Management Training Tips:
Rebuilding corporate reputations
A perfect storm has hit the standing of big business. Companies
must step up their reputation-management efforts in response.
As governments respond to the financial crisis and its
reverberations in the real economy, a company’s reputation has begun
to matter more now than it has in decades. Companies and industries
with reputation problems are more likely to incur the wrath of
legislators, regulators, and the public. What’s more, the
credibility of the private sector will influence its ability to
weigh in on contentious issues, such as protectionism, that have
serious implications for the
global economy’s future.
Senior executives are acutely aware of how serious today’s
reputational challenge is. Most recognize the perception that some
companies in certain sectors (particularly financial services) have
violated their social contract with consumers, shareholders,
regulators, and taxpayers. They also know that this perception seems
to have spilled over to business more broadly. In a March 2009
McKinsey Quarterly survey of senior executives around the world, 85
and 72 percent of them, respectively, said that public trust in
business and commitment to free markets had deteriorated.1 According
to the 2009 Edelman Trust Barometer, those executives are reading
the public mind correctly: 62 percent of respondents, across 20
countries, say that they “trust corporations less now than they did
a year ago.”
The breadth and depth of today’s reputational challenge is a
consequence not just of the speed, severity, and unexpectedness of
recent economic events but also of underlying shifts in the
reputation environment that have been under way for some time. Those
changes include the growing importance of Web-based participatory
media, the increasing significance of nongovernmental organizations
(NGOs) and other third parties, and declining trust in advertising.
Together, these forces are promoting wider, faster scrutiny of
companies and rendering traditional public-relations tools less
effective in addressing reputational challenges.
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. Doing so
effectively means stepping up both the sophistication and the
internal
coordination of reputation efforts. Some companies, for example, not
only use cutting-edge attitudinal-segmentation techniques to better
understand the concerns of stakeholders but also mobilize
cross-functional teams to gather intelligence and respond quickly to
far-flung reputational threats.
One key to cutting through organizational barriers that might impede
such efforts is committed management training, including leadership
from CEOs, who have an opportunity in today’s charged environment to
differentiate their companies by demonstrating real statesmanship.
The stakes demand it; an energized public will expect nothing else.
At a moment when capitalism seems flat on its back, CEOs have an
obligation to bolster the reputations of their companies and of free
markets.
A rapidly evolving reputation environment
The financial crisis has underscored just how ill-equipped companies
can be to deal with two important changes in the reputation
environment. First, the influence of indirect stakeholders—such as
NGOs, community activists, and online networks—has grown enormously.
The number of NGOs accredited by the United Nations, for instance,
has grown to more than 4,000, from less than 1,000 in the early
1980s. These proliferating indirect stakeholders have tasked
business with a broader set of expectations, such as making
globalization more humane and combating climate change, obesity,
human-rights abuses, or HIV.
Second, the proliferation of media technologies and outlets, along
with the emergence of new Web-based platforms, has given individuals
and organizations new tools they use to subject companies to greater
and faster scrutiny. This communications revolution also means that
certain issues (such as poor labor conditions) that might be
acceptable in one region can be picked up by “citizen journalists”
or bloggers and generate outrage in another.
As a result, what formerly were operational risks resulting from
failed or inadequate processes, people, or management training now
often manifest themselves as reputational risks whose costs far
exceed those of the original missteps. In banking, for example, data
privacy has become a reputational issue. In pharmaceutical clinical
trials, Merck’s experience with Vioxx showed that anything less than
full transparency can lead to disaster. And as risk-management
problems in the financial sector have generated astronomical losses
that taxpayers are helping bear, it’s little wonder that the
reputational fallout has been enormous.
An outmoded approach to reputation management
In this dispersed and multifaceted environment, companies must
collect information about reputational threats across the
organization, analyze that information in sophisticated ways, and
address problems by taking action to mitigate them. That can involve
developing alliances with new kinds of partners and coordinating
responses from a number of parties, including governments,
civil-society groups, and consumers. All this requires significant
coordination,
management training and an ability to act quickly.
Many companies, though, rely primarily on small, central
corporate-affairs departments that can’t monitor or examine diverse
reputational threats with sufficient sophistication. Moreover,
traditional PR spin can’t deal with many NGO concerns, which must
often be addressed by changing business operations and conducting
two-way conversations. Managers of business units have a better
position for spotting potential challenges but often fail to
recognize their
reputational significance. Internal communication about them may be
inhibited by the absence of consistent methodologies for tracking
and quantifying reputational risk. Accountability for managing
problems is often blurred.
As a result, responses to reputational issues can be short term, ad
hoc, and defensive—a poor combination today given the intensity of
public concern. And therein lies a problem that companies must solve
quickly: even as reputational challenges boost the importance of
good PR, companies will struggle if they rely on PR alone, with
little insight into the root causes of or the facts behind their
reputational problems.
