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Feature                                      By Linda LockeWhen reputation founders:protecting corporate reputationin a vo...
Feature: When reputation founders: protecting corporate reputation in a volatile environmentRigorous aggregation and proce...
stakeholders. Typically, companies that are trusted are outward         shadow over a summer paradise, or perceptions of g...
Feature: When reputation founders: protecting corporate reputation in a volatile environment   The traditional approach to...
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When reputation founders Oct. 31 2012 (for trademark and IP counsel; anyone interested in reputation risk and management)


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While reputation and brand appear synonymous, there are nuances that have implications for trademark and IP counsel seeking to protect clients' interests - especially when reacting to crises and quantifying the impact of competitive incursions on a brand.

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When reputation founders Oct. 31 2012 (for trademark and IP counsel; anyone interested in reputation risk and management)

  1. 1. Feature By Linda LockeWhen reputation founders:protecting corporate reputationin a volatile environmentWhile reputation and brand may appear to be experience, such as Apple. It may centre on products (ask Ford) orsynonymous, the nuances have implications for citizenship and social responsibility (check out Whole Foods). For each of these organisations, the managers devise creative marketingtrademark and IP counsel seeking to protect clients’ communications to express the brand promise to influence theinterests – particularly when reacting to crises and target audience to believe it.quantifying the impact of competitive incursions Reputation, on the other hand, is what stakeholders think andon a brand perceive about the organisation. A corporation owns its brand, but stakeholders own its reputation. A corporation can (and should) seek to understand the perceptions of its stakeholders and what drivesIn January 2012 cruise liner Costa Concordia struck a reef near Isola del those perceptions, and should then use that understanding to shapeGiglio, Tuscany. Today, the enormous ship is marooned off the Tuscan strategy and execution. It may be able to influence perceptions, butcoast and expects to stay there until Spring 2013. Environmentalists it does not own them.worry about a leak of fuel that cannot be pumped out when the ship is For trademark, service mark and IP law practitioners, the goodfinally removed. The elements of this gripping human drama include news is that reputation – and damage to it – is now quantifiable at athe tragic loss of 32 men, women and children, a captain whose actions granular level.appear (at a distance) reprehensible and a giant hulk that attractscameras like seagulls to detritus – a crisis with potential to evolve. How perceptions are formed Organisations typically have three channels through which they canReputation or brand? influence perceptions:For trademark and IP law practitioners, reputation and brand may • a stakeholder’s direct experience with the company (eg, dealingsappear to be synonyms. However, the nuances have implications for with employees, direct use of a product and calls to customertrademark and IP counsel seeking to protect clients’ interests. service agents);Similarly, reputation and crisis management are linked, in that a • what the company says about itself (eg, annual report, executivecrisis event can quickly undermine even a strong reputation. speeches, advertising, website and public commentary); and The Costa Concordia incident illustrates the difference, as well as • what others say (eg, media coverage, industry analysts, Twitter,some truths about crisis management. Two brands were involved – websites, friends, neighbours and family).the Italian ship and Carnival, the parent company; the crisis was self-inflicted; the image of the ship is memorable and media-friendly; The importance of each channel varies according to the companyand moral outrage is palpable. and the industry. This framework suggests an important concept The parent brand suffered a decrease in stock price, while the about reputation – it is about the key business decisions made eachCosta Concordia brand suffered a drop in bookings. The parent brand day, across the organisation. While the right marketing is critical,managed the crisis from Miami, while the local Italian brand team reputation is not simply about a campaign.was on site. The strategy was to differentiate the brands. The first two channels are controlled largely by the company and The reputation of the brands – or the esteem in which they are held include official corporate communications, including the graphicby stakeholders – continues to be affected every time a dramatic photo treatment of the trademark and service marks, the website andof the marooned ship appears, reminding the public of the incident. public pronouncements, advertising, public relations and other Reputation and brand are linked but distinct concepts. A brand is official forms of external messaging.a company’s promise to its stakeholders. A responsible company The third channel, however, is outside the control of thezealously protects its brand as a valuable, if intangible, competitive organisation: the opinions of third parties. This channel can includeasset. The brand represents the attributes with which a company reporters whose worked is checked for factual accuracy, industrywishes to be associated – perhaps luxury and safety in the Costa experts or academics with credentials, self-identified advocates,Concordia case – and the trademarks, service marks and promotional activists with an agenda and anyone with a phone or a keyboard.efforts used to express this promise. Client perspective on social media has centred on both fear of A corporation’s brand promise may revolve around customer uncontrollable commentary and opportunities for December/January 2013 World Trademark Review 41
