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Articles

The 18 Immutable Laws of Corporate Reputation

Creating, Protecting and Repairing Your Most Valuable Asset

by Ronald J. Alsop


Special Note: This Book Review may be reproduced or republished in its
entirety without change and with proper author credits and attribution.


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Abstract: "The 18 Immutable Laws of Corporate Reputation" (18 Laws) draws an up-to-date roadmap for (1) establishing a good corporate reputation, (2) maintaining that reputation and (3) repairing a damaged corporate reputation. Starting with the premise that a good reputation is a corporation's most priceless asset, writer Ronald Alsop explores mini case-studies of "lessons learned" from the crises faced by companies and organizations such as Johnson & Johnson, Merrill Lynch, Philip Morris (Altria), and the Roman Catholic Church to illustrate his 18 Laws on how to protect good reputations and fix bad ones.

While sticking mostly to the main highways of strategy development and avoiding the gritty back roads of tactical decision making, 18 Laws provides important insights into key principles and strategies for building, maintaining, and fixing corporate reputations. Though it lacks turn-by-turn directions and employs clichés with surprising frequency, this well-researched, well-organized and clearly-written business book of strategic insights is a worthwhile addition to the personal, corporate or PR agency library. C-level executives and corporate communications professionals can benefit in perusing the 18 Laws in preparation for the next inevitable corporate crisis or as a strategic reference manual for use as a crisis unfolds.

Part 1: Establishing a Good Reputation

The 18 Immutable Laws of Corporate Reputation leads off with approaches to establish a good reputation. If you, as a company, actively manage and Maximize Your Most Powerful Asset (your reputation), you gain a halo effect that attracts more loyal customers, investors and talented employees, leading to higher profits and rising stock price. Good reputation can also lead to higher credit ratings, faster and more favorable government approvals and stronger community support. By building trust and an emotional bond with your stakeholders, you also inoculate yourself against the harmful effects of future adverse events and publicity. According to Bill Margaritis of FedEx, "A strong corporate reputation is a life preserver in a crisis and a tailwind when you have an opportunity."

While ethical behavior, corporate social responsibility, and CEO reputation are three major determinants of corporate reputation, a company's on-going reputation is shaped largely by everyday interactions with customers. The crucial — and elusive — approach to build a good corporate reputation is to foster a reputation-conscious corporate culture that "sweats the small stuff", attending to all the day-to-day things that affect reputation, with a special focus on product and service quality.

Companies must always be on guard for emerging threats to corporate reputation. Anticipating future threats and planning how to manage them are hallmarks of good corporate reputation management.

A program for building and protecting corporate reputation is best implemented with a task force of people from relevant corporate departments, all reporting to a single executive responsible for corporate reputation management. Preferably, the executive is a full-time watchdog, serving as primary corporate caretaker and charged with preventing corporate reputation crises and managing those that emerge.

The first step in managing reputation is to Know Thyself — Measure your Reputation. On-going, systematic research to monitor and measure corporate reputation is mandatory. You can't manage what you don't measure. While syndicated reputation measurement (such as the Harris Interactive study and the Fortune magazine study of most admired companies) provide bragging rights, only research customized to the needs of a given company can provide real insight.

The power of ongoing measurement is the ability to follow trends and issues over time. Both media measurement and opinion research are fundamental measurement tools of reputation management to determine how strongly positive and how strongly negative feelings are about an organization.

In recent years, media measurement has moved from merely quantitative (how many clips and share of discussion) to qualitative assessment (tonality of press coverage). On-going opinion research, preferably through person-to-person interviews, evaluates changes in favorability ratings among various constituencies.

Measuring various constituencies is crucial because companies must Learn to Play to Many Audiences. Different categories of stakeholders have different interests and concerns. Sometimes those interests are diametrically opposed. Managing reputation, then, is a task of first identifying and prioritizing the cast of stakeholders. Then, the company must balance its interests by playing to each constituency in different ways at different times (without falling into the politician's pit of sending opposing signals to different constituencies). In establishing which stakeholders matter most, customers are usually king, as the old aphorism goes. Companies with solid reputations invariably put customers first in their priorities.