A better, more integrated response
A logical starting point for companies seeking to raise their game
is to put in place an effective early-warning management training
system to make executives aware of reputational problems quickly. In
our experience, most companies are quite good at tracking press
mentions, and many are beginning to monitor the multitude of
Web-based voices and NGOs, whose power is beginning to rival the
mainstream media’s. However, doing these things effectively, while
an important prerequisite for stepping up engagement with
stakeholders, isn’t the toughest task facing organizations.
Far more of a challenge is preparing to meet serious reputational
threats, whose potential frequency and cost have risen dramatically
given the greater likelihood that stakeholders—including regulators
and legislators—will lash out in an atmosphere that’s become less
hospitable to business. These threats might take a variety of forms:
issues related to a company’s business performance, like those that
financial companies have recently experienced (see sidebar,
“Assuming responsibility”); unexpected shocks along the lines of
Johnson & Johnson’s Tylenol scare, more than two decades ago;
opposition to business moves, such as expanding operations; or
long-standing, sector-specific issues, for instance climate change
(industrials and oil and gas), obesity (the food and beverage
industry), hidden fees (telecom providers), “e-waste” (high tech),
and worker safety (mining).
To prepare for and respond to these threats, our management training
experience suggests that companies should emphasize three
priorities. First, they need to assemble enough facts—most
important, perhaps, a rich understanding of key stakeholders,
including consumers—and not only the product preferences but also
the political attitudes of consumer groups. Second, companies should
focus on the actions that matter most to stakeholders, something
that may call for an exaggerated degree of transparency about
corporate priorities or operations. Third, they must try to
influence stakeholders through techniques that go beyond traditional
PR approaches, with an emphasis on two-way dialogue. Underlying
these priorities is a willingness to participate in the public
debate more actively than many companies have in the past. Instead
of allowing single-issue interest groups to control the
conversation, companies should insist on a more complete dialogue
that raises awareness of the difficult trade-offs they face.
Understanding stakeholders and their concerns
Companies should first develop a deeper understanding of the
reputational issues that matter to their stakeholders and of the
degree to which their products, services, operations, supply chains,
and other activities affect those issues. A company trying to
improve its environmental reputation, for example, needs to
document, catalog, and assess its sustainability efforts and then to
benchmark them against those of its competitors and industry
standards.
The facts should be presented objectively and, if possible,
quantitatively—for example, the amount of carbon emitted or water
used. Quantitative measurements promote effective comparisons and
help companies avoid ignoring potential issues or performance gaps.
Such an analysis may lead a company to conclude that it has a good
story that should be told more vigorously—or that it should refrain
from doing so until it takes real action. The analysis also is the
starting point for an objective quantification of reputational
risks. The company can prioritize them and the measures needed to
keep them at bay by assessing the probability and financial cost of
potential reputational events, such as consumer boycotts or the
forced closure of operations.
Reputations are built on perceptions, however, so issue analysis
isn’t enough. Companies must also know if they are meeting the
expectations of key stakeholders—those in the best position to
influence sales and growth. To identify these centers of influence,
companies should cast a wide net, scrutinizing not just traditional
stakeholders (consumers, employees, shareholders, and regulators)
but also indirect ones, such as NGOs and the media, that help shape
attitudes. Even for companies that don’t deal directly with
consumers, it’s important to understand public opinion. People have
unprecedented access to information now and may therefore concern
themselves with a surprisingly wide array of issues, potentially
providing the impetus for regulatory or legislative action.
Each kind of stakeholder has unique perceptions and concerns.
Shareholders might ask if reputational issues will affect a
company’s long-term growth prospects. Regulators could worry that
the public thinks they should curb the company. The media might
wonder if it could be an example of how business exploits society.
There are different ways of identifying the perceptions of each kind
of stakeholder and their root causes . A detailed press analysis can
help companies to understand the positions of columnists and editors
on key issues. Interviews with regulators can clarify their
concerns. Focus groups and market research are important for
understanding consumers and the wider public.
If consumer research is required, companies must understand that an
analysis of how different consumers feel about them differs from
typical segmentations: one for reputation management resembles a
dissection of voters in a political campaign rather than a parsing
of customers who prefer different types of products or services.
There might, for example, be a group of consumers who care deeply
about social issues and will weigh in aggressively on regulatory
ones affecting a company’s operations. Others, such as swing voters,
might be undecided about whether, or how, to become involved. Some
could be uninterested and unlikely to take action. Still others may
be so anti- or probusiness that their positions are set in stone.