  2. 2. Feature: When reputation founders: protecting corporate reputation in a volatile environmentRigorous aggregation and processing of social media commentary The role of trust in businessmay provide valuable data for trademark practitioners seeking to At the centre of reputation is the emotional connection that aunderstand the impact of actions by competitors on the strength of stakeholder feels with the organisation. Is it trusted and respected?a brand or a reputation. Or viewed with scepticism and cynicism? Businesses with good reputations are generally trusted. TrustedTechnology opens doors of insight for IP practitioners organisations attract better business partners and drive premiumThe opportunity for trademark law practitioners to understand the pricing. And they are more likely to have the freedom to operate inperceptions of stakeholders and what drives them and the risks to the way they choose, with fewer regulatory or legislative obstacles.the strength of the reputation of clients is emerging, thanks to A trusted organisation is more likely to enjoy the benefit of thetechnology. Social media represents an opportunity to view, almost doubt in a crisis; stakeholders expect a positive outcome based onin real time, the perceptions and beliefs of stakeholders and the how they understand the motivations of the organisation and howdrivers of reputation. they expect it to behave. In the Costa Concordia case, an analysis of the public dialogue – Typically, the C-suite relies on certain internal disciplines towhat was said around the world about the ship, the captain, the crew identify and protect against potential crises, such as enterprise riskand the parent company – would reveal the likely attitudes of both the management, business continuity and corporate communications.general public and the stakeholders who are important to the Carnival The dilemma is that while the enterprise risk management andorganisation. More deeply, it would shine a light on specific aspects of business continuity staff may be highly literate in risk analysis, theythe conversation – such as reaction to statements by executive have little experience with or understanding of reputation, andmanagement compared to those of the captain, and competitors’ rarely have reputation data at hand to guide decisions. The corporatecommentary about the expertise of their own captains and crews. communications team typically has little exposure to tools that Emerging tools have the sophistication to tag each item, whether quantify reputation and risk at a meaningful social or traditional media, and apply an algorithm that examines Practitioners should ask clients whether the risk team is literatevolume, emotion and credibility in order to turn words into data. After in reputation and the reputation team is literate in risk. Theprocessing, the systems perform an in-depth examination of the traditional approach to risk management may not providetopics and issues associated with the crisis. The most robust of these comprehensive management of the full range of corporate risks. Thissystems use theory from social psychology to predict the perceptions gap may provide an opening for IP and trademark counsel to provideof stakeholders about a company, a brand or even a set of competitors. intelligence and monitoring that alert the organisation to a wider For the trademark practitioner, such an analysis can reveal the range of risks than are typically used, and to advise appropriatesource of negative reaction and predict the likely reaction. It can action earlier in the process.unpack the conversations to reveal the most damaging aspects of the Consider these recent examples.coverage. JPMorgan Chase lost $2 billion in its disastrous hedging strategy, For the crisis manager, the analysis can inform its response by but a more enduring expense may be the damage to its reputationidentifying the emotions resident in the content so that the client is for outstanding risk management. The bank’s strong financialresponding in appropriate ways to mitigate the effects of the incident. position meant that it was able to absorb the immediate dollar In a case where the damage is inflicted by a third party, the losses. But the reputation damage resulted in a costly ratingsanalysis may provide valuable data points for practitioners tasked downgrade, renewed regulatory scrutiny and the quick evaporationwith identifying potential damage to the brand and ultimately to of $17 billion in market capitalisation. JPMorgan stock recoveredreputation. some ground in the following weeks, but regulatory hearings, a The ability of the practitioner to notify a client proactively of the criminal inquiry and shareholder lawsuits guaranteed that theemerging potential for damage to reputation can have a long-term bank’s black eye would not heal any time soon.positive impact for the client because a positive corporate reputation Bank of America launched – and then ignominiously scrapped – ayields measurable value. $5 monthly fee