the mount vernon report winter 2002 - vol. 2, no. 1

8/8/2019 The Mount Vernon Report Winter 2002 - vol. 2, no. 1

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Truth might seem like a simple concept, an objective and eternal absolute about which there is little contention. Yet WebstersNew World Dictionary offers six different definitions of the word, including sincerity, reality and an established fact.In the corporate world, the truth can be subjective akin to Supreme Court Justice Potter Stewarts I-know-it-when-I-see-it

definition of pornography.

Once they settle upon their truth, it becomes an enduring value that guides their present and future behavior. Violate that truthat your peril.

In this way, the truth creates and builds confidence in every type of corporate relationship involving shareholders, stakehold-

ers, supervisors, employees, executives, media and analysts. As an essential element of reputation, the truth forms the founda-tion for all interactions in commerce, society and business. To succeed, what you do and what you say must be aligned withyour actions and judged accurate, dependable and credible.

Microsoft Corporations never-ending struggle with allegations of monopolistic business practices; the mini-shareholder revolt atComputer Associates; the tire recall tug-of-war involving Ford and Firestone all are examples of how truth intersected with repu-tation on the 2001 corporate playing field. But the spectacular debacle at Enron provides the most stunning display of the powerof truth in corporate communications.

Mount Vernon Reportthe

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Repetition can create factsover time. News releases served asthe jackhammers of the dot-com boom because inexperiencedstart-ups believed an endless stream of newsand high-profilemedia placements would create a facade of substance for cur-rent and potential investors. Thus, the first to market can setthe pace of truth.

Often, information gains credibility by virtue of its source. Aneighbor can be more influential in determining what is truethan a telemarketer, for example. If you need someone to

I s su e s Af f e c t ing Repu ta t i on Manag ement and S tra t e g i c Communica t i on

{SE E FAC TS - PG 2}

{SE E T RU TH- PG 4}

{SEE PERSPECTI V E - PG 2}

The Truth and Your Bottom Line

plow your driveway, you dont go on the Internet you askfriends who live nearby whom they use. Do all the research youwant, but if your spouses best friend criticizes the vacuumcleaner you just bought, you might as well return it.Sometimes, fate creates a truth that history will eventuallyrefute. What follows are some examples of little-known truthsfrom the world of business innovation that have been lost orobscured over time.

Check Your Facts What You Assume To Be True May Not Be The Truth At All

of it through their own personal and moral prism to satisfy themselves as to what is true.Modern audiences sift through an array of information, filtering all

Personal Perspective

Theres a delicious irony in the story of George Washington never telling a lie.

We learned in grammar school that young Washington cut down his father's prized cherry tree on a lark.When confronted, he owned up to it and faced the consequences rather than tell a lie. An invention ofbiographer Mason Locke Weems in 1800, this fable has stood the test of time. Though pure fiction, itembodies the principles of goodness, fairness and truth synonymous with leadership and ethical behavior.


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Thomas Edison did not invent the firstrecord player. He invented the phono-graph in 1877, but not for playingmusic. First, he thought wealthy gentle-

men could use it to record their dyingwishes. Later, he decided it could beused as a speaking telegraph. (Edison,by the way, lost virtually all of his hear-ing during his early teens.) Finally, hemarketed the phonograph first as a dic-tation machine for businesses in 1888;then, in miniature form, inside "talking"dolls in 1889; and later, as musicalhome entertainment systems in 1896.

The invention would not be commer-cially successful until well after the firstLP records began to be produced in1929. It was Emile Berliner who invent-

ed the microphone that became part ofthe first Bell telephones Berlinersgramophone was the first record playerto use disks.

Samuel Morse did not invent the telegraph.He invented the improvements thatdrove the invention into the market-place. Such a device was first proposedin 1753 and first built in 1774 nearly

often requires sacrifice and the elevationof other's interests above your own.When people believe you, they givetrust. They are ready to do business in

good faith.

are viewed as solid corporate citizensThey reap the benefits of having atruthful reputation; attracting moreloyal customers, better employees and

more tolerant shareholders. There arereal financial rewards for telling thetruth and taking actions that supportyour words.

In these troubling times, the truth is ofgreat comfort. It is reassuring that afterseveral years, when national leaderschose to lie or evade and businessseemed based on shallow dot-compromises, we now appear to be on thebrink of an era in which the truthcounts for something more than words.

This issue of The Mount VernonReport is devoted to the truth and itsimportance in business. Far short of anexhaustive examination, we steered clearof presumptuous preaching in the hopesof offering food for thought about thecausal link between the truth and repu-tation. Enjoy!

60 years before Morse came up with theprototype of the now famous code usedto transmit telegraphic messages over asingle-wire machine.

