Martin Riley, ex-CMO of Pernod Ricard, once warned, saying that in today’s world every brand can have its own “Tahrir Square or WikiLeaks moment. Any ill-thought out commercial promotion in Thailand or Peru can come back and bite you in the UK or Australia. Today, brands are only as strong as their weakest link.” [1]
“Today, brands are only as strong as their weakest link.” - Martin Riley
Today it is much quicker and easier for an empowered consumer, informed stakeholder, or a disgruntled employee to expose or do more damage to a firm than any time before in history. A leak about a brand’s illegal activity can go viral in a matter of minutes. Conversely, hiding a brand’s semi-illicit activity somewhere along the supply chain or at C-Suite level has never been so difficult. And it’s a good thing: the era of radical transparency creates a highly risky environment for the reputation of brands.
“Increasing complexity paves the way for the butterfly effect.”
Individual action can have a serious impact on the reputation of the whole corporation. It may be an employee from the team, a farmer who supplies the source of the product or anyone from the C-Suite. This is because in our hyper connected world the unprecedented and increasing complexity paves the way for the butterfly effect. The butterfly effect is the sensitive dependence on initial conditions in which a small change in one area of a complex system can result in large differences in the whole at a later state. Something as small as the flutter of a butterfly's wings can ultimately cause a typhoon halfway around the world. Leaders, managers and executives of global brands have witnessed this effect many times particularly in the realm of reputational crises.
Firstly, it’s necessary to acknowledge that today 75% of an average corporation’s value is intangible – or in other words, its brand and its reputation are a business’ most valuable asset [2]and according to a survey by Deloitte 87% of executives rate reputation risk as more important than other strategic risks. [3]
Individual action can result in various societal effects. So, the butterfly effect is not the only consequence. Employee or ex-employee action can lead to reputational impact stemming from:
As mentioned above, the butterfly effect is when a small change, for instance, in the internal culture of a firm causes large typhoons of scandal, crisis and disaster. The domino effect, like a negative spiral, is when, for example, a communications problem results in an ethical problem which then becomes a societal problem and when the societal problem becomes an economic problem and when the economic problem becomes a crisis for the corporation etc. The bandwagon effect is when different stakeholders begin following in each other’s footsteps in regards to decision making on the ongoing issue.
Ex-employees have more freewill today than ever when it comes to leaking information or speaking out. They are willing to participate in interviews for investigative journalists or even start campaigns against a particular corporation. Frances Haugen is an exemplary whistle blower. A person from inside Facebook (now Meta), who decided to speak out about the ill motives of the tech giant. [4] Similarly, in a Netflix documentary series called ‘Dirty Money’, former employees of the largest banks expose the dirty inner workings during interviews with investigative journalists.
“By failing to prepare, one is preparing to fail.” - Benjamin Franklin
In addition to the individuals within the workforce, a crisis can arise from an individual throughout parts of the supply chain, too. One can easily think of a scenario in which the manufacturing factory in i.e., Bangalore is seen by a tourist-like person who then using a mere smartphone films an underage worker who was not on any official payroll approved by the Headquarters. If it wasn’t clear whether supervising this is among the responsibilities of the HR director and if in general other responsibilities of other relevant departments weren’t clarified, the ground for such a leak to happen has been prepared. As the polymath Benjamin Franklin formulated: “By failing to prepare, one is preparing to fail.”
We live in an age when the spokesperson for a corporation is not a spokesperson or, say, the director of corporate communications. Increasingly, it is the CEO himself. The ambassadorial and, for some companies, activistic role of CEOs, the increasing need for radical transparency, social media responsibility and personal branding are only some of the factors driving this dynamic. As Mat Zucker wrote, “the most successful CEOs have one thing in common: they understand the power of effective communications in shaping their companies’ brands, reputation and culture and they invest significant time and brainpower in communicating their vision, values and value. In the face of market disruptions and intense public scrutiny, the CEO is now expected to play a greater role than ever before in being the heart, soul and face of their company.” [5]
“The reputation of a brand is strongly linked to the reputation of a CEO.”
Today CEOs face heightened risk to personal reputations and the reputation of a brand is strongly linked to the reputation of a CEO. A survey done by Weber Shandwick estimated that 44% of a company’s market value is attributable to CEO reputation. [6] Another survey found that 95% of financial and industry analysts said they would purchase stock based upon a CEO’s reputation. [7] And 94% said they would recommend the stock to others based on the CEO’s reputation. [8] Corporations today can also go through what i.e., Papa John’s went through in 2018. As a result of just one comment by their CEO the stock plummeted 13% and erased $96.2 million in market value in a few hours of stock trading. [9]All in all, the impact of a CEO’s action on corporate reputation must not be underestimated. Not to mention … Elon Musk.
Reputation, by definition, is what others are saying about the organization. This is why it is necessary to take the following steps continuously:
Positive reputation starts from within and then spills over. It’s inside out. This is why it is necessary to measure the following internal factors so that if something goes out of order, it is spotted on time:
Individual action can either make or break the reputation of an organization. It’s not only the CEOs action but also the actions of every employee. The current economic and systemic signs indicate that this is the WikiLeaks moment for brands’ reputations. For brands, it is not a matter of “if” but a matter of “when”. Take pro-active steps now to build, protect and above all: strengthen your reputation.