for debit card usage following an intense consumer backlash that featured an avalanche of online protests. If the bank hadReputation penalty or pay-off? tracked consumer perceptions, it could have predicted the depth ofA company that is highly regarded by its stakeholders is more likely outrage attached to bank fees and thus predicted the failure of the enjoy strong brand loyalty and long-term high-value customers. It Penn State’s child sexual abuse scandal stunned students,may see lower employee turnover and easier recruitment of high- parents and supporters of the university and its football programme,calibre employees. Such a company may benefit from higher and horrified social media users across the United States. Theinvestor confidence, a more positive regulatory environment and university’s fumbled response was magnified by the 24-hour newseven lower costs of capital, as its reputation paves the way for greater cycle. Months after the story broke, the scandal’s details continue totrust from financial partners. batter the university’s reputation as ongoing legal proceedings make But a weak or negative reputation exacts a measurable cost – a harrowing headlines.reputation penalty – as a company viewed with distrust and outrage In each case, the organisations were unprepared for theby its stakeholders is more likely to suffer increased customer churn controversies and the maelstrom of criticism that they suffered.and elevated customer acquisition costs. It will face higher employee With the exception of Jamie Dimon at JPMorgan Chase, who swiftlytraining costs and related service inefficiencies. Such a company will apologised, their flummoxed leaders exacerbated the damage topay the price of regulatory constraints, increased cost of capital, lower their organisations’ reputations by issuing ill-advised and tone-deafinvestor confidence and an increased vulnerability to competitors. responses. For example, major financial institutions that suffer a creditdowngrade due to reputational damage may have to post millions or Rational and logical drivers of reputationeven billions of dollars in additional collateral and face higher To build trust in a risk-filled environment, clients should closelyborrowing costs. examine their decisions and behaviour from the point of view of42 World Trademark Review December/January 2013
  3. 3. stakeholders. Typically, companies that are trusted are outward shadow over a summer paradise, or perceptions of greed, hubris,facing, seeking to understand what their stakeholders think and feel, indifference or abuse of power. An enraged stakeholder can make ittheir values and what they expect. difficult for a client to grow a business. An essential starting point in understanding reputation is toidentify the drivers of perceptions for each group of stakeholders, Mind the gapand how each driver connects to trust. Typical drivers of reputation Best practices suggest the regular analysis of stakeholder perceptionsmight include: to determine the drivers of reputation and how they are changing,• the quality of its products and services; and then a gap analysis among the groups.• governance and ethics; A gap analysis between stakeholders can be revealing. For• how its business intersects with societal interests; example, if employees perceive that their employer performs• its workplace; strongly on, say, innovation, while external stakeholders judge the• innovation; company to perform poorly, the company has a communications• its financial performance; and problem to solve. It needs to get the message out about its strength.• its vision and leadership. If, however, the external world perceives a company to perform highly on a primary driver of reputation, such as ethics, while The importance of these drivers can shift. Before the recession, internal stakeholders rate it weakly, it is a risk waiting to blow and leadership drove reputation for many major financial Why? Because employees know the company best; they understandservices companies. Since it began, governance and ethics have risen how it actually makes the top. Stakeholders may include employees, customers, regulators, non- In a recent analysis of the reputation of a manufacturer, legal governmental organisations, activists, legislators, the investmentissues tied to the bribery of government officials overshadowed the community and local residents. One approach is a periodic survey.good works and increased employment provided by the company in Another approach is 24/7 monitoring, particularly in volatile industries.local communities, even though members of the general public The best approaches to measuring the drivers of reputation coverwould never have the chance to purchase an item from the company. logical and emotional aspects of perception. Boardrooms are ruled by Mistrust can quickly turn to outrage if certain conditions are fact and logic, but in the living rooms of the world, intuition andpresent, such as the image of the rusting hulk of a ship casting a emotion rule. This becomes particularly relevant in situations December/January 2013 World Trademark Review 43
