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The Fickle Finger Of Reputation

Unlike fate, corporate reputation can be created managed, controlled-and even, with great effort, rehabilitated A preview of a new annual feature.

“Reputation said: ‘If once we sever, Our chance of future meeting is but vain:Who parts from me, must look to part for ever, For Reputation lost comes not again.”‘

                                                        -Charles Lamb. From Love, Death, and Reputation

How fickle is this thing called reputation? Fickle enough that in the corporate sphere fortunes are increasingly made and lost upon it. Fickle enough that stocks bounce up and down as it wavers. Fickle enough that recruits retreat and suitors sweat when a company’s rep has fallen-and storm the field when it’s in the stratosphere.

Poets and PR professionals agree, reputation is a mighty thing, worthy of nurture, deserving of praise. And once lost-or even tarnished-incredibly difficult to regain.

Think Tylenol. For 17 years now, Johnson & Johnson has basked in the glow of its wise and fortunate handling of a fateful crisis. As if it had happened yesterday, this is still the textbook case, everybody’s best practice.

Think Valdez. And how long it took Exxon to recover, to remove the blot of spilled oil from its good name.

Though there have been few catastrophes in recent years to rival either Tylenol or Valdez, the impact of these crises has extended far beyond the corporations involved. They were lessons for other companies and spawned a now-thriving practice within public relations called, not surprisingly, crisis management. And they convinced many chief executives that maintaining reputation was worthy not only of attention, but of proactive, concerted, coordinated, and ongoing effort—lest what happened to Exxon happen to them.

To test the progress corporations have made in their attempts at reputation management, CE joined forces with Hill & Knowlton to survey chief executives about their own involvement and the involvement of their corporations in this area. The results of that survey, conducted by Yankelovich Partners, appear on pages 80 and 81. Separately, CE polled chief executives to see which corporations they think are currently doing the best and worst jobs of enhancing their corporate reputations. The 789 respondents to this survey picked the 14 corporations listed on this page. There are few surprises here; who wouldn’t pick the beleaguered Cendant or the chain-sawed Sunbeam for this year’s worst list or single out GE, Coca-Cola, or Intel for hosannas? But what’s also striking is the extent to which several of the choices are based on relatively old news. While by most accounts, Michael Armstrong has begun a turnaround at AT&T, the reputation he inherited appears hard to shed (it’s likely, as a comparable example, that Lou Gerstner’s IBM, No. 2 on the best list, would have occupied AT&T’s terrain just a few years back). On the positive front, while the newly merged Daimler-Chrysler has seen some problematic press of late, it’s clearly still getting mileage from the minivans it pioneered—–a mere decade ago. As one respondent, Sheldon Ginsburg, chairman of The Shell Group in Northbrook, IL, put it, “They took a product everybody in the world was petrified of and became a sales leader. They turned their terrible reputation into a positive reputation by coming up with cars that are not only stylish but perform well.”

And then there’s Microsoft-No. 6 on the best rep list; No. 1 on the worst. Is this evidence of a reputation in decline (thanks to its recent performance on Capitol Hill) or a company that’s managing to have it both ways (thanks to its performance everywhere else)? Check back with us next year, when we present our second installment, to see where it—and everyone else-has landed.

The Right Stuff

What allows a company to achieve its business objectives? There are, of course, lots of factors. The right people. The right products. The right leadership. The right technology. The right timing. The right pricing. The right distribution. The right plan.

And don’t forget: the right reputation. For wherever the reputation goes, so goes the company-its profits, its stock price, its hold on the market, its hold on employees…

That, in fact, is the firmly held belief of 96 percent of the 650 CEOs who responded to a Chief Executive/Hill & Knowlton poll conducted by Yankelovich Partners. And the importance of corporate reputation is growing: 63 percent of respondents said they believe it’s more important than it was five years ago.

Some of that perception gain might stem from the fact that the CEO increasingly sees managing the company’s reputation as a critical part of the job (62 percent said that area of responsibility had increased during the last five years). But much of it appears to be rooted in the impact these CEOs have seen reputation have-both positively and negatively-on specific measures of business success.

On the financial front, more than three-quarters of respondents, for example, noted that a superior reputation helps to sell products and services; nearly a quarter saw it paying off in higher valuations and growing stock prices; and28 percent saw reputation having an effect on a company’s pricing power.

In terms of the most touted of resources-people-61 percent saw a connection between reputation and a company’s ability to attract top employees, and 41 percent said a top reputation leads to lower employee turnover. Those are major considerations in an increasingly tight job market and indicate that a company’s reputation can be a key piece of ammunition in what’s come to be known as the war for talent.

And, adding armor to that ammunition, reputation, it appears, begets reputation. More than half of respondents said a company with a solid reputation is more likely to be viewed positively in a time of crisis than one viewed questionably by an already skeptical public.

What makes that reputation? When asked to name the top three elements of “a superior corporate reputation,” nearly three-quarters cited trustworthiness, and an equal percentage looked to “high-quality products and services.” Also important: a high-caliber management team (43 percent); the sense the company adds value to all customer transactions (39 percent); the impression that the company conducts business in a caring way (28 percent); and an established reputation for innovation (23 percent).

Surprisingly, however, despite their clear and growing understanding of the impact of reputation management, few respondents said their companies actually went to the trouble of measuring reputation as an asset. Only 19 percent of all companies represented said they had formal measurement systems, and while this figure was slightly higher for respondents at larger companies—those with annual revenue in excess of $500 million-it topped out even there at a mere 25 percent. Moreover, only 40 percent of respondents indicated that their boards held them responsible for the corporate reputation. And when it came to measuring those who were, by definition, charged with reputation management the corporate communications professionals respondents barely gave them a passing mark (7 on a scale of 1 to 10).

So is there a disconnect? If CEOs champion reputation management as a means for achieving business objectives, but corporations don’t think it important enough to measure, don’t charge CEOs with maintaining it, and believe there’s room for improvement in their communications departments, does that imply that reputation is simply a motherhood issue, a PC stance to take-regardless of how firmly you’re willing to back it up? Or is corporate reputation an act in progress, a game of catch-up?

It seems more likely that corporations have simply not yet formalized the directions in which their management is already moving. For CEOs’ impressions are borne out by a host of other recent surveys and point the way to a clear and present trend. For example, a recent study by NYU’s Stern School of Business indicated that investors are willing to pay more for companies with higher reputation and that undergraduate business students are most attracted to jobs in those companies. A Yankelovich Partners survey of upscale customers found that when it came to buying products, recommending employment, and even selling their own businesses, respondents said they’d choose companies with winning reputations by a margin of at least 3 to 1.

How critical are those perceptions to business in general? Consider how business is still portrayed in the media. According to the Center for Media and Public Affairs, businesspeople are still three times more likely than other professionals to be criminals on TV shows.

What will change that perception? A sit-in at Universal Studios? CEOs moonlighting as script doctors? Or concrete programs of corporate reputation management, led and monitored by chief executives? According to these survey respondents, the choice is more than obvious.

About Michael Winkleman

Michael Winkleman
Mike Winkleman is editor-in-chief and chief content officer at Chief Executive magazine.