[1] Charles, Gemma. “Brands Must Guard against 'Wikileak' Moment in Digital Age, Says Pernod Ricard CMO.” Campaign UK, CampaignUK, 28 Aug. 2014, https://www.campaignlive.co.uk/article/brands-guard-against-wikileak-moment-digital-age-says-pernod-ricard-cmo/1287257.
[2] Linssen, Alexander F. Brigham Stefan. “Your Brand Reputational Value Is Irreplaceable. Protect It!” Forbes, Forbes Magazine, 19 June 2013, www.forbes.com/2010/02/01/brand-reputation-value-leadership-managing-ethisphere.html#5c0f008b3790.
[3] “Reputation@Risk | Deloitte | Survey, Global, Reputation, Risk.” Deloitte, 30 Oct. 2018, www2.deloitte.com/global/en/pages/governance-risk-and-compliance/articles/reputation-at-risk.html.
[4] Perrigo, Billy. “Why Whistleblower Frances Haugen Decided to Take on Facebook.” Time, Time, 22 Nov. 2021, https://time.com/6121931/frances-haugen-facebook-whistleblower-profile/.
[5] Zucker, Mat. “The CEO Content Strategy-Your Chief Executive as a Reputation Channel.” Forbes, Forbes Magazine, 26 June 2020, https://www.forbes.com/sites/matzucker/2020/06/23/ceo-content-strategy/?sh=48a6a292f32a.
[6] “81% Of Global Executives Report That External CEO Engagement Is Now a Mandate for Building Company Reputation.” Weber Shandwick, 17 Apr. 2018, https://www.webershandwick.com/news/81-percent-of-global-executives-report-external-ceo-engagement-is-a-mandate/.
[7] Gaines-Ross, L. CEO Reputation: A Key Factor in Shareholder Value. Corp Reputation Rev 3, 366–370 (2000). https://doi.org/10.1057/palgrave.crr.1540127
[8] Erskine, Ryan. “Does Your CEO Have a Personal Brand? If Not, It Could Be Affecting Your Bottom Line.” Forbes, Forbes Magazine, 17 Dec. 2017, https://www.forbes.com/sites/ryanerskine/2017/12/17/does-your-ceo-have-a-personal-brand-if-not-it-could-be-affecting-your-bottom-line/?sh=7a4e3b0f2f09.
[9] “How CEO Reputation Impacts Corporate Reputation.” ReputationManagement.com, 26 Oct. 2020, https://www.reputationmanagement.com/blog/ceo-reputation-management/.
While the importance of a good reputation in the private sector has long been recognised as a key enabler to be success, countries and governments often still lag behind the depth and understanding of reputational value. It is changing slowly, however. A good reputation has an impact on virtually every stakeholder in a country. There is the inside-perspective: For citizens being associated with a positive country offers emotional value (self-esteem). And then there is the external perspective: there is a lot of money at stake for the export industry (including tourism), attracting foreign direct investment (FDI) and much more. Especially in an increasingly transparent and intertwined world, governments can hardly look away when their good reputation is at stake - or, conversely, not acting when their reputation is already suffering. Reputation - as opposed to self-perception - is the perception that other people have of you. This can lead to quite big gaps between the perceived ‘self’ and reputation, e.g., the awareness and understanding by others. Russia, the USA, and since BREXIT also the UK are all experiencing pretty wide gaps between their very high self-perception and their not so great perception abroad.
In recent years, the Reputation Institute has measured the reputation of the 55 largest economic powers in the G8 countries. The top positions were usually held by all Scandinavian countries, Canada, Switzerland, Australia and New Zealand. The Reputation Institute identified three factors that promote or reduce a nation’s reputation:
These three factors combined provide for increased esteem, more trust, as well as better feelings and more admiration towards a country. To play in the top league of nations, all three factors need to be considered.
"Australia ranked worst of 57 countries on climate change policy" (The Guardian), “Australian government continues to put coal production ahead of climate protection” (NZZ). These are definitely not the headlines that promote a country's reputation, and yet, Australia has to accept such articles over and over again. And rightly so, because Australia's government continues to promote its coal industry (Australia is the world's largest exporter of coal, which is the worst energy source for our climate). While other First World countries are setting themselves (ambitious) climate targets and trying to rely on more renewable and clean energy sources, Australia is sticking to the old status quo. The same article in The Guardian, on the other hand, praises Portugal's ambitions for its efforts to achieve a net-zero emission economy by 2050. For Australia, this has several negative consequences: firstly, the country is portrayed as backward and ruthless - in other words, it loses its impeccable reputation, and secondly, it is about to lose its allies on the global stage (especially its closest ally, the USA, as the Biden government is determined to take decisive action against climate change). Thirdly, it misses a great opportunity to get a piece of the renewable energy cake and fourthly, future Australian governments will be faced with a huge problem: The moment China stops buying coal from Australia, the entire coal industry in Australia – employing some 50,000 people - is at threat.
