The Reputation Challenge

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The Reputation Challenge The role of public relations in managing organisational reputation CIPR CHARTERED APPLICATION STAGE 2 December 1, 2010 By: Jon Clements

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A study into what organisational reputation is, what threatens it, how it can be measured, managed and protected and how particular companies have responded to a reputation crisis. Researched and written as part of the Chartered Institute of Public Relations' Chartered Practitioner scheme.

Transcript of The Reputation Challenge

Page 1: The Reputation Challenge

The Reputation Challenge

The role of public relations in managing organisational reputation

CIPR CHARTERED APPLICATION STAGE 2

December 1, 2010

By: Jon Clements

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“O, I have lost my reputation! I have lost the immortal part of myself and what remains is bestial…” (Cassio in Shakespeare’s Othello, c.1602)

Introduction As the quotation from Shakespearean tragedy, Othello, suggests, the value of a sound reputation – and the impact of its loss - cannot be underestimated, be it on a personal or corporate level. In a year rife with organisational reputation challenges – the BP Deepwater Horizon oil spill, Toyota’s international recall of cars following a safety issue and the mid-air explosion of a Rolls Royce aircraft engine, to name a few – a critical question remains: have organisations learned from their own and others’ experience by placing a value on, and managing effectively, their reputation? There’s no shortage of learning materials on the topic: numerous examples of both good and bad practice going back several decades, a wealth of insightful and instructive literature, increasingly professional counsel from the public relations community and a developing opportunity to engage with stakeholders via social networks. However, even organisations with reputations of the highest order – and their most senior executives - have demonstrated decidedly mixed abilities when tasked with protecting their greatest strength. This study will consider what organisational reputation is, what threatens it, how it can be measured, managed and protected and how particular companies have responded to a reputational crisis. As an organisation’s reputation is not the sole responsibility of public relations practitioners, why should it matter to us and be a consideration of paramount importance to Chartered-level PR professionals ? As PR Week editor, Danny Rogers, says in the 25 Years of PR Week supplement (p.3, Sept 2010): “Finally the argument has been won. Reputation is the biggest asset an organisation or individual has. And, if communication is poor or reputation neglected, all other achievements fall by the wayside.”

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What is organisational reputation? Discussion of reputation as a great but intangible and immeasurable asset should be relegated to the dustbin of history. And those organisations that renege on their responsibilities to earn and maintain a solid reputation should wonder why their prosperity is inhibited, stalled or destroyed altogether. As Ronald J Alsop asserts simply, “Reputation Capital” is “like opening a savings account for a rainy day” (p.17). Quoting Bill Margaritis at FedEx, Alsop emphasises that “a strong reputation is a life preserver in a crisis and a tailwind when you have an opportunity” (p.17) The term reputation capital was used also by Gary Davies, Professor of Strategy and Director of the Reputation, Brand and Competitiveness research group at Manchester Business School, in 2003 when he placed reputation alongside other assets, lower capital costs and human intellectual capital as drivers of corporate competitiveness. When managed well, reputation capital helps create a “corporate personality” that breeds satisfaction and loyalty among employees and customers and has a direct link to both turnover and sales, says Davies (foreword, xi). In its report of November 2010, the Chartered Institute of Management Accountants aligns reputation with “increased employee morale and productivity leading to greater shareholder value and broader market opportunities” (key findings, p.1) and attributes it with a “cash value in the short and long-term” (introduction, p.2). Report author, Leslie L. Kossoff, also seeks to distinguish the development of corporate reputation from brand building. While a “brand” is the organisation’s public face, reputation is “the internal execution that creates the external image” (p.2) and is the real reason people choose to continue doing business with you, or not (p.3). And yet, while reputation management is central to the success or failure of a brand, the relative level of interest in addressing the former versus the latter appears unbalanced: a snapshot from Google Trends showing the volume of searches for each term suggests that “brand building” remains the higher concern on the agenda:

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Fig.1 Google Trends showing search volumes for “brand building” and “reputation management”.

