BUILDING REPUTATION

The Economist Intelligence Unit conducted a survey of senior management executives in the U.S. on how they choose professional services firms. Among the sources that most influence their opinion of a professional service firm's reputation, executives cite one-on-one contact with firm representatives (74%), online information from firm Web sites (41%), white papers and case studies (39%), conferences and events (30%) and online search results (21%).

Among the qualities considered most important in selecting a professional services firm, senior executives cite competence in a particular practice area (68%), understanding of the industry or business (51%), value of service relative to cost (46%) and reputation (40%).

A study conducted by Weber Shandwick with Spencer Stuart and KRC Research identifies a compelling link between a company's chief communications officer (CCO) and his/her department and the company's ranking on the Fortune World's Most Admired Companies list. The study, The Rising CCO, finds the CCOs in the most reputable organizations have longer tenures, fewer inter-departmental rivals and report to the CEO. Additionally, approximately one-third of CCOs in most admired companies cite corporate reputation as their number one priority for 2008, vs. fewer than one-quarter of CCOs in less highly regarded companies.

A study conducted among financial advisors and high-net-worth investors by business and financial communications consultancy FD found that a company can lose in excess of 30 percent of its share value as a result of a highly publicized crisis. Additionally, respondents ascribe significantly more market value to reputation than they do to board quality...82 percent and 71 percent, respectively, of financial advisors and high-net-worth advisors believe reputation accounts for more than 20 percent of market value, compared to only 29 percent of financial advisors and 20 percent of high-net-worth investors who think boards account for more than 20 percent of market value. (October, 2007)

As part of Hill & Knowlton's 8th Annual Corporate Reputation Study, 527 MBA students at the top 12 international business schools participated in a survey on how corporate reputation influences where they choose to work. Overall, corporate reputation matters a lot to MBAs, with 73% of those surveyed saying corporate reputation is either an "extremely" or "very" important factor when deciding where they will work.

McKinsey has developed a metric called the Topple Rate - a measure of how many market-leading companies lose that status during the next five years. The most recent Topple Rate data is for the 1997-2002 period, growing to 16% from 8% in the early 1970's. "It's easy to get blindsided when you're growing fast," says Richard H. Scott, former CEO of Columbia/HCA Healthcare who stepped down in 1997 amid fraud allegations. "You have to build better legal and internal audit capabilities. You need to be able to deal with regulatory issues. But we were growing so fast we often hired people six months after we needed them." (The Wall Street Journal, September 5, 2007)

A McKinsey Quarterly report (May 2007) identifies "reputation/influence" as part of a healthy financial balance sheet. A "new look at resources" suggests that reputation/influence should account for 3% of a company's expenditures.

The Australian newspaper, The Age, featured a report on the growing prevalence of crisis management and its role in reputation care. Some highlights:

• Issues management consultancy Gavin Anderson & Company says managing a company’s reputation before a crisis has become the biggest priority of his work. “The bottom line nowadays is there’s a huge commercial impact in not managing your reputation,” says consultant Ian Smith. He says that about 60 to 70 percent of his work today is pre-emptive and the rest is “last-minute stuff.” Unfortunately, the expansion of the Internet and 24-hour news cycles make managing “last-minute stuff” quite challenging.
• Robina Xavier, acting head of Queensland University of Technology’s advertising, marketing and public relations school, says that research suggests that about eight to 15 percent of a company’s share price is based on reputation. During a crisis, reputation is in jeopardy. Xavier adds that research shows 60 to 70 percent of company crises are smouldering, with the company either oblivious or choosing not to act.

CIT and Harris Interactive conducted a new survey among U.S. business executives on the importance of intangible assets in driving company success. While 75% of respondents believe that 'networking with customers/prospects is more effective than traditional marketing,' over half (55%) report only attending 1-5 events annually.

1. One-on-one social encounters, like small client dinners- 58%
2. Industry conferences- 52%
3. Professional associations- 43%
4. Social responsibility/charitable activities, like volunteer work or fundraisers- 28%
5. Internet-based networking- 17%

Based on research conducted each by Weber Shandwick and the Reputation Institute, there are six core elements that, when taken together, form the building blocks of corporate reputation:

1. Responsibility: supporting worthy causes, demonstrating environmental responsibility and community/societal responsibility
2. Communications: marked by transparency, full disclosure and openness to dialogue
3. Products and Services: offers high quality, innovation, customer satisfaction and good word of mouth
4. Talent: rewards employees fairly, promotes diversity and ability to attract and retain
5. Financial Metrics: outpaces competitors, financial soundness and long-term investment value
6. Leadership: CEO and senior team leadership, good governance and ethical conduct