"Solar power reflects Morocco's energy ambitions"(Financial Times). The Kingdom of Morocco is an impressive example of how things can get much better. The country has understood that renewable energy sources (especially solar power plants in the Sahara) increase Morocco's energy security (reducing dependence on foreign energy) and can be exported and commercialised in the future. Positive side effect: according to the Climate Action Tracker, Morocco (and The Gambia) are the only countries that will meet the climate targets of the Paris Agreement. This, in turn, is causing much applause in the international arena and results in countless positive media articles applauding Morocco, as the above example from the FT shows. Morocco has understood the signs of times and knows how to play its cards: Marrakech organised the COP22 - the UN World Climate Change Conference in 2016 - where Morocco, once again, proved to be an African leader for a greener world. In fact, Morocco is playing its environmental card so well that political unrest around the Western Sahara conflict, a severe imbalance between men's and women's education and other internal challenges are being pushed out of the public eye.
Anyone who thinks that Morocco is an exception is mistaken. Plenty of other countries are investing in renewable energy for their own future and their reputation. Costa Rica, the small Central American country with about 5 million inhabitants has been causing sensational headlines for years with its climate efforts: "Costa Rica is moving towards carbon neutrality faster than any other country in the world", wrote Vox. This makes the country shine in the public spotlight. But the prime example par excellence is probably Norway. "Why is Norway so far ahead of the rest when it comes to renewable energy?" is the question asked by National Geographic. And indeed, Norway's internal greenhouse gas balance is excellent thanks to almost 100% green electricity and an exemplary electrification model on roads and even in shipping traffic. The question why Norway has progressed so far is in fact easy to answer: the country's entire prosperity is based on the export of its (climate-damaging) oil and gas deposits. Norway thus shows that also the reputation of a fossil fuel exporting country can be perceived as a leader for a more climate-friendly world if the country visibly invests in renewable, clean energy sources. And, again, Norway is by no means the only net-exporter of fossil fuel investing into its green future and “green-reputation”. Saudi Arabia recently launched a $28 billion renewable energy funding initiative, and the United Arab Emirates are hosting the International Renewable Energy Agency (IRENA).
Looking at these findings makes it actually pretty easy to advise Australia: If they want to uphold its great reputation it might be wise to do a bit more in terms of renewable energy investment and a bit less in terms of coal subsidies. For its reputation – and for the climate.
Learn more about how we can help you, your company or your country when it comes to reputation.
According to a survey by Deloitte 87% of executives rate reputational risk as more important than other strategic risks.1 Despite this fact, both awareness and active reputation management are still vastly misrepresented in corporate environments, especially in medium-size enterprises. Reputational realities, hence, are not yet there where they actually belong to.
The internal culture, value systems and specific organizational and of course historic context up the perceived and actual comportment of a company. A positive or a negative reputation strongly depends on the behaviour of an organization. It is, therefore, reasonable to assume that good behaviour equals good reputation. Manners make the brand rep. However, as in the words of Prof. Einstein: “Everything should be made as simple as possible, but not simpler.” Especially when it comes to such complex systems as corporate reputation.
“So as much as reputation management by today can be called a science, it, unfortunately, still is not an exact one.”
There are plenty of precedents in economic history that have taught us that reputation is indeed made up of non-linear, highly complex corporate fabric. The conundrum here is despite a company doing its best to behave well, reputational crisis can hit even those corporations that deserve it the least.
Given that a corporation is, in many ways, a living organism it is very analogical to the human body with its complex structure. Even those of us who take care of their body, eat well, exercise regularly and live a healthy lifestyle can still get severely ill. How is it that some people who had lived a very healthy way of life actually die younger than those who had smoked, drunk and eaten carelessly so often? The medical explanation for the suffering of those who don’t deserve to suffer lies at least partially in their predisposition towards certain diseases. The same explanation applies to today’s corporations and indeed entire industries. Some have a particular reputational predisposition that others don’t have.
If a corporation has a predisposition to reputational crisis, does it mean that whatever move it makes its investments in reputation building will fall short? Not quite. There are tried and tested ways of overcoming difficult situations. What are the measures to take before and after a crisis? How can communications professionals reduce reputational complexities to a minimum?
“No matter how complex an issue appears to be at first sight, there is always a solution.”
In some cases, the predisposition is not even inherent in the corporation itself but in the industry the company is in. Take the banking industry as an example. How many industries do you know which are described with such terms as ‘cartel’, ‘led to the global economic recession’ or ‘shadow system’ in legitimate academic textbooks? Despite the banks’ efforts to manage their reputation during the post-recession period, the ‘banking image’ began falling again in 2018 - after years of rebuilding and recovering from the 2008 financial crisis.2 The priority should be in being pro-active rather than reactive. Bad reputation management tends to react in turbulent times and overreact to almost every other thing good reputational management start in good times, prepares and when needed, responds adequately.
The returns on investment will increase if all communication that affects reputation is crafted in a way that it appeals not only to customers but also to the other stakeholders (i.e. employees, shareholders, partners etc.). It is important to remember that corporate reputation gains and retains strength only when it is applied holistically. In other words, along with the corporate communications department, all other departments such as HR, IT, board of directors, and C-Suite need to be held responsible for possible reputational realities. Culture drives integrity – especially present within long-term, often family and value-oriented companies. Almost half of the top ten brands with high reputation are from the luxury industry.3
Overcoming reputational crisis might require taking a risk to build trust. Leader and decision-makers in charge to prevent or solve problems related to reputational risk need to adopt lateral thinking. If it is not a common reputational reality then it requires uncommon sense. Integrity in this context is about making the right decision to take the right step. ROI here stands for Return On Integrity.