To gain credence with your customers and other stakeholders, it is crucial to Live Your Values and Ethics in all business activities each and every day. It's the single most important way a company can build trust. Building a good reputation is not a matter of a good corporate advertising or PR campaign. Rather, it's a matter of creating a culture of morality — of inculcating the highest ethical standards into every employee and never looking the other way at an ethical breach. It's always doing the right thing in day-to-day business transactions with stakeholders. Doing the right thing, no matter how painful, is especially important in responding to a crisis. Johnson & Johnson did the right thing — the trustworthy thing — in recalling Tylenol in response to poisonings in 1982. Catholic bishops did not do the right thing in covering up incidents of sexual abuse by priests and in putting the church's reputation above the interests of its parishioners. Ironically, by making decisions that ostensibly put the Church's reputation first, the bishops have greatly diminished it.

Cover-ups almost never work. Why? Because today almost anyone can disseminate information quickly and widely on the Internet where it can be seen by millions of people. In addition, the Internet is a key source of story ideas for many mainstream news reporters and editors.

Public expectations are high. The public expects companies to Be a Model Citizen, sponsoring corporate programs to better the community and encouraging its employees to do community service and rewarding them for it. Through its corporate programs and its employee's volunteer activities, the company should make social responsibility part of its corporate DNa. Social responsibility includes appropriate hiring and working conditions, protection of the environment, fairness in relationships with suppliers and all constituencies, and betterment of community. It's worthwhile to note in passing that only 1% of respondents to a Harris Interactive public opinion poll believed that a company's responsibility is simply to generate profits for its shareholders.

To best capture the benefits of its corporate do-goodism, a company should focus its social responsibility activities, channel its money, and take a leadership position in a concentrated set of community activities that it can champion or "own". Ideally, the social cause should be related to the company's core constituencies. Andrew Carnegie accomplished this with his contributions to building libraries and literacy; Levi Straus has done it with AIDS prevention and education; Avon does it with breast cancer; Paul Newman does it by donating all company profits to recreation programs for sick children. But, companies must take care that "do good" programs cannot be criticized as providing more benefit to the company's bottom line than to the not-for-profit cause — as happened to Microsoft in its donations of software to schools.

Every company must stand for something and Convey a Compelling Corporate Vision. A compelling and authentic vision lifts the company's reputation with all stakeholders. A vision statement can help. The statement must guide employees and touch them on an emotional level. Ideally, employees feel passion for the vision, refer to it often and strive to implement it on a daily basis.

The passion employees feel helps Create Emotional Appeal, a primary driver in shaping corporate reputation. Emotional appeal creates a special halo around a company radiating a glow of good feeling, admiration, respect and trust. While advertising can aid in creating an emotional bond with customers, genuine bonding usually takes place when the company "delights" the customer by connecting their product with the customer's inner needs or through a personal touch. Harley Davidson has that emotional bond with its biker customers; AT&T had it, but lost it.

Part II: Keeping That Good Reputation

After building a good reputation, the first rule in keeping that reputation is to Recognize Your Shortcomings. Any company with an ailing reputation must take an honest look at the reasons why. Self-awareness is the first step toward self-improvement. (Forgive writer Alsop the cliché for all clichés have seeds of important truths.)

Poor customer service is one of the chief shortcomings that undermine corporate reputation. Listening to customers is key in identifying service problems. While written surveys can help, personal contact is crucial. Fixing the service problem is the direct route to solve the reputation problem.

Media measurement and opinion polling often provide enlightening clues to problems with the corporate reputation and their causes. Problems can range from employment and environmental practices to perceived ethical lapses and heavy-handed lobbying. Many corporate reputation problems arise because companies meet minimum legal requirements but don't fulfill the higher expectations of the public. These perceived shortcomings are often first exposed in Internet message boards and chat rooms, and then accelerate when the issues find their way into the mainstream media. Monitoring Internet discussion groups with a service such as Netpinions™ (http://www.cyberalert.com/netpinions.html) often provides early warning of emerging problems.

Should a company fess up to shortcomings? In almost all cases, absolutely yes. Publicly acknowledging a widely-perceived problem goes a long way toward restoring confidence and beginning the process of healing reputation.

It's possible to acknowledge problems without making a confession. Home Depot acknowledged its customer service issues by proclaiming that customers could once again receive expert advice in its stores. Result: sales recovered. McDonald's acknowledged the 'unhealthy food' issues by adding fresh salads (and Newman's Own dressings) to its menu. Results: sales accelerated.

On the other hand, GM failed to own up to its shortcomings of automotive quality and generally stiff-armed customers who complained. Market share plummeted.

A completely heartfelt apology almost always gains public acceptance and preserves corporate reputation. Mushy apologies, usually drafted by attorneys seeking to avoid legal suits, usually fail to move the public — and still result in legal action. Even worse, no response at all is interpreted extremely negatively by the public. Basic rule: forthrightness is the most likely strategy for success.