One consumer company facing regulatory challenges used this type of
“social attitudinal” segmentation to analyze consumers. After
identifying people who were both influential and open-minded, the
company focused on addressing their needs, and the public’s
attitudes toward it improved.
Transparency and action
Reputations are built on a foundation not only of communications but
also of deeds: stakeholders can see through PR that isn’t supported
by real and consistent management activity. Consumers, our research
indicates, feel that companies rely too much on lobbying and PR
unsupported by action. They also fault companies for not sharing
enough information about critical business issues—for manufacturers,
say, the content of their products, their manufacturing processes,
and their treatment of production employees. Transparency in such
matters is crucial. Sometimes it highlights a mismatch between
consumer expectations and a company’s performance and therefore
calls for action. In other cases, transparency can convince key
stakeholders that the company is headed in the right direction.
After the director of the US Food and Drug Administration voiced
reservations about the side effects of the high-cholesterol
treatment Crestor, for example, AstraZeneca not only placed ads in
the national press to present its case but also took the unusual
step of providing raw clinical-trial data on its Web site, allowing
completely independent researchers to draw their own conclusions.
This was a high-risk strategy, since it’s always possible to draw
different
statistical inferences from the same data. But the strategy
reestablished public trust and stabilized Crestor’s market share.
Consider also the efforts of the US plastics industry to overcome a
consumer and regulatory backlash, in the late 1980s, over plastic
packaging’s environmental impact. The CEOs of leading companies
joined forces to reframe the public debate not just through an
award-winning ad campaign illustrating positive applications of
plastics (in child safety, for example) but also by committing the
industry to recycling and thus to solving environmental problems.
The industry could do so credibly because it undertook real actions,
such as spending $1.2 billion on recycling research and developing a
standardized plastics-coding system.
Such actions need not take place only in response to reputational
concerns; at other times, they help build goodwill that may provide
some degree of cover against future bad news. A willingness to
tackle climate change has helped companies like Toyota Motor and GE,
for example, build strong reputations that are holding up better
than those of many other major automotive and financial-services
players. Sometimes, reputation-oriented actions may even have a
direct impact on sales. In 2008, for instance, Best Buy began
inviting customers to bring their old electronics into its stores
for recycling. The program has not only generated positive press and
helped position the company as an environmental leader but is also
increasing foot traffic in stores.
Engaging a broad group of influencers
Formal marketing and PR do play an important role in managing the
reputation of a company, but when it responds to serious threats it
must use many other means of spreading positive messages about its
activities quickly. In general, credible third parties speaking for
the company can boost its reputation more effectively than its own
PR or marketing department. Leveraging existing grassroots
support—through blogs, bumper stickers, and interactive Web sites,
for example—is one method. Another is to have people with management
training reinforce key strategic messages. Partnerships between the
company and NGOs can be important not only because of their
credibility but also because they can alert it to performance gaps
early in the game. A network of positive relationships with credible
third parties (such as journalists and NGOs) can also help the
company get out its side of the story when crises do hit.
One company worried about what it saw as the dangerous inaccuracy of
its portrayal in the press targeted opinion leaders with concise
facts to dispel misunderstandings and gave regulators a scientific
paper outlining the possible negative consequences of proposed
regulations. A broader communication program describing recent and
forthcoming changes in the company’s business practices was released
to the general public. This approach was effective, but
even more nuanced forms of impact are possible: influencing specific
bloggers, using company blogs to start conversations with consumers
(a tactic Cisco, HP, and Intel, among others, use), and reaching
scientists through research discussion boards.
Increasingly, two-way dialogue is critical. Consider, for example,
Chevron’s “Will you join us?” campaign, which addresses many of the
oil industry’s most difficult questions, such as the developing
world’s energy needs, the role of renewables, environmental
protection, and the problems that will get worse if we go on using
oil as we do now. The campaign not only embodies a new level of
openness about the industry’s challenges but also asks the public to
join the conversation on a Web site with a moderated discussion
board and interactive tools providing information about conserving
energy.
In this more complex world of influence strategy, no single kind of
approach is likely to be sufficient to deal with fast-moving
situations. Companies must instead initiate a multidisciplinary,
cross-functional effort that can quickly identify reputational
issues and plant responses in broader strategy, operations, and
communications. The groups involved might include regulatory
affairs, the general counsel, PR or corporate communications,
marketing, corporate social responsibility, and investor relations.
To achieve the necessary coordination, a senior executive should be
accountable for such efforts. A strong understanding of customers
and marketing might make the CMO appropriate to play this role. But
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.
Source: JUNE 2009 • Sheila Bonini, David Court, and Alberto
Marchi
http://www.mckinseyquarterly.com/Rebuilding_corporate_reputations_2367
Subject: Management Training
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