by Wooldridge was a recent party where a 600lb tiger posed for revilers in a cage and a monkey was made available for Instagram pictures.  [Where was PETA?] Another article on Gawker headlined this supposed joke: "If you ask people in Silicon Valley about the dismal job market, they'll laugh and say, 'What's 'job market'?' A new mobile social networking app?" And if you are still not convinced that something is underfoot, The New York Times ran an article this week about how all the Silicon Valley million-billionnaires are changing the tenor of neighborhoods in San Francisco, buying up all the real estate and generally crowding out the long-timers. One person is quoted as saying she is surprised by how coldblooded these technorati are. Not a pretty portrait.]

All of this criticism is tied up with ill feelings about technology companies having handed over data to the NSA whereupon Edward Snowden exposed this wrongdoing to the world. These serial reputation-damaging incidents are beginning to chip away at the technology elite's image-making and positivity they've done in making our lives more productive and interconnected.

2014 might just be the year when the technology sector loses its luster and customers and the general public begin to wonder what social good they are doing with all their riches and IPO shares. A reputation risk for the technology sector for sure.

Reputation #1 in CFOs' book

imageCFOs are not solely numbers-crazed, according to a survey by American Institute of CPAs (AICPA) and Chartered Institute of Management Accountants (CIMA).  The survey among 1,300 CFOs and other finance executives in 61 countries found that corporate reputation topped the list of areas they are seeing their organizations place greater focus on. In fact, 76% put corporate reputation first. The reasons for this laser like focus on reputation, according to these financial experts, are greater demands for transparency by the marketplace, watching other companies experience reputational failure and the rise of social media.  A fairly large 65% of these financially-minded executives also report that the financial implications of reputational risk are seriously considered by their organizations. Far fewer (20%) say that they use social media feedback enough to anticipate and monitor reputational risk. Since there are so many daily examples of companies losing reputational equity, it seems that CFOs are not monitoring enough so that they can be prepared and nimble should it happen to them. To be a CFO today, an understanding of how reputation impacts the bottom line is an imperative. The loss of reputation can surely impact financial performance, customer loyalty and recruiting. The results from this study make it very clear that CFOs are becoming increasinly cognizant of the perils of reputation loss on their company's ability to compete and grow. They just need to speed up their social media oversight.

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.

 

5 Questions to Measure a Scandal's Impact

imagesCA7A4Z0IMany clients ask what is the potential impact of a crisis. How long will it last? When will the scrutiny die down? How does it compare to other scandals or crises? How much will it impact my reputation? When should we start the recovery process? The New York Times' insanely smart Nate Silver who writes the FiveThirtyEight blog had an interesting post yesterday on which political scandal -- the IRS targeting of conservative groups or the Benghazi attack in Libya -- would be longer-lasting and possibly impact the next election cycle. Silver chooses the former (the IRS scandal) and explains so in his article. More importantly for my interests and for those that follow me was Silver's five questions that he developed on whether a scandal "has legs."  He credits Bill James' Keltner list for the initial questions. To determine whether reputational injury will be enduring, these questions are a good place for companies, leaders and others to start: 1. Can the potential scandal be described with one sentence, but not easily refuted with one sentence? Using the 140 character Twitter test is one good way to see if the scandal has legs. Can you say it in 140 characters. Or try it with as few as 16 words which if you recall is all it took to sink former President Bush in 2003 when he said in his State of the Union Address, "The British Government has learned that Saddam Hussein recently sought significant quantitites of uranium from Africa." Silver's argument that if it cannot be easily refuted in a similarly short string of words, you have a problem on your hands. I might add that it could be even less than one sentence...it could be a video or photo today.

2. Does the scandal cut against a core element of the candidate's brand?  The word candidate could be substituted for company or CEO. In this case, a company that proclaims transparency but is caught doing damage to the environment behind the scenes or engaging in financial manipulation is going to lose its credibility 1-2-3. Think about Enron and their much heralded reputation for innovation at the time. It turns out that their innovativeness was in their financial shenanigans, not in reinventing business processes that led to success. Even though Enron was long recognized by Fortune as one of the most admired and innovative companies in the world, the scandal essentially decimated that impression. In fact, it took its leaders from pinstripes to prison strips.