NYSE recently conducted a study among 205 CEOs of companies listed on the New York Stock Exchange to understand their perspectives of how they see the future of their work and their companies. Some intriguing results include:

• Nearly all CEOs feel their position entails more personal legal risk compared to three years ago.
• A large 75 percent of CEOs report tracking their reputation through employee surveys.
• 44 percent of CEOs say that company reputation is a more important performance measure than it was three years ago.
• 84 percent of CEOs believe that they take enough action to protect their company reputations, among which the majority -- 85 percent -- say they do this by having informal discussions with stakeholders connected to the business.

Charles Fombrun of the Reputation Institute, in an article appearing in the Financial Times, notes that “Companies that manage their relationships with resource-holders give clues to reputation management. Their analysis has identified five principles: Distinctiveness (Strong reputations result when companies occupy a distinctive position in the minds of resource-holders), Focus (Reputations tend to improve when companies focus on a core theme), Consistency (Companies should be consistent in actions and communications with all resource-holders), Identity (Strong reputations are built on companies being genuine) and Transparency (Strong corporate reputations develop when companies are transparent in conducting their affairs. Transparency requires communication - a lot of it). They link strategic positioning, brand marketing, organization theory and corporate communications.

A new Hill & Knowlton study, Return on Reputation - Corporate Reputation Watch 2006, focuses on the significant role that corporate reputation plays in investment analysts’ decisions when assessing company performance. The results are striking – reputation is a critical deciding factor on a global scale:

• Setting financial performance aside, “quality of management” is by far the single most important factor (53 percent) that drives a company’s reputation.
• A strong leadership team, keeping promises and corporate strategy are just as valuable as financial performance.
• Nearly half (46 percent) say that the CEO’s reputation is an extremely important factor when determining whether to recommend a certain company as an investment.
• A strong majority (85 percent) posit that the CEO should be let go if their behavior negatively impacts the company’s reputation.
• Nearly all analysts (93 percent) say that clear communication with key stakeholders factors into their financial assessment of a company – with another 79 percent who say that poor communication would contribute to a negative rating.

Jack and Suzy Welch, in their BusinessWeek column The Welch Way, discuss the concept of being a “talent magnet”. The Welches point out that becoming a sought-after employer is something that is years in the making “[t]hat’s just the way it is with corporate reputations. They’re built annual report by annual report, career by career, crisis by crisis (because every company has one or two of them), and recovery by recovery.” That said, they also caution that given the hyperactive media environment today, the undeniable (though rare) “buzz factor” can build and destroy reputations overnight.

In terms of building reputation as a preferred employer, the Welches put forth this checklist:

• Demonstrate a real commitment to the learning process
• Be a true meritocracy
• Provide an environment to take risks and celebrate risk takers
• Practice social and corporate responsibility
• Maintain strict hiring standards
• Keep a keen eye towards profit and growth

A study by PRWeek finds that trust in financial institutions, given the various scandals of the past few years, is decidedly mixed. One result of the research is that communications was found to have a less effective impact on trust. However, another finding shows that integrity-based communications appears to have a more positive impact – “if PR practitioners explain the way in which a company operates with integrity – such as how it follows CSR policies and deals fairly with customers – the better chance that [financial service institutions] has of building trust.”

The most recent McKinsey & Company Quarterly global survey highlighted the top issues global executives feel will have the most impact (either positive or negative) on shareholder value in the near future. Among the top factors:

• Job loss and offshoring (41 percent)
• Political influence and/or political involvement of companies (29 percent)
• Environmental issues, including climate change (28 percent)
• Pension and retirement benefits (28 percent)
• Privacy and data security (26 percent)
• Health care benefits and other employee benefits (23 percent)

As Hannah Clark from Forbes.com reports, the Reputation Institute recently released their latest corporate ranking survey, which represents about 30,000 interviews and ranked 600 of the largest global companies. The methodology for this study represented a departure from the previous corporate ranking research the firm conducted in that the respondent pool became global in scope and only those in a particular country ranked the companies headquartered there. Topping the list of the rankings was Barilla Holding, the Italian pasta maker who garnered a score of 87.79 out of a possible 100. Consumer good companies did well - other companies that were ranked highly include Kraft Foods (U.S.), Lego (Denmark) and IKEA (Sweden). What was the company with the worst reputation? Halliburton, with a score of 21.86 out of 100.