Inevitably, issues will arise and companies must Stay Vigilant to Ever-Present Perils. The potential for damage is greater today and damage comes more quickly as information travels at optical speed along the Internet — expedited by activists, disaffected customers and disgruntled employees. Local issues can quickly become international problems if allowed to propagate. Using on-going monitoring programs, companies must be watchful enough to identify emerging issues and problems. Using thoughtfully-prepared crisis management plans, companies must react quickly and gracefully without being defensive. (The worst possible position is attempting to justify what is widely-perceived as a bad decision.) While not a textbook example of the perfect handling of a crisis situation, the cruise industry reacted quickly and forthrightly to the outbreak of Norwalk virus, giving a full accounting of the problem, establishing a blueprint for corrective action, taking care of their passengers by granting them future trips, and later forestalling similar problems with the SARS epidemic.

In managing corporate reputation, it's important to Make Your Employees Your Champions. Employees' commitment to the corporate vision, daily adherence to ethical standards, enthusiasm for company products, and passion for superior customer service are the touchstones of corporate reputation. Their "personal touch" will forge the emotional bond with customers. Enabling employee pride in the company enhances corporate reputation.

It's also important to Control the Internet Before It Controls You. The World Wide Web presents a unique danger to corporate reputation, enabling virtually any individual to launch an anonymous attack that can wreck a company reputation. Activists often trigger Internet-based attacks on companies. The attacks are then republished in numerous web sites and message boards — and often find their way into mainstream media. In fact, most corporate issues emerge first on the Internet before migrating to mainstream media. Most major corporations now use Internet monitoring services such as Netpinions™ to help detect consumer "chatter" in more than 80,000 discussion groups, message boards, forums, and news groups on the World Wide Web and Usenet.

Companies must protect the corporate reputation by refuting any harmful rumor that is picking up momentum on the Internet. Ignoring a spreading detrimental rumor is dangerous in the extreme. The correct strategic response is to neutralize the attack with a factual response. Overheated emotional responses tend to heat up attacks instead of heading them off — and often attract the attention of traditional media who further disseminate the attacks. "Neutralizing" often means simply resolving individual complaints about the company product or service. Conciliatory tactics and respectful approaches work best. Any public response by a company should be placed by an identified company employee and should appear wherever the rumor has appeared on the Internet — and ONLY where the rumor has appeared.

Companies which are targets of many rumors, such as Coca-Cola, publish denials and refutations on their own Web sites. Some companies such as Nike develop separate web sites devoted exclusively to refuting rumors about the company and its operations.

Should companies react to every rumor or negative news story? Absolutely not. React only to news stories that can do significant damage to reputation and/or "have legs", to use a Hollywood phrase. Beware the tendency of many business executives to underestimate the importance of a problem/issue and to misdiagnosis its rate and extent of spread — especially if the news story makes it into a syndicated service.

Comprehensive media monitoring is crucial. Internet news monitoring is a key reputation management tool because it monitors worldwide news sources, is much more timely than traditional media monitoring, and can readily follow story migration over a period of days or weeks. RushClips™ (www.cyberalert.com/rushclips.html), for example, monitors over 13,000+ news sources in 250+ languages, delivering clip reports throughout the business day.

Legal remedies should be reserved as the last resort to resolve attacks on the company. While corporate threats of legal action can scare off some attackers, corporate foes have an arsenal of proven strategies to counter legal threats. One is to publish any "cease and desist" order on the Internet and forward the legal papers to the media, thereby escalating the battle and enlarging the damage to corporate reputation.

To maintain the corporate reputation, it is essential to Speak with a Single Voice. Like consistency in the look and feel of a company's retail outlets throughout the country, consistency of message is an important element in maintaining corporate reputation. Politicians have learned to "stay on message"; corporations need to absorb the same lesson. All public relations, marketing and advertising messages must work together to reinforce a clear and distinctive corporate brand. Speaking with a single voice is especially difficult for companies with multiple divisions in different product categories. The key is to focus on the corporation's core values and distinguishing characteristics. Sony, for example, has succeeded in projecting a unified image of creativity, innovation and superior quality throughout its product lines that range from hardware to movies.