Reputational risk

So, if reputation has a tangible relationship with the fortunes of an organisation, how serious a risk is reputational threat? The verdict from commentators is unequivocal: Kossoff, alluding to certain organisations’ recent experience, says that “hard hit reputations…all had financial implications for the companies involved – and their shareholders” (p.2) Alsop comments that “reputations can be lost in a flash” (p.19) and Leslie Gaines-Ross, quoting from Peter Firestein goes even further: “a risk to its reputation is a threat to the survival of the enterprise” (Intro, xvii). While high profile examples of corporate reputation meltdown pre-date the Millennium – such as the Exxon Valdez oil spill in the 1980s and the scandal of compensation for victims of the sedative drug, Thalidomide – the organisational duplicity since the turn of the new century has created what Gaines-Ross calls a “new genre in the reputation field” (Intro, xii). The Enron scandal and the bursting of the dotcom bubble in the early Noughties were defining moments after which a “new language and discipline” entered the rubric: “reputation recovery” (Gaines-Ross, xii). Speaking about executives of “good repute” as being “rather lonely these days”, Alsop says their more venal colleagues “lived for today and destroyed their corporate reputations” (Alsop, xi), while Griffin describes companies as being on a “perpetual collision course with the world at large” (Intro, p.5) and experiencing a poor return on reputation management.

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The resultant level of trust in business and business leaders has suffered as a consequence: Griffin quotes an Institute of Business Ethics Survey from 2007 in which 70 per cent of British people consider business leaders “liars” (Intro, p.5). Last year, an Ipsos Mori Poll – in the wake of the “Credit Crunch” – ranked business with its lowest net trust score since the poll began in 1983 (Guardian, 27 Sept 2009). Trust in politicians fared no better following the Parliamentary expenses scandal, with the same poll revealing them as “least likely to tell the truth.” In December 2010, the British Social Attitudes Report revealed that trust in banks had dropped from 90 per cent in 1983 – when their reputation for being well run and managed was higher than the BBC and the police – to 19 per cent today, a lower score than the media or trade unions (The Independent, 13 December 2010, p.7). With such little reputational “credit in the bank”, organisations today are even more vulnerable when their actions are held up to examination. And the scale of scrutiny that faces them has never been more overwhelming. Twenty-four hour news provides an insatiable outlet while the “army” of what Gaines-Ross calls “Reputation Snipers” (Intro, xvi) are ready to expose the truth behind an organisation’s carefully-crafted corporate veneer. In this context, journalists make no bones about their modus operandi. The Times’ home editor, Martin Barrow, told a PR Week crisis communications event: “If we know you’re lying, we will work extra hard to ensure we expose you and your company” (www.pr-media-blog.co.uk, 27 Nov 2008). And while the more ethical elements of the Fourth Estate continue their work to uncover corporate sharp practices, it is the unregulated and ungoverned mass of internet users that has added to the pressure on those in authority. Firestein calls it a “public super-consciousness”, with access to a plethora of online channels, including blogs, micro-blogs, video sharing and social networking platforms such as Facebook. Gaines-Ross says: “The internet has leveled the playing field between large corporations and individual activists. Although some antagonists are truthful, not all of them are. Often their diatribes are only partly true; sometimes they are entirely, demonstrably false. Those who take on large companies single-handedly are almost always highly emotional, if not irrational. And business leaders have no advance notice or time to reflect” (Harvard Business Review, December 2010). But the reputational threat from seemingly hysterical, but often unfocused, private citizens, pales next to that posed by the Wikileaks phenomenon. At the time of writing, Wikileaks’ publishing of confidential, US Government diplomatic cables is shredding the reputations of politicians worldwide. However, there is allegedly more in store, and this time Wikileaks has the corporate world in its sights. As E.R. Boyd describes, Wikileaks has a “treasure trove” of private company documents ready to release and summarises the threat this poses to all organisations:

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“When an employee can walk out of the door with gigabytes of data on a thumb drive, the likelihood that your company gets hit one day just got that much larger” (Fastcompany.com, 2 Dec 2010). And the threat can have a tangible impact on a company’s fortunes by virtue of rumours circulating even before full disclosure of facts. According to Jim Nichols, the mere suggestion that Wikileaks has a 5GB hard drive from the Bank of America has “caused the bank’s stock to drop more than 3%” (Forbes.com, 1 December 2010), placing its reputation in “digital freefall”. Yet, in the face of such threats, companies don’t appear sufficiently match fit to respond. A Harris interactive poll showed only nine per cent having crisis protocols in place (E.R. Boyd in Fastcompany.com, 2 Dec 2010). Regester and Larkin highlight the likely outcome of such unpreparedness in a crisis: “If a company is seen to be unresponsive, uncaring, inconsistent, confused, inept or unable to provide reliable information, the damage inflicted on its reputation will be lasting – and measurable against the bottom line” (Kitchen, 1997: p.215). If a company is to recover its reputation following a crisis, it needs to be ready for a campaign lasting not months, but years. Gaines-Ross estimates that corporate reputation takes, on average, four years to rehabilitate (Intro, xvi). But then, if the reputation is not rebuilt on firm foundations, there is a chance the organisation will cease to exist. As Phil Stott comments, the power of Wikileaks may mean “taking the unethical players out of the equation and allowing ethical companies to prosper” (Vault.com, 3 Dec 2010). Public relations practitioners of the highest level – accomplished in managing crises in which the media is the principal focus - need to be recalibrate their approach and coach their teams to respond to the changing nature of the reputation challenge; one that is often no longer mediated, but a direct dialogue between an organisation and its audiences - and increasingly on the audiences’ terms. Measuring organisational reputation To reiterate, the value of a strong corporate reputation is both tangible and measureable. It attracts customers, investors and talented employees, leading to higher profits and stock prices (Alsop, p.10). It also, as Alsop opines, gives a “halo effect”, building trust and giving organisations “the benefit of the doubt during rocky periods” (Alsop, p.10). But how – and when - should an organisation accurately assess and monitor the state of its reputation? Alsop says “you can’t manage what you can’t measure” and implores companies to measure not only when they’re in trouble but consistently, over time (p.25).