If you are interested in learning more about reputational realities and how your company can prepare better, get in touch with us.
Turning a Reputational Crisis Into a Movement
Most leaders in the business world know both what reputational crisis’s and movements are. A crisis on its own doesn’t lead to a movement, though, and only few know how to turn a reputational crisis into a movement. Recent political and social dynamics have once again shown, how a crisis turns into a movement: Black Lives Matter. While this might be one of the most important movements ever, history teaches us that there are three ways on how such reactions can be triggered.
The protagonist from Wag the Dog who knows a thing or two about movements tried to explain emphatically saying: “We remember the slogans; we can't even remember the wars. (…) Naked girl covered in Napalm. 'V for Victory'. Five Marines raising the flag, Mt. Suribachi. You remember the picture 50 years from now, you'll have forgotten the war.”1 In many ways the protagonist of the film was right. The historical course of events, reasons or details of those wars are almost forgotten by the majority, whereas the impact of the movement triggered by these symbols is eternal. When we analyze history, we find that all those crisis-to-movement developments can be assigned to either of three typologies:
Throughout history, there are examples of how not just a general crisis but also an organization’s own crisis can be turned into a movement. Movements need not necessarily be global. They can be local, too.
In April 1967, a disaster befell on Switzerland’s biggest charter airline at the time, Globe Air. One of their airplanes crashed in a thunderstorm close to Nicosia, Cyprus. As a result, 126, mostly Swiss, passengers died. One of the pilots had insufficient training on the aircraft and both of the pilots had violated the limits on operating hours. The owners of the airline – who were connected to Basel – were sued severely but they didn’t have enough insurance to pay the victims. The only way to pay was through selling their art. When word got out about the art being sold urgently to new owners outside of Basel in order to fund the claims, the people of Basel became deeply proprietary about it.
The city took the decision to let the people vote about the rising tension over letting go of many valued pieces of art. As Simon de Pury, the Swiss auctioneer, wrote: “What followed was one of the most colorful campaigns in history. Politicians dressed as harlequins to get out the vote. There were huge street fairs. (…) bands played “All You Need is Picasso,” to the Beatles’ “All You Need is Love.” People wore “I Like Pablo” badges, evoking the “I Like Ike” buttons of the Eisenhower presidential campaigns in America. (…) It was the first time in democratic history that a city had voted for art in this way. This was Basel’s finest hour.”4
The movement resonated strongly. Even Picasso himself was so touched by the spirit of the locals that he donated four more paintings to the Kunstmuseum. It then inspired avid patrons of the art to make donations, too. As a result of all of this, the Globe Air tragedy was turned into a triumphant movement for the history of Basel. It wasn’t a general crisis but an organization’s own financial and reputational crisis that was transformed into a movement. This is a typical example of Type A.
Black Lives Matter, for example, may be the largest movement in US history. Recent polls suggest that about 15 million to 26 million people in the U.S. have participated in recent protests.2 Black Lives Matter was founded back in 2013 and yet the majority of the world didn’t know about it until very recently - when it became a global movement. The moment of crisis was triggered by the lethal police brutality against African American George Floyd. However, the moment when the movement began was after those black screens were posted all over social media and even more so by the image of the huge graffiti art that went viral all over the world. Songs, video clips, documentaries, articles, posters were spread... “I can’t breathe!” were his last words that will never be forgotten. This is a typical example of Type B.
We all witnessed how Black Lives Matter turned the on-going crisis in the US into a global movement beyond the US. The reverse effect (Type C) demonstrates how the very movement turned into a potential crisis for brands.
Today, brands such as Adidas, Nike, YouTube, Amazon and Netflix have been expressing solidarity with the Black Lives Matter movement. Johnson & Johnson has announced it is to stop selling its skin-whitening Clean & Clear Fairness line of products, which are marketed in India, Reuters reports. Quaker Oats says it will change the branding and name of its Aunt Jemima pancake. Colgate-Palmolive is the latest brand to announce change, saying it will review the name of its toothpaste Darlie – labelled “Darkie” up until 1989 – which in Chinese means “Black People Toothpaste”.3 Cass Business School, a university in London, is changing its name because of its associations with Sir John Cass, a 17th Century merchant and proponent of slavery. These are typical examples of Type C.
A crisis usually doesn’t turn into a movement by itself. The missing link is the collective, perhaps even creative, response to a crisis – this is what turns or spins it into a movement.
Any organization (business, state or government) should have adequate monitoring systems in place in order to rapidly grasp dynamics. These generally include a combination of active media monitoring, social media listening tools and semantic tools to analyze tonality and direction of an evolving crisis
No reality is ever as planned. But having a plan, a structure and the capability in place that allows an organization to deal with an evolving situation rapidly and in the most efficient manner possible. Developing an awareness of how reputational strategies are pro-actively built over time is an important steppingstone.
