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The Reputation Challenge

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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. …

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.

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  • 1. The Reputation ChallengeThe role of public relations in managing organisational reputation CIPR CHARTERED APPLICATION STAGE 2 December 1, 2010 By: Jon Clements
  • 2. The Reputation Challenge 1 “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)IntroductionAs the quotation from Shakespearean tragedy, Othello, suggests, the value of a soundreputation – and the impact of its loss - cannot be underestimated, be it on a personal orcorporate level.In a year rife with organisational reputation challenges – the BP Deepwater Horizon oilspill, Toyota’s international recall of cars following a safety issue and the mid-air explosionof a Rolls Royce aircraft engine, to name a few – a critical question remains: haveorganisations learned from their own and others’ experience by placing a value on, andmanaging effectively, their reputation?There’s no shortage of learning materials on the topic: numerous examples of both goodand bad practice going back several decades, a wealth of insightful and instructiveliterature, increasingly professional counsel from the public relations community and adeveloping opportunity to engage with stakeholders via social networks. However, evenorganisations with reputations of the highest order – and their most senior executives -have demonstrated decidedly mixed abilities when tasked with protecting their greateststrength.This study will consider what organisational reputation is, what threatens it, how it can bemeasured, managed and protected and how particular companies have responded to areputational crisis.As an organisation’s reputation is not the sole responsibility of public relationspractitioners, why should it matter to us and be a consideration of paramount importanceto Chartered-level PR professionals ? As PR Week editor, Danny Rogers, says in the 25Years of PR Week supplement (p.3, Sept 2010):“Finally the argument has been won. Reputation is the biggest asset an organisation orindividual has. And, if communication is poor or reputation neglected, all otherachievements fall by the wayside.”
  • 3. The Reputation Challenge 2What is organisational reputation?Discussion of reputation as a great but intangible and immeasurable asset should berelegated to the dustbin of history.And those organisations that renege on their responsibilities to earn and maintain a solidreputation should wonder why their prosperity is inhibited, stalled or destroyedaltogether.As Ronald J Alsop asserts simply, “Reputation Capital” is “like opening a savings account fora rainy day” (p.17). Quoting Bill Margaritis at FedEx, Alsop emphasises that “a strongreputation 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 andDirector of the Reputation, Brand and Competitiveness research group at ManchesterBusiness School, in 2003 when he placed reputation alongside other assets, lower capitalcosts and human intellectual capital as drivers of corporate competitiveness.When managed well, reputation capital helps create a “corporate personality” that breedssatisfaction and loyalty among employees and customers and has a direct link to bothturnover and sales, says Davies (foreword, xi).In its report of November 2010, the Chartered Institute of Management Accountants alignsreputation with “increased employee morale and productivity leading to greatershareholder value and broader market opportunities” (key findings, p.1) and attributes itwith 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 brandbuilding. While a “brand” is the organisation’s public face, reputation is “the internalexecution that creates the external image” (p.2) and is the real reason people choose tocontinue doing business with you, or not (p.3).And yet, while reputation management is central to the success or failure of a brand, therelative level of interest in addressing the former versus the latter appears unbalanced: asnapshot from Google Trends showing the volume of searches for each term suggests that“brand building” remains the higher concern on the agenda:
  • 4. The Reputation Challenge 3Fig.1 Google Trends showing search volumes for “brand building” and “reputationmanagement”.Reputational riskSo, if reputation has a tangible relationship with the fortunes of an organisation, howserious a risk is reputational threat? The verdict from commentators is unequivocal:Kossoff, alluding to certain organisations’ recent experience, says that “hard hitreputations…all had financial implications for the companies involved – and theirshareholders” (p.2) Alsop comments that “reputations can be lost in a flash” (p.19) andLeslie Gaines-Ross, quoting from Peter Firestein goes even further: “a risk to its reputationis 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 victimsof the sedative drug, Thalidomide – the organisational duplicity since the turn of the newcentury 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 weredefining 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 saystheir more venal colleagues “lived for today and destroyed their corporate reputations”(Alsop, xi), while Griffin describes companies as being on a “perpetual collision course withthe world at large” (Intro, p.5) and experiencing a poor return on reputation management.