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The international Reputation Institute, positions itself as “devoted to advancing knowledge about corporate reputations and to providing professional assistance to companies interested in measuring and managing their reputations proactively”. Its RepTrak™ measurement tool claims to provide a measure of reputation across 23 corporate attributes. But not all are convinced by such an approach: “Convoluted and completely unhelpful” says Anne Gregory (p.13), who prefers the close analysis of case studies involving organisations where reputation was damaged. She also references lists such as Forbes Most Admired Companies as more salient guides to reputation. Alsop is circumspect about the “beauty contest” rankings of published customer satisfaction surveys, though supportive of the Harris Interactive Reputation Quotient measure – until 2005 a joint enterprise with the Reputation Institute. But what he does recommend is companies commissioning bespoke research focused on factors relevant to a particular organisation (p.27). Once there is a clear understanding of where a company’s reputation stands – and there is accountability for maintaining or improving that reputation – then it can be managed. Quoting from Mark Bain, vice president of corporate communications at Alticor, parent company of US direct selling operation, Amway, says: “If reputation is part of a department’s plan…it will get focus and attention. (Alsop, p.28). Managing and protecting organisational reputation The BBC’s director of communications, Ed Williams, told the Public Relations Consultants Association conference, “Emerging from Recession”, that the way organisations build public confidence and rebuild reputation could be summed up in one word: openness (http://pr-media-blog.co.uk/are-you-a-trustworthy-business-then-say-it/12 Oct 2009). Clements, in the blog post “Are you a trustworthy business? Then say it!” (Ibid.) says: “It’s not always possible to tell a happy story each time your organisation speaks…it could include having to apologise when your business has messed up. Being proud and vocal about your achievements while maintaining transparency about your shortcomings is all part of building trust.” In the work I’ve done over several years helping to prepare company executives for dealing with the media – more commonly known as media training – I’ve aimed to ensure that the learning gained is not solely about performing effectively in a journalist interview and delivering well-rehearsed key messages; it is, more importantly, an exercise in developing reputation management skills and recognising that willing and able spokespeople are entrusted with the company’s reputation every time they address an audience of stakeholders. We have the former Labour Government and its communications team to thank for helping the term “spin” to enter the corporate lexicon and be used with such ubiquity.

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Even at the most innocent level of companies’ new product launches, I have had to discourage corporate communicators from exploring ways of “spinning” their story. Recognising the value of reputation against the risk of spin enables businesses to embrace impartial advice about reputation management. Firestein says: “Becoming a participant in a dialogue enables the company to exert an influence that it could never achieve as a mere transmitter of spin” (pp.20-25) And this can involve overcoming their perceptions of a supposedly malevolent media, hell bent on doing them harm, misquoting their representatives and misrepresenting their activities. On the contrary, companies attentive to their reputation with the media should have nothing to fear and everything to gain. So, how does an organisation instil a culture – or at least a robust operational approach – of reputation management? R.F. Owen places the public relations function alongside the Chief Executive Officer as principal managers of corporate reputation because “[the CEO] is the public guardian of the company’s reputation and…must be deeply concerned with and closest to the public attitude towards the company” (p.61). Interestingly, Owen committed this view to paper in 1964. Firestein updates that view, saying: “If you’re a CEO, developing a solid corporate reputation – and repairing it when necessary – is Job One” (p.13). Alsop puts figures on the CEO factor in reputation management, referencing a Burson-Marsteller survey which showed a 40% increase over six years in those who believed a company’s reputation was attributable to that of the CEO (p.11). Quoting Gaines-Ross, Alsop calls the CEO: “The embodiment of the brand and the official storyteller” (Ibid.). Therefore, being close to the CEO should be the essential role for corporate communicators – either in-house or in agency – to help the most senior organisational spokespeople manage and protect reputation. As Gregory puts it, “for many public relations professionals, a sign of having ‘arrived’ is obtaining a ‘strategic’ role by having a seat on the board” (p.48). More than that, having PR represented in a senior management role is testament to the organisation acknowledging that it has a strategic importance. Gregory adds: “By knowing stakeholders well and what motivates them…the PR professional can bring an invaluable perspective to management thinking” (p.54). But there needs to be caution when selecting who speaks publicly for the organisation, as this can have a direct impact on reputation. While the professional communicators may be the most capable (and not all CEOs are), this could be seen as allowing real decision makers to hide behind the corporate message machine. PR Week’s Danny Rogers illustrated this problem with reference to Toyota communications chief, Scott Brownlee’s prominence in the media following this year’s major recall incident.

