There are many ways to ding a reputation. I even wrote an article about it called Reputation Warfare. A new "old" way to protest against a company or individual has recently emergedRead More
Allianz issues an annual risk report and it is fascinating to see how risk changes so suddenly. The top risks according to 500 risk managers and corporate insurance experts in 47 countries are business interruption and supply chain (#1), natural catastrophes (#2), and fire and explosion (#3). The biggest movers in terms of ranking on the risk scale are (no surprise!) cyber and political risks. It has been quite the year for data breaches and political unrest. Cyber risk itself moved up from 8th place last year into the top five this year. The damage caused by a data security incident, according to the report, is now estimated to total to $720,000 and from a targeted attack, up to $2.54m (Kaspersky Lab). The main reason behind this substantial economic loss caused by cyber risk is loss from reputation (61%), followed by business interruption (49%) and damages paid due to loss of customer data (45%). When people hear about a cyber attack, it has the unfortunate side effect of driving customers away and thus hurting the bottom line. People assume that the company was caught asleep at the switch, not well-led and unconcerned about their customers' privacy. All in all, the company's reputation loses face.
Disturbingly, cyber risk is the most underestimated risk by businesses in 2015. It is also expected to continue to be the number one risk five years from now although 10 years from now, climate change is expected to top the list. I guess that indicates that cyber risk will be under control and solutions will be found. What worries risk managers the most when it comes to cyber risks? -- data theft and manipulation (64%), reputational loss (48%) and the threat that the hacking will just keep on happening (44%).
As you can see from the chart above, reputation and brand loss ranks #6 overall and for many years of the study continues to rank at the top. Reputational aftershocks are pervasive.
Lately, it seems to me that every day brings a different teachable moment to those of us worrying about reputations and communications. Recently I had been following the heartfelt tweets of CEO Tony Fernandes of AirAsia.
Yesterday's acknowledgement by President Obama about not sending someone more senior to the Paris peace rally last Sunday was the right thing to do. I had wondered myself about how this could have happened while being glued to the television set. It made me wonder about the discussion the communications team must have had with the President about sending a higher-ranking individual to attend the march while all those world leaders were taking center stage. Do you say something that you think can potentially harm a boss's reputation or do you let it just slide (hoping nothing harmful happens in the end)? Hopefully the former. President Obama's spokesperson Josh Earnest took the message to the people yesterday by saying, “It’s fair to say that we should have sent someone with a higher profile to be there." Although I assume that he was talking about the royal "we" and that the President approved the statement, it was not an outright apology which would have started with "We regret..." Instead, what we got was more a statement of fact. Despite the misstep, the acknowledgement was honest and swift and may have slowed the criticism to some degree. I thought it was good that the President admitted he erred and showed he could be wrong and could change course. Some leaders would have been insistent that the individual sent was high enough and what was all this commotion. I also learned while reading about the error that Obama had visited the French Embassy in Washington DC last Thursday to sign a condolence book which made me feel better in the end.
The title of the article says it all, "Sailing through a scandal." Rupert Murdoch and his empire have turned the corner on reputation recovery. As you recall, News Corp was engulfed in scandal over the phone-hacking of a murdered schoolgirl's voicemails. According to The Economist where I found this fascinating article, the Murdoch family has recouped more than double their wealth since the controversy. And Murdoch's sons who are running the now split businesses of entertainment and newspaper publishing are doing just fine.
What hit home was the article's truthful statement that "a loss can turn into an unexpected win." That is so true in reputation recovery. I've researched and studied the reputation recovery phenomenon for a long time now and if there is one clear thread, it is that crisis morphs into opportunity. There is nothing like a scandal or reputation disaster to make a company even better than it once was. Better leaders are put in place, tough decisions are made, humility returns to the C-suite, and less risky business behavior takes hold. No one wants any further embarrassment to harm the reputational equity of the firm.
The articles says, "The Murdochs’ happy ending is a reminder of how forgiving the corporate world can be if bosses at the centre of a crisis act swiftly and adopt shareholder-friendly policies." True. How a company responds to crisis is the ultimate test and like they say, first impressions matter. But as the article also points out, if Rupert had been a hired hand at an ordinary company, he would have been shown the door.
The Economist ends the article by saying, "Being enriched by scandal may occasionally happen once, but rarely twice." As it happens, that is not entirely true. Many companies stumble after a major crisis because of all the distractions that ensue. It is even more likely, not less likely, that a company will re-dent their reputation after a major crisis. Additionally, media scrutiny is more intense afterwards and journalists and pundits will pounce on any missteps. Granted, the stumble may not be as devastating as the first one but doubt gets raised and before you blink, there are no more do-overs.