  • 5. The Reputation Challenge 4The 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 ofBritish 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 sincethe poll began in 1983 (Guardian, 27 Sept 2009). Trust in politicians fared no betterfollowing the Parliamentary expenses scandal, with the same poll revealing them as “leastlikely to tell the truth.” In December 2010, the British Social Attitudes Report revealed thattrust in banks had dropped from 90 per cent in 1983 – when their reputation for being wellrun and managed was higher than the BBC and the police – to 19 per cent today, a lowerscore 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 morevulnerable when their actions are held up to examination. And the scale of scrutiny thatfaces them has never been more overwhelming. Twenty-four hour news provides aninsatiable 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 corporateveneer.In this context, journalists make no bones about their modus operandi. The Times’ homeeditor, Martin Barrow, told a PR Week crisis communications event: “If we know you’relying, 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 uncovercorporate sharp practices, it is the unregulated and ungoverned mass of internet users thathas 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 corporationsand individual activists. Although some antagonists are truthful, not all of them are. Oftentheir diatribes are only partly true; sometimes they are entirely, demonstrably false. Thosewho take on large companies single-handedly are almost always highly emotional, if notirrational. And business leaders have no advance notice or time to reflect” (HarvardBusiness 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 diplomaticcables is shredding the reputations of politicians worldwide. However, there is allegedlymore 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 documentsready to release and summarises the threat this poses to all organisations:
  • 6. The Reputation Challenge 5“When an employee can walk out of the door with gigabytes of data on a thumb drive, thelikelihood 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 rumourscirculating even before full disclosure of facts. According to Jim Nichols, the meresuggestion that Wikileaks has a 5GB hard drive from the Bank of America has “caused thebank’s stock to drop more than 3%” (Forbes.com, 1 December 2010), placing its reputationin “digital freefall”.Yet, in the face of such threats, companies don’t appear sufficiently match fit to respond. AHarris interactive poll showed only nine per cent having crisis protocols in place (E.R. Boydin Fastcompany.com, 2 Dec 2010).Regester and Larkin highlight the likely outcome of such unpreparedness in a crisis: “If acompany is seen to be unresponsive, uncaring, inconsistent, confused, inept or unable toprovide reliable information, the damage inflicted on its reputation will be lasting – andmeasurable 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 acampaign lasting not months, but years. Gaines-Ross estimates that corporate reputationtakes, on average, four years to rehabilitate (Intro, xvi).But then, if the reputation is not rebuilt on firm foundations, there is a chance theorganisation 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 toprosper” (Vault.com, 3 Dec 2010).Public relations practitioners of the highest level – accomplished in managing crises inwhich the media is the principal focus - need to be recalibrate their approach and coachtheir teams to respond to the changing nature of the reputation challenge; one that is oftenno longer mediated, but a direct dialogue between an organisation and its audiences - andincreasingly on the audiences’ terms.Measuring organisational reputationTo reiterate, the value of a strong corporate reputation is both tangible and measureable. Itattracts customers, investors and talented employees, leading to higher profits and stockprices (Alsop, p.10). It also, as Alsop opines, gives a “halo effect”, building trust and givingorganisations “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 itsreputation? Alsop says “you can’t manage what you can’t measure” and implorescompanies to measure not only when they’re in trouble but consistently, over time (p.25).
  • 7. The Reputation Challenge 6The international Reputation Institute, positions itself as “devoted to advancing knowledgeabout corporate reputations and to providing professional assistance to companiesinterested in measuring and managing their reputations proactively”. Its RepTrak™measurement tool claims to provide a measure of reputation across 23 corporateattributes. But not all are convinced by such an approach: “Convoluted and completelyunhelpful” says Anne Gregory (p.13), who prefers the close analysis of case studiesinvolving organisations where reputation was damaged. She also references lists such asForbes Most Admired Companies as more salient guides to reputation.Alsop is circumspect about the “beauty contest” rankings of published customersatisfaction surveys, though supportive of the Harris Interactive Reputation Quotientmeasure – until 2005 a joint enterprise with the Reputation Institute. But what he doesrecommend is companies commissioning bespoke research focused on factors relevant to aparticular organisation (p.27).Once there is a clear understanding of where a company’s reputation stands – and there isaccountability for maintaining or improving that reputation – then it can be managed.Quoting from Mark Bain, vice president of corporate communications at Alticor, parentcompany of US direct selling operation, Amway, says: “If reputation is part of adepartment’s plan…it will get focus and attention. (Alsop, p.28).Managing and protecting organisational reputationThe BBC’s director of communications, Ed Williams, told the Public Relations ConsultantsAssociation conference, “Emerging from Recession”, that the way organisations build publicconfidence 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 notalways possible to tell a happy story each time your organisation speaks…it could includehaving to apologise when your business has messed up. Being proud and vocal about yourachievements while maintaining transparency about your shortcomings is all part ofbuilding trust.”In the work I’ve done over several years helping to prepare company executives for dealingwith the media – more commonly known as media training – I’ve aimed to ensure that thelearning gained is not solely about performing effectively in a journalist interview anddelivering well-rehearsed key messages; it is, more importantly, an exercise in developingreputation management skills and recognising that willing and able spokespeople areentrusted with the company’s reputation every time they address an audience ofstakeholders.We have the former Labour Government and its communications team to thank for helpingthe term “spin” to enter the corporate lexicon and be used with such ubiquity.