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He says: “There is some doubt about whether it enhances the reputation of organisations themselves. Ultimately, the media and the public expect the power behind the organisation to show his or her face and take full responsibility” (PR Week, Opinion, 10 Feb 2010). While the CEO may be the one who has to face the music publicly, it should be a combination of managers and their departments behind the scenes who have developed the necessary action plan to implement once a reputational crisis strikes. In larger organisations, this may cut across marketing, sales, customer service, the technical department and compliance; each prepared to ensure a seamless flow of factual information when the organisation is under pressure to produce it. Boyd cites the need for scenario planning, risk assessment and developing action plans that are: “a core operational function, not just an afterthought left to the PR department” (Fastcompany.com, 2 Dec 2010). Nichols focuses on the need for speed, where organisations need to “ensure their side of the story is frankly represented” but warns against an “outsized show of force” Forbes.com, 1 December 2010).

The wisdom of this advice was evident in the example of a client that was about to embark upon legal action against an online forum set up by disgruntled customers. Spotting the potential for “David and Goliath” headlines – not least as the customers had a genuine grievance – we counselled the client to engage with their detractors in the full spirit of openness. The net result included previously aggrieved customers getting their cases heard and being converted to supporters of the company’s approach online. In this example, the crisis had precipitated the first instance of engagement in a public, online forum between the company and its customers. Ideally, organisations should be proactively creating and building their presence online – within owned or earned media platforms – as part of their reputation management plan. If this is not already underway and a crisis erupts, it places the organisation in a dangerous learning curve and playing a game of catch-up when its reputation is on the line. Nichols favours building “an engaging and interactive digital presence to gather ‘fans’ who will help defend your reputation when under fire”. However, if communications are to be effective, they need to be supporting a genuine business response to a reputational threat. In other words, what is being conveyed to the world at large should mirror clear restorative actions being taken by the organisation. As Firestein comments: “Narratives cannot work unless they reflect some fundamental reality. If they don’t, the truth will emerge over time anyway and then the damage may be virtually limitless” (p.24).

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Reputation management in practice - the bad… Toyota Former Toyota president, Fujio Cho, was quoted in 1999 saying: “We will not be caught off-guard” (Gaines-Ross, p.139) And he had every reason to be believed, with the “Toyota Way” management principles focused on fixing production line problems without hesitation. But reputation management is a constant journey and commitment, as the company experienced at the start of 2010. Kossoff describes how the company’s strategy change to become the largest car maker in the world had affected its renowned reputation for quality (case study, p.6). When the potentially fatal problems with vehicle braking systems came to light, the company’s speed of public response was woefully slow. Furlong PR’s case study on the Toyota recall shows how the company’s video apology, coming two weeks after the announcement, was criticised in the USA for being “too late and too centralised”. It also highlights some of the market share fall-out, with competitors “conducting opportunistic marketing campaigns to woo disgruntled Toyota customers”. (Furlong PR.com, 2 Feb 2010) The financial result was a 20 per cent loss in market value in the two months after the first recall was announced (Kossoff, p.6). Presciently, Alsop – quoting a Stanford University study – said that companies known for reliability – “such as Toyota” – are particularly affected by “market share drops following recall announcements” (p.13). As the Toyota example shows, even the most stringent management standards cannot prevent every potential problem and the response to a reputation crisis – while the organisation is at its most visible and vulnerable – is critical. Rolls Royce When a Qantas A380 Airbus was forced to make an emergency landing after one of its Rolls Royce engines caught fire in mid-air, the response from the manufacturer was said to “have a whiff of BP about it”, referring to the company’s communications in the wake of the BP oil spill in the Gulf of Mexico. Lewis PR COO, Paul Charles, said Rolls Royce’s post-event statement left more questions than answers, such as how long the inspection process would last and how long the Airbus planes would be grounded (PR Week, 12 November). Similarly, the speed of public response by the CEO, Sir John Rose, came under fire. His first comments came eight days after the incident and though the company’s share price went up by five per cent as a result, more than £1bn had already been taken off its value (The Independent, 18 November 2010, p.41).

