Risk Management

Tending to Your Corporate Reputation

A strong reputation can enhance your business in good times and protect it during a crisis, but too many companies suffer from ''reputation neglect.''
Lisa YoonDecember 28, 2004

Corporate reputations are rarely examined until after they’ve been damaged — and that’s a big mistake, says The Wall Street Journal’s Ron Alsop, author of The 18 Immutable Laws of Corporate Reputation. Companies should tend to their reputations as a matter of course, counsels Alsop; after all, it’s every company’s most valuable asset. He recently discussed the subject with CFO.com.

Is it possible to quantify a concept that’s as nebulous as reputation?

I think it’s possible to measure your reputation with your stakeholders through custom research and through published rankings, like Harris Interactive. Executives, of course, want to see the return on a good reputation in terms of profits and stock price. There have been some academic studies linking good reputation and better stock prices, but I would concede that they’re narrow studies.

Companies that do have great reputations, like Johnson & Johnson, do perform really well financially. On the other hand, companies like Exxon-Mobil also perform very well and yet have a generally poor reputation. However, I think that the Harris research clearly shows that the public would rather buy products and services from companies with good reputations; that goes for where they’d rather work and where they’d prefer to invest, too. The benefits are fairly clear-cut: a good reputation can enhance your business in good times, and I think there’s no doubt that it can protect you when you have a crisis.

Some of the broader surveys like Fortune‘s “most admired” lists are good general barometers, but again, I think a company has to do its own customized research, and I think it’s important to do it on a fairly consistent basis. One problem I found with many companies is that they think of their reputation only when it’s in danger; they don’t monitor it on a regular basis, so they can’t detect warning signs.

Talk about the costs of reputation neglect.

Martha Stewart is probably the clearest recent example. Even though she still has her loyal fans, advertisers fled her magazine to avoid the “reputation rub-off” of being associated with her company, Martha Stewart Living Omnimedia. Another example was ValuJet Airlines: When one of its airliners crashed into the Everglades in the mid-1990s, they couldn’t give away seats [on ValuJet flights], and only after it merged with another company and took on a new name did the company rebound.

On the other hand, if you have a really powerful reputation you can bounce back faster. I think a good example is Coca-Cola: Even though they’ve had a number of problems over the years, ranging from the contamination of some of their products in Europe in 1999 to some more-recent difficulties, they still tend to come back pretty quickly.

But didn’t Martha Stewart’s products have a good reputation?

I think that was the problem: To a great extent, hers was a superficial image of perfection. Clearly, a lot of people don’t like her personality, but beyond that, even though she was associated with quality products, I don’t think she ever created the kind of reputation that people admire in a broader way. For example, I’m not aware of any major philanthropic or socially responsible activities that she or her company has been involved in. I went on both websites [hers and the company’s], and I couldn’t find a single thing, and yet I did find a lot of information about her cats and dogs and her hairdresser and things like that — on the company website. If Martha Stewart had built a reputation for being someone who gives back — think of Paul Newman or Oprah Winfrey — then maybe she wouldn’t have suffered as much damage, at least with the general public.

The quality of a company’s products and services is certainly important; so are social responsibility and philanthropy. But there are so many elements to reputation: leadership and vision, the workplace environment, and financial performance, too.

The core of a good reputation, perhaps, is emotional appeal — the bond between people and the company. Think of Johnson & Johnson: Even though they’re a pharmaceutical company, part of an industry that’s under attack because of the price of medicine, they’ve been able to keep their great reputation largely because people associate them more with baby products. And they work at keeping that bond; for example, they have an ad campaign that states, “Having a baby changes everything.” That’s what Johnson & Johnson plays up; otherwise, they would be more associated with what has become their major business — pharmaceutical products and medical devices.

One of your rules is, “If all else fails, change your name.” How do you think that’s working for MCI?

I think they had a real difficult situation. In the best of worlds you’d wait until the fireworks died down before you changed your name; while I think they did it too soon, I’m not sure they had a lot of options. It does seem like they really are cleaning up over there, but perceptions die hard. Another example is Martha Stewart. I think it would be too soon to change the company’s name, because there’s so much value in her name, even if some people are skittish about it. Americans are forgiving; if she seems truly sorry and contrite and serves her time, the company may come back because after all, they do put out quality products.

So how do you repair a damaged reputation?

First of all, companies should be as forthcoming as possible; the sooner you get the facts out there, even if they’re bad, the better. The other thing that really can help a company — though I know lawyers often advise against it because they think it will encourage litigation or be damaging at trial — is that companies should say they’re sorry more often. That really goes a long way with people.

One reason that people are still so angry at companies like Enron and WorldCom is that they don’t feel the companies ever said, in a heartfelt way: “We’re really sorry. This shouldn’t have happened.” That’s what people really want to hear. On the other hand, during the Firestone tire debacle, even though Ford settled with some of the injured people, they went to great lengths to say, “We didn’t apologize.” I thought that approach made their efforts to resolve things much less effective; they seemed reluctant to admit that they’d made a mistake.

Who’s done a good job of damage repair?

Probably one of the best examples, if overused, is the Tylenol case. The manufacturer [McNeil Pharmaceuticals, a subsidiary of Johnson & Johnson] didn’t try to avoid the issue, recalled the product fairly quickly, and expressed their sorrow about what happened even though they didn’t directly cause it.

The ValuJet case is another good example. A lot of companies run into trouble and change their name, but ValuJet didn’t simply say, “We’re now AirTran.” They ran ads that said, “We used to be ValuJet. But now we’re AirTran and we’ve made all these other changes.” They overhauled their management, bought some new planes, and made improvements in service, so their ads said, “When ValuJet became AirTran we decided to change everything.”

I imagine that some examples are cited again and again because so few companies handle these situations well.

It is hard, and in truth, after a crisis many companies never regain the reputation they once had. I think Merrill Lynch did a pretty good job of surviving the crises that befell them in 2002, one right after another — the research-analyst scandal, the settlement with Eliot Spitzer, testifying in Washington about their connections to Enron, their involvement in the Martha Stewart case. At the time, their head of corporate communications told me that it was very tempting to defend themselves more than they did; they felt that in some cases, for political reasons, they were being hung out to dry more than was fair.

But they decided that what was most important was to preserve the company. There was no way they were going to risk being charged with a criminal indictment, which is what killed Arthur Andersen. I thought that was smart; Merrill Lynch managed those crises very well, and they did a lot of work internally with employees to make it clear that anything that happened that was improper would not be tolerated.

What can you do when your company is under attack simply because it’s part of an industry that’s under attack?

That’s happening now in the energy business and pharmaceuticals, and companies find that very frustrating. I think the best thing you can do is to step away from the industry in some way and explain how you’re different. I think that’s what Philip Morris, now Altria Group, has tried to do — step away from big tobacco. You’ve probably seen their commercials where they basically say, “Smoking causes cancer, and you should stop.” Another example is British Petroleum. They’ve tried to promote the fact that they’re trying to find alternatives to oil and gas with their campaign “Beyond Petroleum.” The key is to show how you’re different.

To sum up, what can CFOs learn from companies with the best reputations about managing the reputation of their own company?

You can never be too vigilant; your reputation is always at risk; and the bigger the company, the greater the risk. Creating a culture where employees really understand the value of their company’s reputation and how they can contribute to it is critical; that’s what separates companies with outstanding reputations from the rest.