Henry Ford did not invent the automobileHe invented the assembly line, the massproduction breakthrough based on thedivision of labor concept that notonly revolutionized the way cars weremanufactured but also dramaticallyreduced their cost.

{FACTS- cont. from pg. 1}

{PERSPECTI V E - cont. from pg. 1}

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6 Too much t ime and toom a n y r e s o u r c e s a r e

s p e n t i n c o n v e n i e n t

r a t i o n a l i z a t i o ns , s p l i t

h a i r s a n d d e f l e c t i o n ,

w h i l e t o o l i t t l e t i m e i s

spent in p la in ta lk and

honest answers.

Those who take action that considers theneeds of the larger society while stilladdressing the needs and expectations of

customers, employees and shareholders

In Washington's day, a persons word wassacred. Perhaps that is why scribes,artists and historians felt obliged toembellish the facts of his life to convey

honesty and character. Did Washingtonendure enormous hardships while win-tering in the bleakness of Valley Forge?Did he lead his troops across theDelaware River in open boats by coverof night to surprise the British? Did heinitially decline to command theContinental Army because he felt otherswere more qualified? The answers arepart myth and part truth, but thesenoble deeds capture the essence ofWashington.

The lesson for businesses and for allof us is that when we make a mistake,it is best to admit it and apologize if weare in the wrong, then make amends andmove on. Too much time and too manyresources are spent in convenient ration-alizations, split hairs and deflection,while too little time is spent in plain talkand honest answers. A reputation fortruth-telling is a priceless asset for anindividual, corporation or organization.

Corporations can behave nobly and self-lessly, but credibility is hard earned. It


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Guglielmo Marconi invented the radio toserve as a wireless telegraph late in the1894, but it was Heinrich Hertz thefather of hertz and megahertz

who discovered and first produced radiowaves in 1888. Hertz had produced anddetected the waves in very short dis-tances across his laboratory. Marconi'sachievement was to produce and detectthe waves over long distances, laying thefoundations for what today we know asradio.

Learning to type is hard for a reason because the inventor wanted it to be.Christopher Latham Sholes, a mechanicalengineer, invented the first practical

modern typewriter, patented in 1868.But the keys jammed easily. To solve theproblem, Sholes and business associate,

James Densmore, decided to slow downtyping by splitting up the keys for com-monly joined letters. Thus, todays stan-dard "QWERTY" keyboard was purposelyinvented as an inconvenience to customers and as a convenience for typewriter salesmen,who could easily find the letters of theword typewriter on a single row! (Bythe way, Pellegrino Turri built the firstworking typewriter in 1808 for his blindfriend Countess Carolina Fantoni daFivizzono.) August Dvorak, a professorand an efficiency expert, invented a key-board in 1936 in which the middle rowof keys includes the most common let-ters, and with common letter combina-tions positioned for quick typing.Proponents estimate that, during anaverage eight-hour day, a typist's handstravel 16 miles on a QWERTY key-board, but only 1 mile on a Dvorak key-board.

The Truth Pays

Business and investment communities have long debated whether there is a realconnection between socially responsible business practices and positive financial

performance. Several academic studies have shown such a correlation.

According to the 1999 Millennium Poll on Corporate SocialResponsibility sponsored by PricewaterhouseCoopers, which surveyedover 25,000 consumers, Two in three citizens want companies to gobeyond their historical role of making a profit, paying taxes, employ-ing people and obeying laws; they want companies to contribute tobroader societal goals as well.Source: PricewaterhouseCoopers

Many corporations, including almost half of the Fortune 500, are nowcompiling and issuing annual reports that provide details about their

environmental and social behavior.Source: PricewaterhouseCoopers

In the US alone, it is estimated that in 1999 more than $2 trillion inassets were invested in ethical investment funds. For listed companies,for which liquidity in their shares is important, being excluded fromsuch funds could compromise their ability to raise capital.Source: World Reported

Ninety percent of American workers say they expect their organiza-tions to do what is right, not just what is profitable.Source: Ethics Resource Center

Employees say that their organizations concern for ethics is an impor-tant reason that they continue to work there.Source: Ethics Resource Center

A 1999 study of 300 large corporations, cited in Business and SocietyReview, found that companies which made a public commitment torely on their ethics codes outperformed companies that did not do soby two to three times, as measured by market value added.Source: Business for Social Responsibility

A recent longitudinal Harvard University study found that stake-holder-balanced companies showed four times the growth rate andeight times the employment growth when compared to companies that

are shareholder-only focused.Source: Business for Social Responsibility

A study by the University of Southwestern Louisiana entitled TheEffect of Published Reports of Unethical Conduct on Stock Pricesshowed that publicity about unethical corporate behavior lowers stockprices for a minimum of six months.Source: Business for Social Responsibility

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Man will occasionally stumble over the truth, but most ofthe time he will pick himself up and continue on.

