Technology Reputation Skid

The Economist always looks ahead at the year in 2015. In their special issue each year, they review how their predictions performed. One of their predictions surely came true and they rightfully applauded Adrian Wooldridge, the management editor for The Economist, for seeing the "tech-lash" that hit the technology sector with quite a punch. They are correct when they say that the reputations of Silicon Valley tycoons fared poorly when it came to news headlines this year about them skirting corporate taxes and being too loose with people's data. What they did not mention and is worth mentioning here is that these same Silicon Valley companies found their reputations dinged for also not having diverse workforces although some are now coming clean on their metrics and that should help. However, sector reputations rise and fall and I have to admit that I was surprised that this one fell so fast. Technology has always been a favorite for years running but everyone has their 15 minutes of shame.

Talking about the technology sector, CEO Mark Zuckerberg had his second #AskMeAnything public town hall recently and a woman who lives near Facebook's HQ thanked him for making her house more valuable. Zuckerberg replied, “That’s the first time anyone has ever thanked me for having Facebook raise housing prices." Undoubtedly he was surprised since many residents feel that their neighborhoods are being taken over by Silicon Valley millionaires and being priced out of the market by these big spenders. So maybe the technology sector is doing something right afterall! A whole new way of thinking about it. Hah.

 

Holiday reputation of retailers needs protecting

Some new research just came out from Toluna Research for web.com about consumer perceptions of big and small retailers this holiday season. Because of the recent spate of big retailer security breaches, consumers are expressing great concern. 

  • 69% are concerned about security when shopping online this season
  • 25% are likely to change their online shopping behavior
  • twice as many consumers (27% vs. 12%, respectively) are concerned about online security at large retailers than small retailers

The big box retailers' reputations will clearly feel the heat this season if consumers are concerned about their security privacy. To keep their reputations intact, they will need to reassure consumers that their credit history and information is iron-clad. Communications will be key to getting shoppers back into the stores and online with confidence. Information about what they are doing to protect consumers, such as special chips in their cards, and beefed up security technology can help. Additionally, communicating from the CEO on down about consumer concerns and acknowledgement that they are aware of a confidence gap in shopping would be beneficial. Having the senior executive team visibly active during the holiday season at the stores or online using social media might send the right message that they are on alert. Perhaps having senior executives shop in the stores for their holiday gifts and video-ing the transactions could help send a "trust" message. Training all employees about how to answer shoppers' questions about cyber breaches is important. In addition, employees need to know that they should not give out their passwords under any circumstances and the same with vendors since this is such a high security risk and easy way to get into retailer systems. One of the things I learned when working on our Employees Rising study was that one of the reasons that companies train their employees in the use of social media is to educate them about not giving out passwords because it only enables cyber thiefs to do ill.

Reputation is everyone's job during the holiday season and making that loud and clear this year will help. Let's wish for a non-cyber-hacking holiday in 2014.

Corporate America, Some Improvement

The Harris Poll on reputation this year found some good news about reputation so it is always worth sharing. There has been a steady improvement in perceptions of Corporate America. Not enough to break out the bubbly but a marked increase among those who think it is excellent or very good. Among those who believe Corporate America rates on the high end of the scale, we only saw 5% saying so in 2009 at the start of the recession. Now we are at 12% which shows there is a bit of an upswing. And among those who say it is very poor or just plain terrible, those numbers are declining somewhat too. All in all, some positive news for those who defend corporate reputations. Although still a work in progress, banking, insurance and financial services industries show positive gains and now consumers see these industries as part of the solution to our economic woes.

Only 31% say that they learn about company information from social media tools and when they do, only 17% trust this information more than other sources. Friends and family continues to be the ultimate source. 

Most fascinating, a large 6 in 10 say they research companies before doing business with them and nearly half decide not to do business with a company because of what they may have learned about how the company behaves. And if they find out that a company is not to be trusted, one third proactively influences their friends and family to stay away. 





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.

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.