  4. 4. Feature: When reputation founders: protecting corporate reputation in a volatile environment The traditional approach to Recently, the Intangible Asset Finance Society reported a sharp spike in the number of S&P500 Index companies disclosing thatrisk management may not reputation risk is material in their annual reports, growing from 40 in 2009 to 283 in 2011.provide comprehensive Corporate leadership has an obligation to protect both revenue and reputation. When either fails, the entire organisation can be at of the full range Planned resilience trumps uninformed reaction in crisesof corporate risks. This gap The relevant concept relating to risk for client organisations is business resilience. Resilient organisations have the ability tomay provide an opening for IP manage risks and adapt to disruption. They are aware of the conditions of risk and their consequences, and seek to mitigate both.and trademark counsel Reputation resilience stems from the ability to listen to stakeholders, understand their perceptions and maintain an openness to input. Organisations are judged on the perspicacity of their response in a crisis. Counsellors who advise organisations to be aware of shifts in stakeholder perceptions based on business decisions are guiding the organisation towards greater resilience.crisis and risk. If stakeholders – people – have serious concerns about Consider the following business outcomes.their personal risk, messaging anchored in and limited to fact and Product managers will better understand risks to andlogic may have the opposite effect of that intended. opportunities presented by reputation building, as well as their When people feel a conflict with their personal values, they ask competitive positioning.themselves whether they want to tolerate the stance of the client. Strategists will understand the drivers of corporate reputationThe company may look tone deaf and uncaring, especially if human and incorporate them into planning to bring greater alignmentlife is involved, as in the Costa Concordia event. inside the enterprise and reduce the chance of unintended risk. If the answer is no, they will not tolerate the position, the result is Communicators will measure the impact of their response to aa decline in trust in the organisation and its management. This crisis and improve the next time.dissatisfaction may turn into resentment, and finally outrage. If Trademark and IP practitioners will quantify the impact ofoutrage is harnessed and amplified through social media, it can competitive incursions on a brand, and be able to identify potentialpresent significant obstacles to the organisation. risks before they have an impact. Outrage results when a critical mass of people feel that their With intelligence in hand, the view of risk can be expanded tovalues are violated. For example, if a company appears to put profits include non-market, non-operational issues, and to address broaderahead of the safety of employees or customers, direct stakeholder issues that are of concern to boards. A strong reputation intelligenceanger can spread through networks rapidly and that company can process should include the following capabilities to fit into thefind itself on the receiving end of the wrath of millions of people. corporate playbook: A proactive approach led by trademark and service mark • risk assessment;practitioners may help the company to see the trajectory of risk and • impact analysis;intervene before an incident becomes a crisis, or before long-term • risk heat map;damage is done to both brand and reputation. • dynamic monitoring; and • risk scenario/event planning.What’s missing? Reputation intelligenceWhy do such serious, damaging risks regularly take organisations by The value generated by these process improvements will extendsurprise? The traditional corporate risk mindset focuses on revenue by throughout the client company. The client will anticipate and preventexamining financial, regulatory and operational elements of risk. But risks to its reputation through proactive monitoring. It will strengthenwhen an organisation filters priorities based primarily on protecting the company’s customer and employee loyalty and increase investorrevenue, it may miss the impact of business decisions on the confidence when it responds swiftly and thoughtfully to reputationperceptions of stakeholders, which are the central focus of reputation. crises. Finally, it will create a regulatory environment in which it meets Today’s environment – featuring the immediate, constant and customers’ needs with the flexibility and freedom it reach of social media and other communications channels – Reputation has long been considered a ‘soft’ topic. Trademark,presents an entirely new category of impact and analysis that is often service mark and IP counsel should be aware that data analytics areoutside the traditional risk and trademark counsel framework, but now available to quantify the impact of events, decisions and evenwhich may also help the organisation to understand risk in new ways. comments on the reputation of companies. Consider JPMorgan Chase’s multibillion-dollar trading debacle. Practitioners who understand the theory and application ofSome of the bank’s own risk managers warned that the risky trades analytics on behalf of their clients will elevate their own value andcould result in huge dollar losses. But in fact, the bank’s actual losses visibility as they counsel their clients towards reputation and brandwere dwarfed by the total cost of risk, including the reputation resiliency. WTRpenalty: plummeting market capitalisation, higher borrowing costsand regulatory scrutiny. Indeed, the immediate losses were not the greatest concern ofthe ratings services that downgraded JPMorgan’s outlook and creditrating; rather, Fitch and Standard & Poor’s (S&P) cited “reputational Linda Locke is principal at Reputare Consultingdamage” as their first concern. linda.locke@reputareconsulting.com44 World Trademark Review December/January 2013