Not every crisis is avoidable, and not for every crisis is there a positive net effect for an organization. However, the outcome and resilience (i.e. the ability to ‘bounce back’) are very closely correlated to how a crisis is managed in the first place and this, in turn, is something that should feature in every leader's curriculum.
If you would like to learn more about what chances and threats your company may have in the current situation please get in touch with our team, we are happy to help you.
References:
Seizing the Reputational Narrative
Case Study Carlos Ghosn
Facing a critical situation or a crisis in the business world often means to be one step behind the action and to only “react” rather than to “act”. And letting other people – say journalists – write your story is not what you are looking for. If you find yourself in the lucky position to “own” the story, the reputational damage can be limited. Seizing the reputational narrative, therefore, can be massively helpful in restoring your reputation starting at time zero. Here is a best-case scenario.
When Prof. Umberto Eco was asked why he doesn’t just write within the fiction genre instead of writing in the historical fiction genre, his answer was clear: Real life has more imagination in it than fantasy or fiction. Right after his answer, he developed his point further with the following rhetorical question of his: Could you invent a character like Silvio Berlusconi?1
Just like Berlusconi or Prof. Eco, Carlos Ghosn too did not forget this literary dimension of reality. The escape operation of Mr Ghosn was all over the news not only because it is sensational but also because it is cinematic and stranger than fiction as if straight out of the movie Ocean’s 11. What does Carlos Ghosn’s cinematic escape teach us about owning the strategic narrative in modern reputation management? What has he done right thus far?
Firstly, Carlos Ghosn was very well aware that the name of the reputational game is chess and not checkers. Secondly, despite the very mighty budgets of the Japanese corporate world and intelligent minds of their decision-makers, Ghosn avoided falling into the trap of a dead-end street. Even in a “many against one” scenario but, he knew that there is always a solution as long as one doesn’t focus on the negative spiral. Deciding to keep his integrity was what he did right.
Elizabeth Ortega wrote in Law360: “Carlos Ghosn, the former Nissan Motor Company executive, recently gave new meaning to “thinking outside of the box” when he reportedly used a perforated box to escape from house arrest in Tokyo to a safe perch in Beirut.”2 The escape was the beginning of the new story. Metaphorically, the novel epos has taken over the place of the big old myth. After the escape, he found a way of re-organizing the unorganized series of negative events surrounding him to his advantage. The story was now reframed. Moreover, he did it in such a way that in the final analysis he comes out as the one who fundamentally owns the strategic narrative. In other words, it wasn’t a matter of controlling the narrative for him anymore. It was a matter of seizing it as early as possible.
In a press conference held in Beirut, Mr Ghosn said he would not victimize himself but would use his position to bring light onto a system that violates the basic tenants of humanity.3 As Stephen Mugo Weru wrote: “By choosing to go on the offensive, Ghosn arguably cemented his legacy as a crusader against a harsh justice system. (…) His escape has earned him newfound notoriety. Rather than being the CEO who escaped prison, he’s the man who triumphed over adversity.”4
Mr Ghosn acknowledges that he has a long way to go in restoring his sullied reputation. Unquestionably, more time is needed to reclaim some of the statures he had before the reputational crisis began. It’s still too to jump into making conclusions. Nevertheless, the cinematic case of Carlos Ghosn’s escape and his strategic chess moves do teach the world valuable lessons on modern-day reputation management.
If you, too, could use a hand in framing your reputational narrative, get in touch with us.
References:
Cancelled business trips or events, media enquiries, anxious employees, and requests by your board or stakeholders on how you have prepared - By now your company has probably been affected by SARS-CoV-2, known as the Coronavirus. So, how can your corporate communications avoid misunderstandings and prevent reputational damage?
Reputation Affairs has listed useful tips to navigate your company successfully through these challenging times.
If you are not (yet) directly affected you might find the following points interesting in terms of a driver for positive change within your company.
We at Reputation Affairs are happy to support your company if you have any questions or challenges around the Coronavirus, especially around the following scenarios:
Get in touch with us to define your perfect strategy, we look forward to hearing from you.
How Reputation Determines Investor Relations
The reputation of an organization is one of the most effective and least measured determinants in investor relations. This is because little is known about how reputation determines investors’ conscious decision-making and even less is known about the unconscious effects of reputation. Today signs indicate that many investors are becoming more reputation-conscious than before. This implies that they begin to think beyond only short-term returns and that they are becoming aware of the long-term consequences of reputation management.
According to Eccles, Newquist and Schatz: “in an economy where 70% to 80% of market value comes from hard-to-assess intangible assets such as brand equity, intellectual capital, and goodwill, organizations are especially vulnerable to anything that damages their reputations.”1 Research from FTI Consulting found that investors’ response to crises is ‘led by reputation more than numbers’.2 In other words, financial factors are seen as less important than reputational factors when responding to corporate crises.
One of the functions of reputation for investors is based on the fact that a company with a reputation built over time is a company about which there is less complexity and risk in the future compared to a company that only has numbers as indicators of its success but may not necessarily have the same numbers in the future. A firm that has been investing in its reputation is a firm that has been investing in its future. If you don’t invest in your future what hope do you have of others investing in your firm? This reasonable train of thought is seemingly comprehensive and ostensible and yet numerous organizations still fail in investor relations due to the fact that insufficient investments of time, effort, attention and capital are made in building and strengthening the organization’s reputation.
