Archive for the ‘Reputational capital’ Category

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Reputation ‘now more than ever’

June 24, 2009

The financial and economic crisis has seriously eroded the trust people feel for business generally and specific corporations – and companies need a concerted, sophisticated effort to repair the damage – three McKinsey & Co. consultants write in “Rebuilding Corporate Reputations” in the firm’s June 2009 newsletter.

Today is an especially tough environment for corporate reputations, the consultants say. The onslaught of online participatory media, scrutiny from nongovernmental organizations, and waning trust for advertising make it harder to be believed. And all this comes at the same time that policy makers are eager to make an example of corporate executives and impose new laws and regulations on their industries.

Old-line PR tactics will no longer work in this environment, the authors say:

Now more than ever, it will be action—not spin—that builds strong reputations. Organizations need to enhance their listening skills so that they are sufficiently aware of emerging issues; to reinvigorate their understanding of, and relationships with, critical stakeholders; and to go beyond traditional PR by activating a network of supporters who can influence key constituencies.

A company fighting for its reputation must marshal a coordinated cross-functional response including investor relations, communications, marketing, legal and regulatory, and corporate social responsibility, the consultants write (OK, OK, they mention IR last). And reputation management must begin at the top:

… it’s the CEO who must lead a company’s overall reputation strategy, ideally with the support of a board committee focused on it. This may seem like a lot of firepower, but in today’s climate, with reputational issues threatening both shareholders and a company’s ability to achieve broader goals, that degree of high-level attention and integration is essential.

Investor relations professionals should be big-picture people, and the intersection of reputation, industry standing in the public policy arena and shareholder value is ample reason for IR to join in the effort to understand and build reputations.

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Steady as she goes

March 16, 2009

In turbulent times it’s not changing strategies – but staying the course – that builds a strong corporate reputation, according to this year’s “World’s Most Admired Companies,” in the March 16 Fortune.

What quality wins respect for firms like Apple, Berkshire Hathaway, Toyota, Google, Johnson & Johnson, Procter & Gamble, FedEx, Southwest Airlines, GE and Microsoft – this year’s Top 10?

The consulting firm Hay Group, which helps Fortune survey 4,000-plus analysts, executives and directors to pick the most admired large companies in 64 industries, points to consistency in strategy:

Most important is a strong, stable strategy, which confers important benefits in unstable times. Companies that change strategies must usually change organizational structures as well, and making that change in a recession is a heavy burden just when corporations can bear it least. It forces employees to focus inward rather than outward and becomes a giant sink of time and energy.

Of course, fixing a broken business model isn’t optional if your old one is doomed. But we must recognize that changing direction is disruptive – and reputation is one of the casualties - Fortune says.

Hay Group found that, in general, less admired companies change structures far more often than the Most Admired, the main reason being a strategy switch. An extreme example is the Detroit automakers, which are turning themselves inside out as they seek strategies for survival at a moment when they should be focused on serving buyers.

The moral of the story: While “change” is popular, even more important is the ability to design and execute a strategy that endures.

As investor relations practitioners, we should emphasize the stability and durability of our companies’ strategies – and explain how those strategies will get us through the tough times.

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Madoff – “no reputation risk”?

February 12, 2009

madoffsBernie Madoff has pretty much replaced Paris Hilton and Britney Spears as a source of celebrity scandal news. Amid the pervasive chatter, an ironic anecdote comes out today in a Yahoo! TechTicker interview with James Altucher, managing partner of Formula Capital.

Altucher describes making a pitch in 2005 to try to get Madoff and his son Mark to put money into Altucher’s fund of hedge funds:

I went through the whole pitch, my returns were great, they were very excited. But, they said, James we love you, but we cannot invest in your fund of hedge funds. And I said, Why not? They said, Bernie and Mark both said … Here at Madoff Securities reputation is the most important thing. And to have that money go out there, and you’re sending that money out there, we have no idea about the hedge funds you’re in. We cannot take any reputation risk. There is no Wall Street headline risk here. Reputation is the most important thing.