What’s on the docket for reputation watchers? Here are my predictions, reflections and thoughts on what’s ahead in 2015 and beyond. This was just posted today on HuffingtonPost.
The Reputation of Things. This year the term reputation was everywhere. It was no longer primarily reserved for corporations and the corporate domain. The reputation of things extended far and wide, from TV stars (Bill Cosby), universities (University of Virginia), suburbs (Ferguson), companies (Sony Pictures), food (gluten), countries (Russia), sports leagues (NFL), CEOs (Market Basket’s Arthur T. Demoulas), and on and on. All of which leads us to one single truth: reputation is everywhere and encompasses everything. As Warren Buffett, CEO of Berkshire Hathaway, reminded his top manager All-Stars in a memo this month, their top priority is to “zealously guard Berkshire’s reputation.” He continued, “As I’ve said in these memos for more than 25 years, we can afford to lose money–even a lot of money. But we can’t afford to lose reputation–even a shred of reputation.” Amen.
Thought Leadership Frenzy. This year, a long dormant agenda item burst onto the reputation scene. It spilled into nearly every discussion on reputation management – “thought leadership.” Nearly overnight, every company wanted a thought leadership platform, and every CEO wanted to be a thought leader. The term’s presence on the Internet grew 65% from one year ago and a whopping 707% since 2011. Thought leadership is not a new concept. Indeed, I devoted an entire chapter to it in my book on building CEO reputation back in 2002. But now companies seem to have awoken from their recession slumbers and want their own versions of Smarter Planet, Ecomagination and Sustainable Living. That’s good news for the planet and society at large but not an easy or instantaneous goal to achieve. Thought leadership requires having a point of view on the future, the ability to inspire and awe, the knack for identifying business problems that cross sectors and generations, and of course, the capacity to develop a credible solution. Good thought leadership must be rooted in the company’s culture and embraced internally. As if these criteria were not hard enough to meet, thought leadership must also be simple, memorable and able to travel fast. Only in that way will it succeed in differentiating a corporate reputation from its peers. One of the reasons for this dramatic proliferation of thought leadership is the explosion in content marketing, native advertising or brand publishing (whatever you call it). Thought leadership helps satiate this ferocious appetite for meaningful content that companies need to attract customers. No doubt about it, thought leadership has returned with a vengeance.
The CEO Citizenship Brand. The CEO as Brand comes in and out of favor every few years. There was a time when the CEO as Brand movement got tangled up with CEO as Celebrity, the big no-no of the early 2000s. Let’s be clear. CEOs have never liked being handled as brands that can be packaged and pitched as “new and improved.” As we tilt towards 2020 and Gen Ys begin taking the reins, the CEO Brand as we know it will be redefined. We will see the emergence of the CEO Citizenship Brand where purpose and contribution to the collective good will reign supreme. CEO reputations will be shaped by the good deeds that companies do, not just by what they say and how much profit they make. The CEO Citizenship Brand will be about the collective, not the individual. When London Business School CEO wannabes were asked what they would do if they were in charge, the top answer they gave was aligning strategy and activity with purpose (43%). Only 1% checked off maximizing return to shareholders. There you have it.
Exporting Reputation Still A Challenge. A great reputation in one country does not necessarily translate into an equally good one in another country. It remains fairly unusual for a company to successfully export its reputation. According to research by Reputation Institute, only a handful of companies have managed to transfer their most admired status to more than a few countries. Only 10% of 100 companies made the Top 10 most reputable list in six or more of 15 markets surveyed. This is unfortunate since the demand for global brand building is only going to grow in 2015 as brands saturate their own markets and more people are connected to the Internet. One way some companies have built their transnational reputation is by creating a culture that looks and feels the same regardless of whether or not their headquarters are in Bombay, Bogota or Boston. It is not too hard to imagine that sometime in the future, multinationals will compete on their employer reputations and less so on their products and services. The CEO of a Fortune 10 company once said, “For one thing, people—rather than products—will become our brand.” That might just be the case.
Media-Tested CEOs A Must. CEO turnover continues at a fast clip today. Depending on which study you look at, turnover rates for chief executives hover around 15%. With the recession hopefully behind us, boards are anxious to get the next generation of CEOs in place. They not only need to identify the right leaders that can succeed today but also those who will prevail five years from now. I have no doubt that in 2015 and beyond, CEO search committees will seek out candidates that can take a more public role without breaking a sweat. When times are tough (which seems to be all the time), no company can afford a media-challenged CEO. NextGen CEOs will need to ooze credibility, be fully media-vetted, comfortable with transparency and able to reduce complexity into tweet-sized statements. I know of one board that required one CEO contender to play CEO-for-the-day as a final test for the corner office. The candidate had to give a webcast presentation and get ambushed by actors dressed as television and media journalists to pass muster. The Board was not going to take any chances given our media-saturated environment with their company’s reputation.