“A firm that has been investing in its reputation
is a firm that has been investing in its future.”
Another function of reputation as the main intangible asset taken into account during the decision-making of investors has to do with the following reasoning: a firm without a reputation is a firm that is probably not trustworthy. Conversely, a reputable organization is most likely a trustworthy organization. As many systems thinkers and behavioural economists would agree, such stakeholders of a firm as customers, suppliers, employees, regulators, politicians, and therefore investors too can only trust firms that have something to lose. This is because for these stakeholders the component of reputation is perceived as a cashless deposit in transactions and dealings. Therefore, investors understand that financial parameters are important but the reputational reality is more vital since a company that doesn’t have a reputation to protect is a company that doesn’t have anything to lose and a company that doesn’t have anything to lose is a company that is not reliable.
Different spheres and industries will continue moving towards the same meeting point where they join. This is partially due to the factor that systems analysts call equifinality. All roads lead to convergence. In other words, boundaries will continue to blur as the various spheres are coming closer to each other whether it’s financial services, environmental policy, digital media, societal responsibility, regulation and so forth.
This tendency is likely to trigger more companies to do well by doing good, to put more thought in their entire value chains, to take not only shareholders but also stakeholders into account etc. According to the Edelman Trust Barometer 2020 “84% of institutional investors believe that maximizing shareholder returns can no longer be the primary goal of the corporation, that business leaders must commit to balancing the needs of shareholders with those of employees, customers, suppliers and local communities.”3 In this context, we can expect to see the strengthening of the bridge between public relations and investor relations.
In today’s world companies failing to align public relations with investor relations face the threat of opening themselves up to reputational risk and leaving significant shareholder value on the table. The sine qua non for strengthening the pre-existing and securing the future of a firm’s reputation is based on building a bridge between investor relations and public relations. Going beyond the multi-stakeholder approach, this has to do with the inter-stakeholder approach.
The last but not least, there needs to be a bridge just as strong between behavioural sciences and economics too. This is to say that it not only needs to be inter-stakeholder but also interdisciplinary as well. Remember the words of Warren Buffet’s confidant Charles Munger who is an investor himself: “If economics isn’t behavioural I don’t know what the hell is.”
Learn more on how we can help your business improve its reputation.
References
Brands face unprecedented competition for consumers’ attention and mindshare today. It’s not just that certain segments of consumers are using ad blockers or switch channel to ignore ads but it’s also that informational clutter and promotional bombardment leads them to be ever-more selective of the kind of communication they value. As a consequence of this macro tendency, some of the forward thinking brands have decided to be more conscious and creative in the ways they communicate and build relationships with their audience.
The practice of brand journalism, being a literary organization, an integrated media outlet, or a publisher is becoming almost the only ways to attract consumers. The approach of brand journalism is distinct from content marketing in the sense that it is more about journalism (in its almost nostalgically original sense) or about journal keeping à la travelogues than it is about brand promotion. It may give a feeling of investigative reporting, ethnographic field notes or exploratory essays. The secret code is being a proto-source from which meaningful stories or knowledge come to light in an inside out manner. In order to establish this territory in the minds of consumers, brands are required to research and develop creative content inside out, reveal the latest thinking in the field or operate as cultured enlighteners by passing on insider know-how to their audience.
Some of the good examples of this approach are: Christie’s ed-tech project1, Harvard Business Review magazine by Harvard University, some of the online courses on Coursera, explanatory videos on global economic news by WEF, Oxford Dictionaries by University of Oxford and the renowned holistic media emporium of the niche brand Red Bull called the Red Bull Media House. The energy drink’s media emporium produces games, apps, TV, musical podcasts, movies, sports events videos and magazine through creative collaborations and a global network of correspondents in some 160 countries.2
What this direction gives to brands is that it adds value to the brand, raises awareness about it among better-targeted circles, increases soft assets and solidifies thought-leadership. By putting meaning or purpose at the core, by providing substantial content over fleeting content, brands reach their audience to guide and not govern, seduce and not sell, attract and not attack them. It connects with the audience of existing and potential customers in a more real value-adding and non-commercial manner. This is what distinguishes the thoughtful brands from the consumerist ones. Today, a steady flow of content is a sine qua non but, in some cases, the spacing effect needs to be taken into account as well.
In some cases, the real core product actually comes to life after brand journalism as opposed to before as it usually is. For instance, the Frieze art fairs that was launched in 2003 originally started as a brand extension of the art magazine, also called Frieze that was founded in 1991. The relationships built through this medium enabled the founders to attract 135 galleries for their very first show. “The number of exhibitors has more than tripled since then.” – wrote Mark Tungate, author of Luxury World.3 Instead of creating a product and then try to find the niche for it, they first built the audience and then created a brand for them.
The ‘brand as a media outlet’ is nothing new as it has already been the direction for some of the brands for the last decade. What’s new is that there is now a new paradigm shift that goes beyond the brand as a media company. It makes the brand transform into either an economic or cultural think tank. It implies that instead of a marketing department, companies need to move to holistic brand management where there is a think-tank department within. The work of this body is similar to a guild but only based on mental craft instead of the manual one. Reaching this dimension requires unconventional research, original creativity, rare competitive intelligence, curatorial discerning Third Eye, revealing the substance (or making, in a sense, revelations) and bringing educational value. The 4Es necessary for the management of such think tanks are: emotional, elevating, enlightening and enriching. Thoughtful brands that operate as think tanks do not just work hard but also think hard. Thoughtful brands that lead the thoughts rather than hear random flows of thoughts decipher cogito ergo sum right.