Less than a year ago, Enron was 25th in the Fortune 2000 rankingof the most admired companies the corporate equivalent of aglobal all-star team judged by quality of management; quality ofproducts and services; innovation; long-term investment value;financial stability; ability to attract, develop, and retain talent;

community responsibility; use of corporate assets; and globalbusiness acumen.

In fact, the Houston-based energy trading concern ranked high onevery Fortunemeasurement -- 31st among fastest growing compa-nies, 16th on the Global 500, 7th on the Fortune 500 and 22nd onthe list of best companies to work for.

But the accolades turned to dust when the truth about Enronsfinancial maneuverings and off-balance-sheet partnerships begandribbling into public view last fall.

Enron's management was arrogant, its business secretive and

complex, wrote Boston Globebusiness columnist Steve Bailey.The Wall Street Journaldescribed vintage Enron this way: Minimaldisclosure of financial information that, in retrospect, was centralto understanding the complex company. According to theJournal,Enron perpetuated a culture of highly questionable financialengineering, misstated earnings and persistent efforts to keepinvestors in the dark. Senior Enron executives flouted elementaryconflict-of-interest standards. The company hired legions oflawyers and accountants to help it meet the letter of federal secu-rities laws while trampling on the intent of those laws. It becameadept at giving technically correct answers rather than simplyhonest ones.

As 2001 drew to a close, Enron had filed for the largest corporatebankruptcy in history, the SEC and Congress were investigating,Dow Jonescolumnist Gene Colter was publicly urging the companyto come clean, and BusinessWeek had devoted their cover andextensive coverage to The Fall of Enron.

Enron provides just the latest case study of how truth can workeither as a shield or as a weapon in corporate communications.Certainly, it seems obvious that the company would not have risento the soaring heights it achieved had it been consistently moreaccurate in its financial reporting. The central question is: HadEnron been more truthful from the start, would its fall from grace

ever have occurred? Would it still be a viable business today?Whether public or private, large or small, domestic or global,businesses that understand the value that truth telling can have inbuilding their reputations with key audiences are paying closerattention to the emerging corporate reporting trend of triplebottom line reporting (TBL).

TBL refers to the notion of reporting performance against social,environmental and financial measurements, creating a three-

The Mount Vernon Report is published by Morrissey & Co., an independent strategic communications and public relations firm headquartered at 121 Mount Vernon Street, Boston, MA 02108.

Further commentary or response to any of the topics discussed in this issue is welcomed and should be directed to 617-523-4141 or via email to [email protected].

~ Winston Churchill

dimensional picture of a companys performance and accountability. Coined in 1997 by management consultant John Elkingtonthis theory holds that, to be judged a sustainable business enter-prise, companies must demonstrate financial security; minimizenegative environmental impacts, and conform to the common

sense expectations of the larger society.

In essence, the TBL philosophy creates other legs for a companyto stand on a wider perspective on the truth by expanding theelements of reputation to include measures of human capitaldiversity, security, wages and social investments, to name just a few

According to PricewaterhouseCoopers, nearly half of the Fortun500 are now compiling and issuing annual reports that providedetails about their environmental and social behavior. To improvethe usefulness of such data, consistent standards are being developed to guide the type of information to be disclosed and theformat through which it will be reported.

In recent years, major corporate powerhouses such as BristoMyers Squibb, British Telecommunications, Proctor & GambleShell and others have begun issuing TBL reports under guidelinesdeveloped by the Global Reporting Initiative, a consortium ofinternational public interest groups.

Clearly, it would be difficult to argue that a private, mid-sizedtechnology company in New York or a small telecommunicationsequipment manufacturer in California should adopt TBL princi-ples immediately. What is important, however, is to recognize thatmore and more companies understand the value of reportinginformation that goes well beyond the balance sheet. It is a phi-

losophy worth serious consideration.

By surrounding the cut-and-dry aspects of financial performancewith positive facts about other corporate truths charitable dona-tions, employee benefits, public affairs, etc. a business can builda larger, more accurate picture of itself, offering a textured mosaithat reveals its true value to various audiences.

A corporate reputation is more complex to create and maintainthan ever before. It need not be a mile wide and an inch deepNon-financial indicators -- corporate citizenship, employeerecruitment and retention, customer satisfaction, the strength ofsupplier partnerships and alliances, satisfaction guarantees, war-

ranties, even web site navigation and performance -- are importantparts of the puzzle that corporate communicators must build ovetime.

Enron learned this lesson with stunning swiftness because it neg-lected to build a reservoir of goodwill. Having created a mile-wideinch-deep reputation founded solely on sky-rocketing financiaperformance, it had little to fall back upon when that trust cameinto question. One-legged stools are for circus clowns.

{TRUTH- cont. from pg. 1}

the mount vernon report winter 2002 - vol. 2, no. 1

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