3. Does the scandal reinforce a core negative perception about the candidate? Or company/CEO in this case. As Silver says, "A scandal can be equally dangerous if, rather than undermining a candidate’s strengths, it reminds voters of what they like least about him."  I think that Congressman Anthony Weiner's late night racy Twitter sexting reminded people of his unlikeability and brashness. Perceptions that confirm what you already thought of a person or company are hard to shake loose. Another example would be BP's then CEO, Tony Haywood, who at the time said that he wanted his life back while oil was spilling into the Gulf of Mexico. Unfortunately, the general perception was that BP did not care about the damage being done to the environment by the oil spill and the CEO's statement only reinforced that negative reputation.

4. Can the scandal be employed readily by the opposition without their looking hypocritical, risking retribution or giving life to a damaging counter-claim? Most competitors in business do not take advantage when their peers are knocked down by scanal. Companies today easily recognize that a scandal for one company affects all and impacts the entire industry. The question for company reputation is "Can this scandal spread to peers and further damage the industry sector that might already be struggling?" Not a perfect example I fear but an example that comes to mind might be the quality issues that emerged years ago in China when lead paint was supposedly found in children's toys. That perception continues to linger for products manufactured out of China today. I was recently in a children's store when a customer asked the cashier where a T-shirt was made because she only bought children's clothing made in the USA.

5. Is the potential scandal occurring amid an otherwise slow news cyle? This is a good question to ask when a potential reputation disaster emerges. There are countless examples of company reputation debacles that get drowned out by other news that draw the media's attention. I always think about how some recalls get scant coverage when bigger business stories are erupting. Or how some stories are not uncovered until the cycle is very slow and investigative reporting resumes.  Silver mentions how the crude measure of a Google search shows that today, American's appetite for political news stories is at an eight year low. So President Obama and the Democrats might just avert the sting from the IRS scandal because it's not the tantalizing subject for readers as it might have been eight or nine months ago. Perhaps when the Dow is reaching 15,000, some stories just fade away.

 

 

The online reputation management industry - kaboom

searchA quick note for a Saturday. In this article, I read that small and medium sized business spent nearly $1.6 billion in 2012 managing their reputations online. This figure is expected to reach more than $2.9 billion in 2017. I imagine that if you added in large sized businesses, you'd be closer to $4 billion. (Just estimating) in 2012. This confirms that there is an entirely robust online reputation management industry that has just gotten started.  And the reasons behind this new cottage industry are strong when you take into consideration that nearly 94% of people do not move beyond the first page of Google or Bing to get what they were looking for. Last I had heard, the number was closer to 89% but it certainly is creeping up. I bet it hits 100% in no time. More tomorrow!

 

The Reputation Stumble Rate Recedes Slightly

4 TWeber Shandwick’s annual calculation of reputation loss – the “stumble rate” – finds that a few more of the world’s largest companies retained their esteemed status as their industries’ #1 most admired company during 2012. This is good news. Each year Weber Shandwick measures the rate at which companies lose their #1 most admired position in their respective industries on the Fortune World’s Most Admired Companies survey. We call this the stumble rate. Between 2012 and 2013, 46% of the world’s largest companies experienced a stumble, slightly down from last year’s 49%. These companies did not have too great a stumble, however. On average, they dropped two places, falling from number one to number three in their respective industries. However, for those companies that did fall from their perches, the loss is agonizing. Boards of directors and CEOs will want to understand why their reputations eroded and why their competitors leaped upwards. Explanations will be in order.

Of course, the bright side of the coin is the non-stumble rate of 54%. This means that more than half of the industries in the Most Admired survey boast companies with durable reputations.

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In addition to calculating the stumble rate, we also dig through the data, including the nine drivers of reputation, to glean some interesting insights about stumblers and non-stumblers. A stumbler is an industry whose top company last year is no longer the top company this year. What is interesting this year?