CEO Civility Guards Could Be Next. As the year closes, the news has been woefully unkind to Sony Pictures’ executives whose internal emails were hacked and publicly leaked. Forget about the past trend of hiring digital sherpas for CEOs. Soon we will hear about hiring civility guards for top executives. Their jobs will be to obliterate any evidence of uncivil email exchanges that might wreak havoc if disclosed. One way to sensitize executives worried about their civil reputations maybe to follow the example set by Facebook’s CEO Mark Zuckerberg. For his 2014 new year’s resolution, he promised to write “well-considered” thank you notes every day, whether by e-mail or hand. As taught in grade school, civility becomes a habit and practice makes CEO future-proofed and civilly-perfect.
The New X Factor in Reputation. Many of the drivers of reputation remain the same year in and year out. They are lasting and enduring and ultimately, I think that’s a good thing. Some things shouldn’t change. Drivers such as quality of products/services, management quality, innovativeness, financial performance, corporate responsibility and talent pool should all continue to create long-lasting reputation. But I do foresee an emerging new X factor -- how well companies communicate and go-to-market so as to distinguish themselves from the rest of the pack. We all know that companies can reproduce competitive products or services overnight and sell them less expensively. What is much harder to replicate is a brilliant marketing communications campaign that touches consumers emotionally and gives them an unquestionable reason to buy their products or services.
Women are the new Digital. Everywhere I turn, there is a new newsletter, piece of content, conference or research study about women. Women and their reputation as women have taken up as much bandwidth as digital did the past year or two. I do not know why the interest in women is sizzling hot but anything to do with the reputation of women in this world is now radioactive. Could it be the Hillary effect, the greater exposure on violence towards women or the dismal news about gender inequality the world over? Whatever it is, women are trending, and their place in the world is shifting, hopefully for the better.
On a closing note, I looked back at my previous reputation forecasts and am pleased to report that some of my predictions came true. The one that I wrote about in 2012 on reputation blackmail sadly reared its ugly head just a few weeks ago as corporate secrets and private conversations were irresponsibly revealed to create great reputational damage. Let’s hope that 2015 does not see anymore ransom “notes.”
May your 2015 be reputation-rich.
Just recently heard that our first US homeland security chief Tom Ridge is helping to launch an insurance product that specializes in corporate cyber security policies. In the article, I read that the global economy has lost more than $400 billion annually due to these cyber breaches that seem to be coming at us like a tsunami. Moreover, only one in four companies, if that much, have some form of cyber attack coverage.
I also learned awhile back when we did our Employees Rising survey on how employees were using social media to champion and possibly sabotage their companies, that one of the reasons that companies have chosen to train their work forces about being responsible social citizens was to caution them about how cyber hacking often occurs. And that is from employees themselves who can be unintentionally loose with passwords, clicking on errant links or not understanding well enough the safeguards of protecting confidential documents. Again, another reason for formal social media training at work and recognizing the importance of internal employee communications.
Cyber breaches are clearly hurting the reputations of companies that find their customer data let loose online from hacking. This has become a major reputational issue and one that companies have to get smart about or they will be joining the ever growing long list of the largest data breaches. Plus the background stories in the media often reveal that companies and their leaders had some forewarning or were lax about privacy controls which only makes matters worse. Need I even add that CEOs have lost their jobs over cyber breaches! This is becoming a reputational issue of epic proportions.
Incivility can hurt reputation and harm sales. With the holiday season upon us, we took a deeper look at our research on Civility in America to better understand the connection. No surprise, the research shows that consumers react negatively toward businesses that exhibit incivility. With early reports showing slow sales this holiday season, companies need to ensure that front line representatives are on alert to deal with consumer's incivility and their own short-temper-ness. It happens. We are human. But consumers don't want to just take it anymore. They have too many choices. A businesses' reputations is at severe risk when an interaction is discourteous and disrespectful. Why would anyone go back to a particular store or buy something online when they can't get a reasonable answer from customer service or are treated poorly? Our survey provides the proof that people turn away from businesses when incivility is out of bounds. They tell their friends and family and the online community quickly takes note. Looking at this research from another angle, just think how ultra-civil behavior can make a difference. If a business is on civility steroids, wouldn't that make you want to shop there more often and tell friends and family online and off. It could make all the difference between an okay holiday season and an off-the-charts one for some. Plus it could super-charge your company reputation. Just check out these stats below.