  • 8. The Reputation Challenge 7Even at the most innocent level of companies’ new product launches, I have had todiscourage corporate communicators from exploring ways of “spinning” their story.Recognising the value of reputation against the risk of spin enables businesses to embraceimpartial advice about reputation management. Firestein says: “Becoming a participant in adialogue enables the company to exert an influence that it could never achieve as a meretransmitter of spin” (pp.20-25)And this can involve overcoming their perceptions of a supposedly malevolent media, hellbent on doing them harm, misquoting their representatives and misrepresenting theiractivities. On the contrary, companies attentive to their reputation with the media shouldhave nothing to fear and everything to gain.So, how does an organisation instil a culture – or at least a robust operational approach – ofreputation management?R.F. Owen places the public relations function alongside the Chief Executive Officer asprincipal managers of corporate reputation because “[the CEO] is the public guardian of thecompany’s reputation and…must be deeply concerned with and closest to the publicattitude towards the company” (p.61). Interestingly, Owen committed this view to paper in1964.Firestein updates that view, saying: “If you’re a CEO, developing a solid corporatereputation – and repairing it when necessary – is Job One” (p.13). Alsop puts figures on theCEO factor in reputation management, referencing a Burson-Marsteller survey whichshowed a 40% increase over six years in those who believed a company’s reputation wasattributable to that of the CEO (p.11). Quoting Gaines-Ross, Alsop calls the CEO: “Theembodiment 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 spokespeoplemanage and protect reputation. As Gregory puts it, “for many public relationsprofessionals, a sign of having ‘arrived’ is obtaining a ‘strategic’ role by having a seat on theboard” (p.48).More than that, having PR represented in a senior management role is testament to theorganisation acknowledging that it has a strategic importance. Gregory adds: “By knowingstakeholders well and what motivates them…the PR professional can bring an invaluableperspective to management thinking” (p.54).But there needs to be caution when selecting who speaks publicly for the organisation, asthis can have a direct impact on reputation. While the professional communicators may bethe most capable (and not all CEOs are), this could be seen as allowing real decision makersto hide behind the corporate message machine. PR Week’s Danny Rogers illustrated thisproblem with reference to Toyota communications chief, Scott Brownlee’s prominence inthe media following this year’s major recall incident.
  • 9. The Reputation Challenge 8He says: “There is some doubt about whether it enhances the reputation of organisationsthemselves. Ultimately, the media and the public expect the power behind the organisationto 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 acombination of managers and their departments behind the scenes who have developedthe necessary action plan to implement once a reputational crisis strikes.In larger organisations, this may cut across marketing, sales, customer service, thetechnical department and compliance; each prepared to ensure a seamless flow of factualinformation when the organisation is under pressure to produce it.Boyd cites the need for scenario planning, risk assessment and developing action plans thatare: “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, whereorganisations need to “ensure their side of the story is frankly represented” but warnsagainst 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 embarkupon legal action against an online forum set up by disgruntled customers. Spotting thepotential for “David and Goliath” headlines – not least as the customers had a genuinegrievance – we counselled the client to engage with their detractors in the full spirit ofopenness. The net result included previously aggrieved customers getting their cases heardand 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 beproactively creating and building their presence online – within owned or earned mediaplatforms – as part of their reputation management plan. If this is not already underwayand a crisis erupts, it places the organisation in a dangerous learning curve and playing agame of catch-up when its reputation is on the line. Nichols favours building “an engagingand interactive digital presence to gather ‘fans’ who will help defend your reputation whenunder fire”.However, if communications are to be effective, they need to be supporting a genuinebusiness response to a reputational threat. In other words, what is being conveyed to theworld at large should mirror clear restorative actions being taken by the organisation. AsFirestein comments: “Narratives cannot work unless they reflect some fundamentalreality. If they don’t, the truth will emerge over time anyway and then the damage may bevirtually limitless” (p.24).
