My daughter loaned me her copy of Reputation Rules by Daniel Diermeier. She works PR for Hyatt Hotels and Resorts. I work as a technology evangelist at Autodesk Labs. How could we possibly need to read the same book? As it turns out, reputation affects all aspects of corporate business. As far as the title goes, I'm not sure if Rules is a verb (as a king rules) or a noun (as in a set of rules). It's probably ambiguous on purpose. In my typical book report style, I will provide a summary of each chapter.
Two Items on the CEO's Agenda
Surveys of CEOs show that although "innovation" and "survival" require CEO attention on an ad hoc basis, "people" and "reputation" are their top two priorities day in and day out. page x
Beyond The Obvious
Corporate reputations are normally managed by 3 flawed beliefs.
- "A good reputation follows naturally from having good business practices and doing right by one's customers, employees, and suppliers.
- If there is a problem, it can be safely delegated to Public Relations, Legal, or outside advisers.
- Reputation management requires little else but common sense and the willingness to do the right thing." page 2
Thomas Off The Rails
A reputational crisis can be turned into an opportunity. RC2 Corporation failed to decisively respond to its sale of lead painted Thomas The Tank Engine toys and to this day, its stock price has not fully recovered. Conversely Johnson & Johnson used sabotaged bottles of its Tylenol pain reliever as a chance to develop tamper-proof packaging and solidify the public's trust. Through transparency, expertise, commitment, and empathy, today Tylenol is the second most sold over the counter medication - second only to Nicorette Gum. pages 10-14
Mercedes And The Moose
Mercedes launched the A-Class vehicle to reach a new market segment - families. The design included a higher center of gravity to allow the engine to slide underneath the driver and passenger in the event of a head-on collision. Only days after its introduction, a Swedish journalist published an article demonstrating the A-Class rolling over after a rapid lane change as would occur when swerving to avoid a Moose. Moose accidents are a frequent cause of injury in Sweden, Finland, and Canada. page 56 Though Mercedes' original response was flawed, they were able to reclaim their brand by recognizing that although only minor modifications would fix the technical problem, installation of an Electronic Stability Program (previously only available on their luxury models) would repair the major reputational damage stemming from the incident.
Shell Turns On The Water Cannons
Although sinking an out-of-service oil rig in the North Sea would have been an environmentally sound approach, Greenpeace wanted to make an example of Shell. Protesters occupied Shell's oil platform. Shell fired water cannons to remove them. The resulting public outcry led to a drop in gasoline sales in Germany, the Netherlands, and Denmark. Rather than being triggered by an actual or imagined quality problem, this incident arose by a deliberate attack by Greenpeace. Although Shell had permission to sink the oil platform from the British government (who followed an internationally recognized process), Shell should have thought strategically and anticipated the crisis. Advocacy groups should often be considered as competitors.
Of Shower Curtains and Waste Baskets
"Moral outrage is derived from perceived norm violations. The deeper the attachment to moral norms, the greater the outrage. Outrage is accompanied by strong emotions and a desire for punishment rather than deliberate reasoning. Fairness is one of the most widely held moral norms. Many business decisions are based on efficiency calculations and ignore fairness. They focus on incentives and the creation of wealth. Lay people tend to focus on fairness and distribution of wealth. Pricing and compensation are interpreted as signals of an organization's moral character." page: 138 As an example, Merrill Lynch CEO, John Thain, was dubbed the worst person in the world for redecorating his office (including a $1,400 waste can) after his company accepted taxpayer bailout money.
The Katrina Chronicles
When the government broke down in responding to Hurricane Katrina in the southern United States, Wal-Mart, FedEx, and Home Depot stepped up. They improved their corporate reputations when they got credit for doing so in a Fortune Magazine feature. "Katrina showed that companies are increasingly being asked to assume responsibilities that are traditionally associated with governments (disaster relief, emergency transport, shelter, and rebuilding)." page: 157
The Terminator Gene
Reputational damage is often the result of outrage or fear. Fear impacted Monsanto's Roundup Ready soybean seeds because there are a genetically modified organism. Although the seed reduces the need for broad herbicide use, helping the environment, and are safe to consume, public opinion was shaped by nongovernmental organizations who did not understand the technology involved. "When a company finds itself in a low-trust environment, it should consider strategies that lead to credibility transfer from third parties with higher trust." page: 175 In the case of Monsanto, the FDA endorsement helped in the United States, but an organization with similar public trust did not exist in Europe.
Beat The Grim Reaper
A small start-up, Beat The Grim Reaper, contracted with owners of life insurance policies to offer a portion of the policy benefit (while the person was still alive) in exchange for being named the sole beneficiary on the policy. Many patients used the proceeds to cover the costs of their illnesses including experimental treatments that were not covered by insurance, but it did not take long for unscrupulous individuals to exploit this unregulated market. pages: 178-179 To avoid dealing with those who would attempt to defraud, Prudential, a well-established and respected life insurance company, set up its own policies but had to carefully walk the line of appearing to help those in need versus bilking its policyholders. They were able to assess reputational risk by anticipating what a reputational crisis would look like and take proactive steps to prevent that crisis.
The Aim Team
Companies must develop a reputational governance function that mirrors the organization instead of a separate corporate function. Governance includes issue identification, issue evaluation, and issue monitoring by a cross-functional team. Bausch & Lomb failed to address a Singapore's Ministry of Health report that blinding fungal infections could result from use of their ReNu contact lens solution. Months later when the FDA reported similar findings, the stock lost $630M in shareholder value in a day. page: 206
Andersen Before The Fall
Though its books had been certified by auditing firm Arthur Andersen, Waste Management had overstated its earning between 1992 and 1996. An SEC investigation revealed that a number of questionable Waste Management practices had been uncovered by Arthur Andersen employees yet swept under the rug. About a year later when the Enron accounting scandal involved Arthur Andersen, the company announced that it would cease all auditing of public companies. pages: 228-229 Reputation management is implemented by people who are influenced by corporate culture. It's not enough to simply hire people with integrity and hope they do the right thing. The culture must be nurtured and checked.
The Expert Trap
An expert is able to retrieve complex information from memory and apply it to a new situation. Though this is valuable for business processes, for reputation management, it can lead a company astray. The expert sees the world differently. An expert is able to focus on a well-defined aspect of a situation, which makes him an expert, whereas customers, employees, investors, and the general public will not. Reputation management requires the critical skill of viewing a situation from the point of view of the average person in a heightened emotional state. pages: 251-252
Overall, the book is a combination of lecture-like instructional material and anecdotes. The anecdotes are an enjoyable read and reference incidents that most readers will remember. These reinforce the underlying theory quite well.
Reputation management is alive in the lab.