Maintaining Reputation In a Time of Global Change

Corporate Communication InstituteDecember 1, 2006

Gary F. GratesPresident & Global Managing DirectorEdelman Change and Employee Engagement

“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that,

you'll do things differently.”

— Warren Buffett

“If you have no reputation, you have no business.”

— Dr. Guruswami RaghavanProfessor of Finance

SDM Institute for Management Development

Why is reputation so important today?

59% of organizations surveyed state that corporate reputation is becoming a key source of competitive advantage as

products/services become less differentiated

Source: “Reputation: Risk of Risks”

Economist Intelligence Unit 2005 Survey

Reputation is the A-1 priority

84% of companies surveyed state that the CEO/President/Chairman takes personal

responsibility for their organization’s reputation…

Source: “Reputation: Risk of Risks”Economist Intelligence Unit 2005 Survey

…because nearly 97% of them understand the linkage between reputation and financial performance.

Source: “Return on Reputation”Corporate Reputation Watch 2006, Hill & Knowlton

And it starts inside

Building reputation begins inside with engaged employees because they…

Embody the organizational values that reputation is built on

Fulfill the company expectations every day

Shape the company’s reputation, for better or worse

Reputation represents who a company is

The summation of the people who work for it every day

Their understanding of customer expectations

Their commitment to fulfilling those expectations – everyday

FedEx’s on-time delivery

McDonald’s dependable flavors

Nordstroms’ consistent customer service and support

Apple’s innovation

How do you build reputation in today’s complex business environment?

The Age of Transparency Customers, employees, shareholders, investor community are privy to

higher levels of product information and company knowledge

A New Corporate Ecosystem The lines between stakeholders are blurred; all are integral parts of one

organization

Growing Sense of Distrust Recent events have elevated concern about corporate governance

A New Balance of Power Balance is shifting away from management to employees, suppliers,

distributors, customers, business partners and other stakeholders

The Reputation Challenged

The Reputation Challenged

Continuous global change

Truths…

Technology will always advance

The world will get smaller every day

Relationships becoming more important

Trust impacting internal and external relationships

New business models forcing major changes in employer-employee compact and organization-customer dynamic

Leaders must act fast to change

The impact on business

The purpose, premise, rationale and viability of every organization are under attack because of anenvironment that is increasingly:

Global

Complex

Chaotic “Loud”

Commoditized

The impact on constituents

There’s a breakdown in relationships and trust:

Organizations v. employees

Organizations v. communities

Organizations v. stakeholders

Inside:Paralysis – employee confusion about their purpose and role

Outside:Loss of credibility – reputation plummets

The impact on employees

Only 25% of employees understand personal accountability

84% don’t believe information flows freely in their companies, depriving them of critical, job-related info

Majority of employees of large companies believe their size makes them less nimble

Wide gap between senior executive and employee perceptions on the functionality and health of their organization

Study: A Global Check-Up Diagnosing the Health of Today’s Organizations Booz/Allen/Hamilton (2005)

2004 Employee Engagement Index

Gallup Management Journal

The impact on employees

29% of employees are actively engaged in their jobs

54% are not engaged, distracted

17% are actively disengaged

Employees are working with the “volume off”

Noise – people are inundated with so much information – most of it irrelevant and conflicting – that it overwhelms and confuses them

Creates cynicism instead of enthusiasm, like watching a sports event with the volume turned off

Employees determine truth and reality by watching behavior -- they are watching but choosing not to listen…

Outside the company

If people do not trust your company they will…

Refuse to buy your products or services (84%)

Refuse to invest in your company (74%)

Refuse to do business with you (75%)

Ignore your attempts to communicate with them (54%)

Edelman’s 2006 Trust Barometer

People gravitate to institutions that are…

…such as: Apple, Citigroup, Goldman-Sachs, Coca-Cola, JP Morgan Chase, Intel, Nokia, Motorola, GE, Duke Power

Solid

Stable

Consistent

Trustworthy

Credible

Secure

What defines them…

Organizational Trust: leadership does what it says

Organizational Consistency: organizational performance/service meets or exceeds standards

Organizational Accessibility: is available to internal and external stakeholders – is transparent

Organizational Responsiveness: organization senses and responds to internal and external issues, inquiries, etc.

Organizational Commitment: organization meets/exceeds stakeholder wants/needs

Organizational Affinity: organization gives stakeholders a reason to care about and identify with the organization’s mission

Case in point

Apple Computer — a new product dynamoLives up to its reputation

Known as iconoclastic risk-taker

Stood PC industry on its head with Macintosh

Constantly breaking new ground

iMac, eMac, Mac OS X, reinvented iMac (multiple times)

Revolution: iPod and iTunes Music Store

Reinvented Apple and the music industry

Changes the game in other industries

Drew out new competitors

Everyone else is playing catch-up — Sony, Dell, Microsoft, Time-Warner, Yahoo, et al.

Case in point

CEO Steve Jobs’ vision is key

Invites people along for the ride with cutting-edge products that define and enhance their “digital lifestyle”

Put Apple at the forefront of new lifestyle trend

Apple’s reputation is built on its unique ability to communicate that vision effectively to its many constituencies

Customers, investors, employees, media, etc.

Traditional Approach(Disciplined Process)

Progressive Approach(Organizational Priority)

Purpose Messaging; Convey information Build/strengthen relationships

RoleProduce/distribute info on

initiatives, programs, industry awards/recognition

Provide context, interpretation, relevancy

Perspective Reactive Anticipative, creative

Integration w/Strategy

Little, sporadic Extensive, well-planned

Approach Push Holistic

Skills JournalisticHuman behavior: Sense what people

need to know, feel, do

Information Flow

Top-down Two-way, lateral

Measures “Clips/clicks/hits” Business success

From a communication perspective, managing reputation in today’s business environment requires a different approach

What effective communication can accomplish

It can is provide a path for people outside the company to rediscover a company’s positive aspects…

It can teach and lead employees to what’s important regarding reputation…

…what to do, to stop doing, to think and talk about

Key strategy: Discover vs. Sell (Promoting vs. Doing)

If the organization’s goals are understood, then communications can help stakeholders to experience the changes needed and the benefits of initiatives

Communications can provide context and relevance, helping people to “connect the dots”

Discovery carries far more credibility than something that has been spoon-fed (“sold”)

Discover vs. Sell

Asks the right questions

Drives business strategy

Establishes the right mindset

Influences desirable behavior

Unleashes competitive advantage

Shapes the organizational challenge

Builds relationships

Maintaining Reputation In a Time of Global Change

Key takeaways…

Companies need to acknowledge there is a gap between how they perceive their own reputations and what its stakeholders believe and experience.

Companies must take an “outside in” approach to reputation management.

Communication can strengthen relationships with internal and external stakeholders. Effectiveness must be measured in communication “outcomes” rather than communication “outputs.”

Maintaining Reputation In a Time of Global Change

…in a world of constant change and constant information, you can't control reputation globally.

What can be managed:

management protocols and decision making

issues management and crisis management

open, clear communications internally

employee engagement and involvement

“The way to gain a good reputation is to endeavor to be what you desire to appear.”

— Socrates