  • 10. The Reputation Challenge 9Reputation management in practice - the bad…ToyotaFormer 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. Butreputation management is a constant journey and commitment, as the companyexperienced at the start of 2010.Kossoff describes how the company’s strategy change to become the largest car maker inthe world had affected its renowned reputation for quality (case study, p.6). When thepotentially fatal problems with vehicle braking systems came to light, the company’s speedof 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 andtoo 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 firstrecall was announced (Kossoff, p.6). Presciently, Alsop – quoting a Stanford Universitystudy – said that companies known for reliability – “such as Toyota” – are particularlyaffected by “market share drops following recall announcements” (p.13).As the Toyota example shows, even the most stringent management standards cannotprevent every potential problem and the response to a reputation crisis – while theorganisation is at its most visible and vulnerable – is critical.Rolls RoyceWhen a Qantas A380 Airbus was forced to make an emergency landing after one of its RollsRoyce engines caught fire in mid-air, the response from the manufacturer was said to “havea whiff of BP about it”, referring to the company’s communications in the wake of the BP oilspill in the Gulf of Mexico.Lewis PR COO, Paul Charles, said Rolls Royce’s post-event statement left more questionsthan answers, such as how long the inspection process would last and how long the Airbusplanes would be grounded (PR Week, 12 November).Similarly, the speed of public response by the CEO, Sir John Rose, came under fire. His firstcomments came eight days after the incident and though the company’s share price wentup by five per cent as a result, more than £1bn had already been taken off its value (TheIndependent, 18 November 2010, p.41).
  • 11. The Reputation Challenge 10Business 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 peoplewho catch the planes” (telegraph.co.uk, 12 Nov 2010).PR Week editor, Danny Rogers, described the company’s social media nous in the context ofthe crisis as “sluggish and out of touch” and that – along with an operational review – RollsRoyce required an “intensive reassurance campaign” with detailed and transparentcommunications across traditional and digital media” (Travolution.co.uk, 16 November2010).Reputation management in practice - the good…Kellogg’sFaced with accusations from the Channel 4 programme, Dispatches, about high sugar andsalt content in cereals, Kellogg’s Manchester-based PR team turned to online and socialmedia 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, backgroundcommentary while the television programme was being aired.Communications Manager, Paul Wheeler, said: “With digital PR and social media, thecontact is directly with the consumer, not via the media. We received a lot of positivefeedback after the Dispatches programme for being open, honest and providing timelyinformation” (North West Business Insider, August 2010, p.32).ConclusionIt’s beyond the expectations of the media and the public that organisations remaincontinuously 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 frommistakes and putting them right to the satisfaction of all stakeholders.Yet there still seems to be a reticence among some organisations to engage fully andpromptly when required to do so. If this is founded on a belief that refusing to engage withthe media or individuals in a social network starves a story of oxygen, then they shouldthink again.On the contrary, the world beyond the company walls tends to become ever moreaggrieved at the arrogance of corporate silence and more determined to make companiesaccount for themselves. Silence merely raises more questions about the organisation’sintegrity.
  • 12. The Reputation Challenge 11Firestein notes that this “resulting lack of transparency prevents investors…developing theclear definitions of the company that engender confidence” (p.17).Gaines-Ross, quoting from Marks & Spencer’s then-CEO, Stuart Rose, says: “Reputationrecovery is an epic voyage full of courageous daily actions and deeds that never truly slaythe twin dragons of doom and gloom” (p.135).And it is at the CEO level that senior communicators need to engage to ensure effectivereputation management. As CIPR president, Jay O’Connor, wrote recently: “Excellentplanning, monitoring and building a trusted relationship with the board will helporganisations respond well in times of crisis, helping the organisation to retain and regainreputational capital.”JON CLEMENTSDecember 2010
  • 13. The Reputation Challenge 12BibliographyAlsop, 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, CharteredInstitute 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 2010Osborne, 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 2010Stott, Phil; Vault.com – 3 December 2010: Why Wikileaks will lead to better corporatebehaviour.

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