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Something as small as the flutter of a butterfly's wings can ultimately cause a typhoon halfway around the world. Edward N. Lorenz, mathematician and Kyoto Prize Laureate, introduced this widely known and yet often overlooked ‘butterfly effect’.1
Today’s overcrowded economic context and over communicating media environment are complex systems by their nature. Complex systems are different from complicated ones. A car, a plane, a Swiss watch can be complicated but they are not complex. The traffic in the city is, however, an example of a complex system. In our hyper connected world the unprecedented and increasing complexity paves the way for the butterfly effect. The butterfly effect is the sensitive dependence on initial conditions in which a small change in one state of a complex system can result in large differences in a later state. Leaders, managers and executives of global brands have witnessed this effect many times particularly in the realm of reputational crises.
The revolution will not be televised. It will be triggered from a leak on social media. Even though the first thing that comes to mind when one speaks of revolutions triggered via social media (Occupy Wall St., WikiLeaks, Arab Spring etc.) is about revolutions that are more of political nature, it now applies to transnational corporations as well. It applies to them too because they are just as, if not more, powerful and enormous systems as governments (including military, parties, diplomacy etc). Most importantly, it applies to them too because they are no less complex.
As Martin Riley, ex-CMO of Pernod Ricard warned, in today’s age of democratized media communications every brand can have its own “Tahrir Square or WikiLeaks moment. Any ill-thought-through commercial promotion in Thailand or Peru can come back and bite you in the UK or Australia. Today, brands are only as strong as their weakest link.”2 One can easily think of a scenario in which the manufacturing factory in i.e. Bangalore is seen by a tourist-like person who then using a mere smartphone films an underage worker there that was not in the Headquarters’ knowledge. If it wasn’t clear whether supervising this is among the responsibilities of the HR director and if in general other responsibilities of other relevant departments weren’t clarified the ground for such a leak to happen has been prepared. As the enlightened polymath Benjamin Franklin formulated: “By failing to prepare, one is preparing to fail.”
It is necessary to make value chains and supply chains transparent in order to take the necessary measures that minimize such risks and threats. While, for instance, Hermès is in many ways a true Purpose-driven brand, the company failed to control its supply chain, which eventually led to an unexpected crisis in 2015. All it took was a short clip posted on YouTube and going viral, showing the cruel slaughtering of crocodiles at a Texan animal farm used for the production of Hermès’ handbags, and the Actress and namesake Jane Birkin (as in ‘Hermès Birkin Bag, going anywhere from a few thousand dollars to $100,000) demanded that Hermès remove her name from the Birkin bag with immediate effect.3 This worsened the impact of the scandal and damaged brand perception and identity at a speed the company was hardly able to keep up with. Hermès began taking the necessary action to prevent such scandals in the future, but it paid a huge price for not extending its Purpose to its entire value chain. It learned the hard way that one small leak in social media can be enough. One short clip and one big effect.
The economic and systemic signs indicate that this is the WikiLeaks moment for brands’ reputations. For many global brands, it is not a matter of if but a matter of when. Some of the corporations are aware of this while others aren’t. The aware ones are already investing the necessary energy, time, attention and capital into pro-actively preventing it while others will have to learn the hard way by trying to merely react to it. What the Swiss psychiatrist Dr. Carl Jung figuratively said about humanity in general is now particularly relevant to the world of reputation management. “The world hangs on a thin thread. (…) Assume that a certain fellow, say, in Moscow loses their nerve or their common sense for a bit and the whole world is in firearms and in flames.”
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Last week, Interbrand published their 2019 Best Global Brands Report1, the world's most prestigious ranking of big players' brand values. An analysis of the most interesting developments shows that the zeitgeist prevailing in society is reflected in a critical evaluation of the reputation of some brands and thus also in their brand value.
Customer expectations are developing faster and faster, big brands feel the pressure. At the top of the ranking of the most valuable brands in the world, there has not yet been any significant change, with Apple and Google leading the ranking for the seventh consecutive year. However, their gains are in single-digit percentages only. But here, there are several reasons besides the growing customer expectations for these findings.
The results become more interesting and concrete when taking a closer look at the former growth champion of recent years. Facebook has been in the Best Global Brands ranking since 2012, recording constant growth rates of up to 54 percent (in 2015) over the first five years. This year, though, Facebook slipped from 9th to 14th place after a twelve percent decline and is therefore no longer in the top ten.
“Apparently, more and more people are questioning the influence that Facebook as a platform has on current social developments,” says Simon Thun, CEO of Interbrand CEE, about the weak performance of the former shooting star - and hits the mark. The public debate about the socio-political role of major technology brands such as Google (with YouTube) and Facebook is becoming more critical, and the demand for regulation is becoming louder.