  • 22 industries (out of nearly 60, give or take depending on the year) have never had a stumbler since we started monitoring the stumble rate in 2010. The most admired companies in these industries have been stalwarts of reputation: Automotive Retailing; Building Materials-Glass; Computer Peripherals; Consumer Food Products; Electric & Gas Utilities; Electronics; Entertainment; Household & Personal Products; Information Technology Services; Property & Casualty Insurance; Internet Services & Retailing; Metal Products; Mining, Crude Oil Production; Oil & Gas Equipment Services; Pipelines; Newspapers & Magazines Publishing; Railroads; Semiconductors; Apparel Retailers; Diversified Retailers; Food & Grocery Wholesalers; Office Equipment & Electronics Wholesalers.
  • 13 industries have stumbled at least three times since 2010. The most volatile, with four stumblers each, are: Airlines, Energy and Life & Health Insurance. Those with three stumblers are: Computer Software; Consumer Credit Card & Services; Financial Data Services; Food & Drug Stores; Medical Equipment; Motor Vehicle Parts; Petroleum Refining; Telecom; Tobacco; Health Care Wholesalers.
  • No one particular driver of reputation took a big hit or could be said to be the culprit for reputation erosion. The worst average declines among drivers across all stumblers were experienced only by two drivers – management quality and long-term investment. All other drivers declined by just one ranking position, on average. Perhaps some stabilization on what positively and negatively affects reputation is taking hold.
  • However, four stumblers lost rank on all nine drivers. The hardest hit was the Airlines industry. The company that stumbled took the greatest blow on its quality of management driver (dropping 6 ranking spots). Ouch. Other hard-hit drivers for this company were innovation, social responsibility, long-term investment, product/service quality and global competitiveness (a loss of 5 positions on each of these qualities). The company that supplanted this stumbler improved on all of its nine drivers in impressive fashion, rising at least two rankings positions on each driver and four spots on two drivers (financial soundness and global competitiveness). This does not mean that this new “king of Airlines reputation” will necessary remain so…this particular company was also tops two years ago and, as discussed earlier, Airlines is among the three most volatile industries.
  • From zero to hero in 12 months. One stumbler lost its enviable top position to a company that is a newcomer to the World’s Most Admired evaluation. This goes to show that even the most reputable companies need to be on guard from all angles – not just their traditional competitors.

Ode to Oil & Gas

background_oil_and_gasAm trying to keep my eyes open. I arrived in Tokyo late last night or should I say early this morning and hoping to adjust before I hit the road visiting our offices, talking to media, presenting research on social CEOs and meeting clients. I thought it would be a good idea to look at The New York Times and understand a headline I saw about "fire ice" in Japan. Why that would necessarily keep me awake, I can't explain. Perhaps I thought it would distract me from wanting to sleep.

But I was glad because I also found an uplifting oped from David Brooks. I was drawn into it because he started out talking about how he goes to conferences hoping they will provide him with fodder for his twice-a-week columns. His conclusion is that these conference conveners are the same ones that make it on the glossy covers of business magazines and other upscale publications. They are flashes in the pan. He then goes on to say that all those quiet, unassuming, downhome executives are the real movers and shakers we should be hoping to learn from. He says the following as way of contrast with the cover boys:

"Meanwhile, the anonymous drudges at American farming corporations are exporting $135 billion worth of products every year and transforming the American Midwest. The unfashionable executive at petrochemical companies have been uprooting plants from places like Chile, relocating them to places like Louisiana, transforming economic prospects in the Southeast. Most important of all, the boring old oil and gas engineers have transformed the global balance of power."

Brooks pays homage to the “Material Boys” — the people who grow grain, drill for fuel and lay pipeline. He calls them the real winners. This peaked my interest because it was unusual to read such reputational support for the oil and gas industry but here it was. The oil and gas industry is usually a fairly maligned sector but Brooks gives them a thumbs up for providing jobs, keeping emissions down and making us energy independent in a big way. Always good to see a reputation shot in the arm.