In managing corporate reputation, Beware the Dangers of Reputation Rub-Off. Partners can be toxic. In a sort of guilt by association, partnering with a disreputable organization can soil even a well-starched reputation. Lend your good name sparingly and choose partners with care, including celebrity endorsers. Before entering into any joint business or endorsement venture, check carefully for possible conflicts or potential embarrassing activities by your prospective partner. Consider even the smallest whiff of disrepute as a major cautionary signal. If a crisis erupts in an established business relationship, take fast action (usually meaning severing the relationship). Make sure your partnering agreement has an appropriate exit clause for due cause.

Part III: Repairing a Damaged Reputation

Repairing a damaged reputation requires that you Manage Crises with Finesse.

The basic approach: gather the facts, respond quickly, be honest and forthright, clearly delineate the specific plan to remedy the problem, show concern and act contrite.

While it is desirable to respond quickly to a crisis (within the same news cycle if possible), the first crucial step in managing a corporate reputation crisis is to gather all the facts before making public statements. Making a mistake at the outset can destroy credibility and undermine your case. Coming out "swinging" can be self-defeating. As Martha Stewart learned, misstatements early on can lead to criminal charges.

Hopefully, your company will start a crisis from a position of strength — that is, with a halo of good will built over years of actively managing and maintaining your corporate reputation. With that base of good will, the public is likely to trust the company and believe it will do the right thing when a crisis erupts.

If the company doesn't wear that halo, the first goal in a crisis is to establish a feeling of trust. Achieving that trust requires the company to (1) assemble, substantiate and clearly delineate the facts, (2) present a substantive plan to rectify the problem with a high degree of specificity about how it will address the consequences of the crisis and take appropriate steps to prevent a recurrence, and (3) project a sense of concern and, if appropriate, contrition (no matter what your legal beagles tell you about the possibility of law suits).

If all the facts are not known, the company should say so and state that it is putting all available resources to assemble the facts. The company must complete fact-gathering as quickly as possible and communicate promptly with its key constituencies, the news media and the public. The company must be careful to be totally accurate and to avoid promises that it cannot keep or positions it cannot sustain. Digging yourself into a hole at the beginning makes it that much more difficult to resolve the crisis with your reputation intact.

It is clearly imprudent to issue a denial if you don't know the facts. Hostile, defensive or worst of all deceptive initial responses exacerbate a crisis. As noted earlier, a communications void is extremely dangerous. Bad news rarely if ever goes away by ignoring it. Absence of communication raises suspicion — akin to a witness who won't cooperate with police.

Successful crisis resolution often requires patience and a good dose of humility. During a corporate crisis, modesty is a virtue; arrogance plays very badly with the public.

Pointing fingers or attempting to shift the blame also plays badly. Both sides inevitably become losers. "The employee (contractor, supplier) is to blame" is simply not an acceptable defense. The lesson was most evident in the Ford/Firestone debacle over unsafe Firestone tires on the Ford Explorer. By accusing each other, both companies lost badly and sustained serious damage to their reputations.

A crisis manual, crisis drills, and a crisis command center with a single crisis manager will all help assure that the company presents its case most effectively. However, most important of all in resolving any reputation management crisis is the underlying attitude of honesty and ethical behavior that begets forthright communication.

Most companies manage to emerge from crises with weakened but salvageable reputations. Adroit companies actually burnish their reputations through forthright and ethical behavior during the crisis.

The longer a reputation remains in rehab, the harder it is to save. The ultimate crisis resolution is to Fix It Right the First Time. The public and customers will give most companies one chance to fix a problem. Setting customer expectations is crucial to success — and it's important to promise only the fix that you are absolutely, positively sure that you can deliver and that meets the public's expectations.

Never Underestimate the Public's Cynicism. Trust, once lost, is extremely difficult to regain. The level of public mistrust is far higher than most business people assume — and greatly increased by the recent deluge of unethical business behavior. Just think about the legitimate businesses that have high opinions of themselves — but are despised by the public. HMOs top the "no-trust" list. HMOs have so alienated the public that the companies lack believability even when what they say is incontrovertible truth. Though not cited as a case example in the book, Microsoft faces the same problem — an extraordinary level of distrust and deep-seated resentment among some its most important constituencies.

But, to continue to thrive, both the HMOs and Microsoft must re-build trust. As stated by Mark Goodin, a consultant to the American Association of Health Plans, "Negatives are like diseases; if you don't manage them, then they'll only get worse."

The best avenue to soften critics is to confront them directly or, better yet, co-opt them. That is, the distrusted company must take specific positive actions to defuse the criticism and cynicism — both in their day-to-day activities and in special reputation management programs. HMOs, for example, could undertake a comprehensive public education program teaching policyholders how to appeal an HMO's denial of benefits — and, at the same time, create an effective independent system of public omsbudsmen to assist claimants through the appeals process. Such a strategy and program would help reposition HMOs from being an adversary of their own customers to being an ally.