While Facebook in particular claims to meet these demands for stricter controls on content in the future, the reality is completely different. Facebook’s monitoring algorithm may find graphic elements such as swastikas and runes or linguistic terms such as “foreigner” and “home country” and can bring them into a socio-political context. However, the search algorithm cannot read between the lines. Even if questionable statements in critical posts are determined electronically and checked by human intelligence in a second step, the sheer mass of postings, comments, photo and video uploads worldwide remains so immense that control and regulation is in fact simply impossible.
Finding and, above all, classifying e.g. hate speech in social media content in all countries, languages, and cultures of the world would require an army of neutral experts. The involvement of the community which can report dubious content does not make a significant contribution either since neither expertise nor neutrality is given. In this respect, authorities and politicians worldwide reveal huge naivety that goes hand in hand with equally inadequate digital competence - leaving experts from the digital industry speechless for years.
Facebook and Google / YouTube will never be able to keep their promises. And that brings us to reputation management as we understand it - or to the diametrically opposed understanding of it. Reputation management starts at the very core of a company, not just where messages are conveyed to the outside world. The good reputation of a company and a brand is increasingly based on credibility and authenticity. As one of the world's leading brand consultancies with more than 40 years of experience, our industry colleagues from Interbrand have no difficulty in drawing the right conclusion: “In a world where customer expectations will continue to move faster than businesses, brands can no longer be considered separate to businesses,” says Charles Trevail, Global CEO of Interbrand. “Today, more than ever, brands will be judged on what they do, not just what they say.”
The contradiction of “being” and “appearing” applies to the troubled German automotive industry, too. While Mercedes-Benz, BMW, VW, Audi, Porsche and MINI recorded growth rates of up to 18 percent in previous years, the brand values of the six German car brands currently grow by an average of only five percent (between Porsche’s nine percent and BMW’s one percent). Volkswagen, for example, assures that the proportion of electric cars in their fleet will increase to at least 40 percent by 20302, but this promise comes - if I may say so - at least ten years too late. During the last decade, the German automotive industry has lost its credibility through Diesel-gate and fraud on the consumer and, hence, lost accordingly in the growth of brand value.
So far, the promises of the automobile brands are still only promises. Relevant deeds are still to be delivered. However, it is not yet too late for a “reputational turnaround”. To achieve this, these so-called “best global brands” must now actually invest tens of billions in the (their!) future, - in the development of alternative forms of drive, but also in infrastructure. Mind you, per year, and without an investment quotas brake. The planned investments of the automotive industry are only peanuts in relation to their possibilities - and in view of the investment gap, they have created for at least ten years. They now need to act quickly and decisively. If the industry only fixes what was missed in the last ten years and continues like this for another ten years, the big investment in development will be accompanied by steadily increasing costs for the “reputational turnaround” - and the longer the more difficult it becomes. Because even if the first steps are done, the industry will continue to be criticized by the public for a long time, as it has badly lost the consumers’ trust.
In the situation of Facebook and YouTube on the other hand, a “reputational turnaround” is even more difficult to achieve, as control mechanisms for critical content as shown would devour enormous sums. Here it is probably easier and much cheaper for the company to keep a social media platform “somehow alive and running” for as long as possible and at the same time to look for an alternative platform with a (still in the medium term!) intact reputation (a rogue, who thinks of Instagram now - and the consequent question, what’s next?).
Let’s go back to the damage that actually can be repaired. Even the best reputation management in the world cannot turn a desert into a blooming landscape. However, in prioritizing communication measures, it may highlight the positive content that corresponds to customer expectations - thus helping companies in twofold respect.
First, communication shows that the signals from society and customers’ expectations are being understood (in this context, the claim of another car manufacturer also very widespread in Germany, "We have understood", from 1994 (!) suits perfectly - and unintentionally takes on self-ironic traits). Here too, however, the messages and claims must, of course, be followed by verifiable, tangible actions.
Second, communication with the aim of promoting “quick wins” in reputation management can make its contribution in order to actually generate a genuine, sustainable reputation management in the long term. Targeted communication for the above-mentioned measures, such as those promoted relatively offensively by Volkswagen, can have a positive impact on consumers and society in general, even if these are only peanut investments for the company. By demonstrating the relevance of these peanuts, these contents, by evaluating the success of the communication measures, a rethinking within the company can be driven forward. Positive customer feedback will point the management in the right direction, away from greenwashing, hesitation and empty promises, towards change - ultimately convincing companies to turn peanut investments into relevant investments.
After all, the motivation for this development could be purely economic. Demand will grow with growing confidence in the company and in technology, just as the number of e-cars sold will grow with the number of charging stations. Here, the trench must be overcome, the chicken or egg dilemma has to be solved - if not by politicians, then by the manufacturers themselves. Good reputation management does not aim at trends to satisfy hipsters and appear in a good light at short-term goals but to turn trends into sustainable developments and ensure a positive reputation for the company over time. Once a company's damaged reputation has been credibly restored through real performance and investment, sustainable demand and long-term profit will result.
By: Mats Wappmann, Berlin
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Sources
1 https://www.interbrand.com/best-brands/best-global-brands/2019/ranking/
2 https://www.volkswagen-newsroom.com/de/pressemitteilungen/volkswagen-plant-22-millionen-e-autos-in-zehn-jahren-4750
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