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Business editor of the The Daily Telegraph, Alistair Osborne, commented: “You’d think it [Rolls Royce] would try to engage a little more with the ultimate consumer – the people who catch the planes” (telegraph.co.uk, 12 Nov 2010). PR Week editor, Danny Rogers, described the company’s social media nous in the context of the crisis as “sluggish and out of touch” and that – along with an operational review – Rolls Royce required an “intensive reassurance campaign” with detailed and transparent communications across traditional and digital media” (Travolution.co.uk, 16 November 2010). Reputation management in practice - the good… Kellogg’s Faced with accusations from the Channel 4 programme, Dispatches, about high sugar and salt content in cereals, Kellogg’s Manchester-based PR team turned to online and social media to redress the balance of opinion. It posted information on its own website – featuring input from its head of nutrition – giving its views on the subject and using Twitter to provide a real-time, background commentary while the television programme was being aired. Communications Manager, Paul Wheeler, said: “With digital PR and social media, the contact is directly with the consumer, not via the media. We received a lot of positive feedback after the Dispatches programme for being open, honest and providing timely information” (North West Business Insider, August 2010, p.32). Conclusion It’s beyond the expectations of the media and the public that organisations remain continuously flawless in their activities and operations. Life is simply not like that. Yet, when things go wrong, the ultimate test of reputation management is learning from mistakes and putting them right to the satisfaction of all stakeholders. Yet there still seems to be a reticence among some organisations to engage fully and promptly when required to do so. If this is founded on a belief that refusing to engage with the media or individuals in a social network starves a story of oxygen, then they should think again. On the contrary, the world beyond the company walls tends to become ever more aggrieved at the arrogance of corporate silence and more determined to make companies account for themselves. Silence merely raises more questions about the organisation’s integrity.

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Firestein notes that this “resulting lack of transparency prevents investors…developing the clear definitions of the company that engender confidence” (p.17). Gaines-Ross, quoting from Marks & Spencer’s then-CEO, Stuart Rose, says: “Reputation recovery is an epic voyage full of courageous daily actions and deeds that never truly slay the twin dragons of doom and gloom” (p.135). And it is at the CEO level that senior communicators need to engage to ensure effective reputation management. As CIPR president, Jay O’Connor, wrote recently: “Excellent planning, monitoring and building a trusted relationship with the board will help organisations respond well in times of crisis, helping the organisation to retain and regain reputational capital.” JON CLEMENTS December 2010

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Bibliography Alsop, Ronald J; The 18 Immutable Laws of Corporate Reputation, 2004. Boyd, E.R.; Fastcompany.com – 2 December 2010. Davies, Gary; Corporate Reputation and Competitiveness, 2003. Firestein, Peter; Building Corporate Reputation in the Age of Skepticism, 2009. Furlong PR; furlongpr.com, 2 February 2010. Gaines-Ross, Leslie; 12 Steps to Safeguarding and Recovering Reputation, 2008. Gregory, Anne; The Public Relations Handbook, 2004. Griffin, Andrew; New Strategies for Reputation Management, 2008. Kitchen, Philip J; Public Relations: Principles and Practice, 1997: p.215. Kossoff, Leslie L; Reputation – why it matters and how you can manage it, Chartered Institute of Management Accountants, November 2010. Moore, James; The Independent, 18 November 2010: p.41. Nichols, Jim; blogs.forbes.com – 1 December 2010. O’Connor, Jay; cipr.co.uk, President’s Blog – 15 December 2010 Osborne, Alistair; telegraph.co.uk, 12 November 2010. Owen, R.F.; The Handbook of Public Relations, 1963; p.61. Rogers, Danny

- 25 years of PR Week supplement, September 2010 - PR Week, 10 February 2010 – Opinion - Travolution.co.uk, 11 November 2010

Stott, Phil; Vault.com – 3 December 2010: Why Wikileaks will lead to better corporate behaviour.