Microsoft is often cast as a villain for its "closed, proprietary" approach to software development and its alleged propensity to use its business partnerships to "misappropriate software" and "infringe patents". The usual Microsoft response is to defend its position and to use its extremely deep pockets to undermine "open source" software and vigorously fight any patent infringement case.

Instead of using its legal muscle to fight disputed patents in court, Microsoft could instantly defuse public cynicism and transform itself from industry villain to industry hero by purchasing selected patents and donating them to a not-for-profit industry organization as "open source" code for use by all software companies to benefit the entire computer industry and its customers. Microsoft would undoubtedly pay less for the patent than a jury would award; the patent-holder would be adequately rewarded for the invention; the patents would become freely available for use by all including Microsoft; Microsoft's customers would be freed from patent infringement concerns; and the patents would no longer be a potential impediment to business conduct for the computer industry. Microsoft would don a halo, greatly enhancing its reputation within the technology community and moving toward rebuilding its position as trusted partner. That halo would then have beneficial residual effects for Microsoft long into the future.

The HMO and Microsoft situations are reminders that Being Defensive Is Offensive. The best way to manage a corporate reputation crisis is to resolve the crisis quickly and to the public's complete satisfaction. Too often companies put their corporate pride and legal defenses first. Sometimes companies are tempted to blame the media in times of trouble — but attacking the messenger only looks as if you're trying to shirk your responsibility.

Successful resolution should put the customer first. The golden rule is to tell it straight. Rather than trying to minimize a problem or duck responsibility, it's much more sensible to say, "We screwed up, we're sorry, and here's how we're going to fix things and make amends". You may even end up creating goodwill and fortifying your reputation.

Bottom line: apologies are good for the corporate soul and reputation. There's no better way to defuse a business problem or crisis. To be effective, the apology should be made reasonably fast and be sincere with no mincing of words. ("Mistakes were made" is not acceptable.) An honest act of corporate contrition most often results in public forgiveness. But it must absolutely be accompanied by a plan to resolve the situation.

Lawyers often discourage apologies because they can prove damaging in lawsuits. But loss of public confidence is usually far more costly for a company than any legal expenses or court judgment. Moreover, people are likely to be more inclined to reach a reasonable settlement of personal injury claims if they believe the company is truly repentant. Government officials are likely to react similarly with reasonable settlements. On the other hand, companies that stiff-arm plaintiffs or government regulators are likely to incur their wrath in hard-fought and drawn-out court battles which will continue to bruise the company's reputation. The longer the court battle goes on, the more likely the company's reputation will suffer, no matter what the jury verdict. Bottom line: a company faced with a crisis situation must know when to surrender gracefully.

If All Else Fails, Change Your Name is the last of The 18 Immutable Laws of Corporate Reputation. If the weight of the controversy overwhelms any legacy of good will in the corporate name, then it may be time to consider changing the company name to help escape the negative consequences of the crisis. A new name signals a fresh start and a chance to distance the company from the tainted reputation. But it's nearly impossible to escape the past entirely. The change of name from Philip Morris to Altria certainly hasn't absolved the company of past sins of the tobacco industry.

Summary and Conclusion

In the book, author Alsop supports the 18 Laws with detailed case examples. In many ways, the corporate examples are more valuable learning tools than the 18 principles summarized in this book review. In addition to the companies cited in this review, the corporate examples include Federal Express, American Express, Dupont, Biney & Smith (maker of Crayola crayons), Worldcom/MCI, Starbucks, Merrill Lynch, Disney, Calvin Klein, Wawa, Timberland, and Tommy Hilfiger, along with a few international companies such as British Petroleum, BMW and Nestlé.

While the book suffers a bit from a scarcity of tactical implementation methods and surprisingly frequent use of clichés, the well-organized principles and well-elucidated case examples make The 18 Laws of Corporate Reputation a worthwhile addition to the personal, corporate or PR agency library — both as an intelligent read and as a reference manual during the next corporate reputation crisis.

In the end, the Golden Rule is to Do the Right Thing for your key constituencies — especially customers. After that, all other laws of managing corporate reputation pretty much fall into place.

Order this book at Amazon.com

Reviewed by:
William J. Comcowich
President and CEO
CyberAlert LLC
comcowic@cyberalert.com
800-461-6353
www.cyberalert.com
Nobody monitors media better than CyberAlert.

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