Alan Greenspan told Congress in March that "conceptual assets" play a more important role in our economy than ever before. The Federal Reserve chairman was referring to things like intellectual capital, brand name and business reputation. On one hand, he said, that's good because such concepts are not--subject to cyclical swings. But the events of this past year painfully proved that such intangible assets carry different risks. Enron's collapse is a prime example of the vulnerability of a company whose value is based on its good name. "Trust and reputation," Greenspan noted, "can vanish overnight."
The public has long been suspicious of big business, but the recent financial meltdowns have created even more disdain and distrust. "The whole issue of corporate reputation, particularly over the last year, has become a critical issue," says Harlan Teller, president of Hill and Knowlton's worldwide corporate practice and its global chief client officer. "It's a very substantial yet tenuous asset. Any controversy or misstep can have a profound effect, particularly with companies that are in the public eye."
In Chief Executive's fourth corporate reputation survey, created in partnership with Hill and Knowlton and conducted earlier this year by Harris Interactive, corporate crisis and its ensuing fallout were obviously on executives' minds. Surprisingly, however, concerns about criticism and rumors over the Internet have declined sharply from a year ago.
In terms of overall reputation, 42 percent of the 557 top executives surveyed considered unethical corporate behavior to be one of the most important threats, second only to criticism in the print or broadcast media (49 percent). Another 38 percent said monitoring reputation is crucial enough to be a board-level function.
Some companies are models when it comes to reputation, including Intel, which made the survey's top 10. Intel's CEO, Craig Barrett, points out that reputation is something to be built over years, not just pumped up during a cloudy economy or corporate crisis. "It is not something that you can turn off and on," he says. "It is something that is fundamental to a successful company and can only be created and maintained by 'doing the right things right.' A company that changes its values or belief structure depending on the prevailing winds will be, and be perceived as, a shallow entity."
A number of companies are choosing to do the right thing. Among the consequences of corporate scandal was an increase in good will and intentions. In light of the September 11 attacks, CEOs reported an increase in both corporate social responsibility and employee communication. The "outstanding" response overall of businesses to the September 11 tragedy also furthered existing trends in how companies are building and maintaining their reputations, says Teller. Corporate social responsibility, for one, has moved from a "nice-to-do" to a "must-do" (66 percent of the survey's respondents said it adds a moderate or significant amount to reputation). Companies are also increasingly trying to humanize the corporation by showing the heart that beats behind the staid facade, often using the CEO or other employees as ambassadors. "Some companies," Teller says, "think nothing of spending hundreds of millions of dollars to build a personality for a bar of soap. [yet they spend] nothing on corporate personality. The com panies that will do well are those successful at humanizing themselves."
"Intel Values" is just such an example. The company has established a set of core values that drive its actions, both internally and externally. Its "great place to work" value, for instance, says Intel should be an asset to the communities in which it operates. Under that principle, employees volunteer time (more than 230,000 hours last year) and Intel contributes money (about $120 million in global education support in 2001). "I know this sounds simple, but we firmly believe we build and maintain our reputation by continually reinforcing our commitment to our corporate values," Barrett says.
Just look at the others in the survey's top 10, including General Electric, WalMart and Southwest Airlines. Most are strong consumer franchises with powerful connections to the people who buy their products. They have high public profiles and either have or had a well-regarded CEO, most notably the retired chief of GE, Jack Welch. The average person tends to know who and what these companies represent. Even parent companies whose names are different than the brands they sell, like Johnson & Johnson, have a very "emotional element that resonates," says Teller.
While the bottom 10 on the survey's reputation scale also tended to have high profiles, fewer of them were consumer companies. Neither Tyco nor Lucent, for instance, make many consumer products. Yet both have also had highly publicized financial problems. Teller says those two companies landed low because top-level executives answered the survey; that group tends to equate financial woes and poor reputation more readily than consumers would.
Still, reputation isn't just about positive or negative feelings toward a company. If Greenspan is broaching the issue, you can be sure there's a financial effect. The survey respondents agreed. Forty percent said the No. 1 benefit of having a good reputation is the leverage it gives to drive sales.
A bad corporate reputation can harm more than that individual company; it can damage a whole industry. Try to sell an Internet business, even a viable one, to a venture capital firm today. As Greenspan noted in his testimony to Congress, bigger problems to the overall economy can occur "if problems at one particular firm tend to make investors uncertain about other [similarly situated] firms.
Despite such perils, the most dramatic change from last year was the precipitous drop in concern about the Internet's effect on corporate reputation. In 2000, 57 percent of respondents said they had a strategy for managing communications on the Internet, an 11-percent increase from the year before. This year, however, the figure plunged to just 10 percent. That drop, along with another finding that 43 percent don't monitor the Internet at all, alarms Teller.
"The Internet has made things much more transparent between corporations and people. Look at reporters' usage of the Web; it's gone through the roof," he says. "Management has gotten used to the Internet being around, but it's a real mistake to take your eye off the ball just because it's more integrated."
