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September 22, 2005
Implications of Reputation--How Intangibles Drive Performance and Strategic Advantage
I attended the Arthur Page Society annual meeting this week. The Society is comprised of the top communications executives at Fortune 500 companies plus a few PR agency CEOs. The session was held at an opportune moment, just after the devastation of Hurricane Katrina, the sentencing of Messrs. Kozlowski and Swartz of Tyco (former CEO and CFO), and the bankruptcy filings of Delta and Northwest Airlines.
Here are some of the highlights:
1) Stakeholder versus shareholder model--Dave D'Alessandro, former CEO of John Hancock and now part owner of the Boston Red Sox, made a strong case for the multiple stakeholder approach. He used the recent sale of his insurance company to a Canadian giant, Manulife as an example. He was able to get a guarantee of fixed employment and commitment to the present charitable contribution levels for four years as part of the deal. "Though it might have cost a buck or two in the purchase price per share, it was well worth it," he said, "in reassuring our employees and the Boston community. He contrasted this to Gillette, which simply sought the highest price in selling to Procter & Gamble. The ensuing criticism of Gillette CEO Jim Kilts in the local media and by local politicians was the logical outcome, D'Alessandro believes.
2) Frat House Rules--Geoff Colvin, senior editor of Fortune Magazine, said that the business community is now being seen as an unruly fraternity on campus, with attendant suspicion of every action. Companies face the possibility of a rapid fall from grace. Note that the Fortune Most Admired List saw IBM drop from #1 position for four years in a row to #357 in a single year. Or that others on the Most Admired List in recent memory include Merck, Coca Cola and the now merged Rubbermaid. The audience was clearly stunned when Colvin advised CEOs to keep a low profile, to let the company's deeds do the talking. Colvin also contended that a company's reputation is largely driven by share price and financial performance, because "it casts a glow on everything else. CSR is important, but two rungs below," he said.
3) Content versus Context--Fred Crawford, a management consultant, suggested that context is even more important than content for brands. He added that "trust is a substitute for perfect knowledge and the time to act on it. Trust leads to preference leads to seeking leads to purchase." As technological differences among brands become less perceptible and brand cycles shorter, companies need to work on other aspects of the purchase experience, including service, access and company reputation.
4) The Skeptical Employee--Gary Grates of GM described his company's efforts to control health care costs by securing the cooperation of the United Auto Workers. The engagement with the employees was done at multiple levels, including an advertising campaign showing GM workers at the factories (the new look of GM), creation of a Healthcare 101 brochure for workers done with the UAW and allowing employees a voice in GM's charitable activities. "A company needs a collective cause and must be emotionally driven as well as rationally driven," he said. Joan Wainwright of Merck noted that in the period up to and following the adverse VIOXX court decision, the employees moved from shock to frustration and anger to questioning the company's behavior to concern about survival of the enterprise. She learned that the employee force must be the first to know and be armed with detailed information in order "to keep them focused in a tempest and despite a tendency to go quiet during litigation."
5) PR at the Top Table--It became clear that the top PR executives in companies are at the top table in times of crisis. Ken Sternad of UPS, an Edelman client, told a group of us at breakfast about his department's role in helping tell the story of the Gulf Coast getting back to normal, with drivers making the first deliveries of supplies to local businesses trying to restart operations. The remit of the PR executive is also expanded by using the blogosphere. Grates said that GM announced the $19,000 price of its new Solstice brand on the Fast Lane blog of Bob Lutz, chief design officer, and that the management committee regularly writes posts back to Lutz on quality issues.
A few concluding thoughts from your host. In an increasingly skeptical world, what matters is deeds and words. To suggest that actions alone will be sufficient without setting proper context and a means of constant reinforcement of message is impossible. To go to the other extreme, all image without substance, will not succeed. We should recognize the potential of building reputational capital based on good works and great performance for the inevitable crises to come.
Posted by Edelman at September 22, 2005 9:25 AM
Comments
Richard: I totally agree with the comments in your concluding thoughts. Having worked in corporations for over 30 years, many businesses are doing many good things to help multiple stakeholders. For some reason, corporations are afraid to tell their stories and in spite of the good deeds being done, no one knows about them, ROI is not maximized and reputations suffer. Colvin's comment is perhaps driven by the fact that traditional media do not and will not tell the "good news stories". Two editors of major international print media have been quoted as saying, "Our role is that of a watch dog. We are running businesses with limited resources. Where do I maximize my impact - telling good news stories or uncovering things that are not right and reporting these so they don't happen again?" The answer is obvious. They went on to say, "We leave others to report the good news stories." With Colvin's comment, the group is now three. If the corporation does not communicate regularly, not much wonder people are skeptical about a sporatic communication. Do the deeds but tell someone about them! That way, as Stephen Covey says,"You have a substantial balance in their emotional bank account and when the inevitable crisis happens, there is something there to withdraw".
Posted by: Bob Johnson at September 27, 2005 6:48 PM
One idea to consider. Use employee bloggers to tell the story. This has worked for us on WalMart relief effort on Hurricane Katrina. Note that old media followed on blogs. Thanks for reading my blog
Posted by: Richard Edelman at September 28, 2005 11:00 AM