Well, there’s reputation risk – and then there’s reputation risk. Most people would never flirt with the dishonesty Madoff embraced, much less tempt fate by making pious comments about reputation. But sometimes the biggest liars start believing their own tales.

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When the boss is called to testify

October 27, 2008

If you’re doing investor relations for a Wall Street firm, oil company or some other used-to-be-obscenely-profitable-but-now-seeking-a-bailout enterprise, your CEO may be called before a congressional committee.

Pass him a link to “Six Traps for a Designated Villain in Washington,” Oct. 27 in The New York Times’ DealBook. It won’t help, but it’s a good chuckle, at least for the public-humiliation genre.

Citing the performance by Lehman Brothers CEO Dick Fuld earlier this month, who “did a particularly good job of playing the baddie,” PR professional Paul Pendergrass suggests six traps to be avoided in the congressional hearing room. For example:

Say one thing; ooze another. Hire seasoned corporate speechwriters to articulate the appropriate personal feelings. Stare down into the page, and read your opening statement as if you’ve having to translate it from the original high German.

Maybe it’s not fair to pick on Fuld. Few corporate leaders survive with either their dignity or their reputation intact after being dragged into an Inquisition. One more trap is confirming you’re out of touch by “trying to prove what a regular guy you are”:

Tell stories that are meant to demonstrate your personal hardship, bootstrapping or connection with Main Street, but that instead reveal that you no longer have hundreds of millions, but only dozens of millions.

CEOs can’t win this game, obviously. When the subpoena arrives, it’s too late. Rather than wait for such a disaster, corporate staffers should try – now – to stop the managerial behavior and/or financial slide that could land the company in the headlines. And good luck.

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Most admired: What do investors esteem?

September 11, 2008

I’ve always been skeptical of “most admired companies” articles – popularity contests whose outcomes may depend on who is ranking the companies and on what basis, as well as which firms or industries have had a recent run on Wall Street. Give me fundamentals over popularity. But the cover story in Barron’s this week, “The Market’s Finest,” offers a couple of useful insights for investor relations people. Barron’s polled 70 portfolio managers in U.S. buy side firms, a fair sample of our institutional audience.

It’s all well and good that Johnson & Johnson scored No. 1 in the rankings, followed by Procter & Gamble, Toyota Motor, Berkshire Hathaway and Apple in the top five. (The survey covered the world’s 100 largest companies – so most of us never had a chance and shouldn’t feel regret. See the article for the full list of 100.)

Of more interest to me are the ”most important factors” that money managers say shape their views. In order of importance:

… Strong management

… Sound business strategy

… Ethical business practices

… Competitive edge

… Product innovation

Well, maybe the latest quarterly earnings enter the picture somehow. But the enduring influences are quality and integrity of management, along with business strategy and two of its main levers: competitive advantage and product innovation.

And Barron’s observes:

As in years past, this year’s ranking illustrates the fact that corporate respect must be earned over a span of decades. While scandals or corporate-governance abuses quickly can empty a company’s reservoir of goodwill with investors and others, highly respected companies tend to retain their strong marks even during lulls in stock performance or profitability.

Surely these managerial and strategic characteristics should rank near the top among messages that IR professionals focus on disclosing, explaining and (should we say it?) “selling” to the market.

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Reputation lasts more than a quarter

August 12, 2008

Winding up another earnings season that’s been a little rough for many, it may help to remember what’s important in the long run. This quarter, too, shall pass. A few years ago Warren Buffett, legendary CEO of the Berkshire Hathaway portfolio of companies, reminded his senior managers:

We can afford to lose money – even a lot of money. We cannot afford to lose reputation – even a shred of reputation.

 - Warren Buffett, August 2, 2000, memo to CEOs
of portfolio companies, quoted in Warren Buffett CEO:
Lessons from the Berkshire Hathaway Managers
by Robert P. Miles (New York: John Wiley & Sons, 2002) 

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Posted in Quotable quotes, Reputational capital | 1 Comment »

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