Although Internet rumors and gossip may not be talked about as much or seem as harmful as when the medium was new, they're still around. Outback Steakhouse was still fending off a false email last fall that claimed the recipient would get a $25 gift certificate from the chain restaurant for sending a trackable email to 15 friends, according to a March study by Planet-Feedback and Intelliseek. They also found that Ford Motor and Bridgestone/Firestone could have detected tire blowout complaints as early as 1994 through postings on the Web.
Part of the problem with how the Internet affects corporate reputation is measuring the phenomenon. How do companies quantify what's being said about them online? There are some firms that peddle formulas to assess reputation, but all have very different factors and calculations. The survey's respondents were at a loss with this issue. Of those that try to measure it, 73 percent said they still rely on word of mouth to assess their reputation. That may change over time if a uniform standard for measurement emerges. The fact that corporate reputation is important has gotten into the water supply," says Teller. "The question now is, what do you do about it?"
CORPORATE REPUTATION INFLUENCERS How do you rank each of the following? 2002 2000 CUSTOMERS 4.69 4.82 THE REPUTATION OF ITS CEO 4.23 4.28 EMPLOYEES 4.19 4.42 PRINT MEDIA 3.30 3.44 INDUSTRY ANALYSTS 3.09 3.41 SHAREHOLDERS 2.95 3.16 FINANCIAL ANALYSTS 2.72 3.08 THE INTERNET 2.63 2.70 REGULATORS/GOVERNMENT 2.61 2.53 BROADCAST MEDIA 2.45 2.70 NON-GOVERNMENT ORGANIZATIONS 2.44 -- LEGISLATORS 2.20 -- LABOR UNIONS 1.76 1.82 Note: Table made from bar graph BEST AT MANAGING REPUTATION Which three companies (not including your own) have been most effective in recent years? 2002 2000 1999 1 GE GE GE 2 IBM Cisco Systems IBM 3 Microsoft IBM Microsoft 4 Johnson & Johnson Microsoft Dell 5 Wal-Mart Dell Southwest Airlines 6 Southwest Airlines Intel Ford 7 Dell Southwest Airlines AT&T 8 The Home Depot Wal-Mart Intel 9 General Motors Hewlett-Packard Apple 10 Intel Johnson & Johnson Chrysler WORST AT MANAGING REPUTATION Which three companies (not including your own) have been least effective in recent years? 2002 2000 1999 1 Enron Bridgestone/Firestone Microsoft 2 Andersen Microsoft GM 3 Microsoft Ford Coca-Cola 4 Ford AT&T ADM 5 Bridgestone/Firestone General Motors Disney 6 Kmart United Airlines Exxon Mobil 7 Tyco International Coca-Cola Philip Morris 8 AT&T Chrysler Cendant 9 Lucent Technologies Xerox Sunbeam 10 * H-P/Compaq Disney Compaq * Global Crossing * Tied for 10th worst company CORPORATE REPUTATION AND CEO COMPENSATION What percentage of the CEO's compensation is based on performance in protecting and enhancing the company's reputation? Mean = 35% 2002 0% 6% 1% TO 24% 28% 25% TO 49% 21% 50% TO 74% 17% 75% TO 100% 11% Note: Table made from bar graph MANAGING REPUTATION ON THE INTERNET Does your company have a strategy for dealing with online rumors? 2002 2000 1999 YES 40% 57% 46% NO 59% 42% 52% Note: Table made from bar graph THREATS TO A COMPANY'S REPUTATION Which three of the following are you most concerned about? 2002 CRITICISM IN PRINT OR BROADCAST MEDIA 49% UNETHICAL CORPORATE BEHAVIOR 42% A DISASTER THAT DISRUPTS OPERATIONS 36% LITIGATION OR ADVERSE COURT JUDGMENTS 35% ALLEGATIONS BY AN INTEREST GROUP OR CUSTOMERS ABOUT PRODUCT SAFETY 29% ALLEGATIONS BY GOVERNMENT OFFICIALS ABOUT PRODUCT OR EMPLOYEE SAFETY 24% CRITICISM ON THE INTERNET 13% OTHER 5% Note: Table made from bar graph WHAT A GOOD REPUTATION HELPS TO ACHIEVE What is the most important business objective bolstered by your company's reputation? 2002 INCREASING SALES 40% PROMOTING TRANSACTIONS AND STRATEGIC PARTNERSHIPS 32% RECRUITING AND RETAINING EMPLOYEES 15% ENHANCING STOCK PRICE 8% HELPING TO WITHSTAND THE IMPACT OF A CRISIS 3% BUILDING SUPPORT FOR PUBLIC-POLICY INITIATIVES 2% Note: Table made from bar graph
There is no 2001 data due to an editorial change. Figures for 2002 were collected from February through May; 2000 data was collected in that year's fourth quarter.
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