Status and Reputation

I had a facinating discussion this week with a colleague of mine at the LeBow College of Business at Drexel. Dr. Dali Ma teaches management and has been studying status of companies within the financial services sector. Our discussion focused on what status means to various industries and how this differs from reputation.

It is apparent after my discussion that companies within a given industry have a sense of status. In the pharmaceutical industry, it might be who has the deepest pipeline and best R&D; in financial services, it might be who has the highest return on assets under management; etc. These are "within industry" status determinants.

At the same time, there are judgements about status by other stakeholders. At different points in time, the status determinants within the industry may no longer be as viable as those outside the industry. An example can be seen currently in the reaction by the public and elected officials to the bonuses being paid by those on Wall Street. A year ago, these bonuses would not have been an issue. They are today because 1) the financial institutions are getting government bail-outs, and 2) because the entire economy is down.

I do a lot of work with the pharmaceutical industry and this discussion with Dali really got me thinking. At what point does status shift from inside to outside the industry? Can people within the industry do a better job of anticipating this status shift and adapt with it? The pharma industry has done a generally lousy job in this regard. It has been an industry focused on status within; it has fought demands to change the determinants of status and now is struggling to adapt. The chemical industry went though something similar in the late 1970s and early 1980s when the environmental movement was emerging. The industry "hunkered down" and judged itself against set industry standards. The determinants of status started to change and the industry had to then change to adapt. It was pulled rather than working its way through the situation on its own terms.

At some point in most industries, some company emerges to meet the new status determinants or attributes. That new "star" becomes the most reputable within the industry group. Over time, the star causes all others in the industry to change and a new status is created, at a higher level of expectation than existed previously.

This is an emerging area of research. It is being led by sociologists like Dali Ma at Drexel and Brayden King at Northwestern who calls it "legitimacy", which is the same as the concept of status. I lived through several status shifts within industries--chemical, pharmaceutical and telecom. My interest has been piqued.

Company Culture and Reputation Turn Together

Imagine that you were looking at three gears, all interlinked. The bottom and largest gear might be Corporate Culture, the norms of behavior of people in the organization--how they treat one another and who gets rewarded; the middle gear would be the rewards and punishments in the company; the top gear would be the behaviors and communications, which influence how the organization is perceived, i.e. its reputation. One gear moves the other and so on.

This is the way that culture and reputation are interrelated. Not only does culture determine how people "do things around here", but it also determines who gets hired (the personality types), the training (formal and informal), what managers get promoted, etc. Once an organization's reputation gets established, it influences who is attracted to join the company, and the process goes on and on.

Too many reputation managers simply look to communicating with employees and with the outside. Communications falls on deaf ears when the expectations and experiences make it mute. There are many organizations that espouse one thing and do the other. Good executives are often confused by this. They need only look at the real influence on reputation--their organization's culture.

Communicattors Should Worry About the Big Things

I read and article in the Wall Street Journal this past week that quoted a good friend of mine, Bill Heyman, CEO of Heyman Associates, an executive search firm that focused on corporate communications. I have known Bill for more than 20-years. There are none better at what they do.

The article referenced a candidate for the top communications job at a large company. The candidate turned the job down because it did not report directly to the CEO. Bill Heyman was quoted in the article as advising the candidate to "play by the rules of the company", but the candidate refused.

There is a major problem when the focus becomes to whom one reports rather than what one does for a living. To think that someone cannot be effective if they do not report to the CEO, or that they will be more effective if they do report to the CEO is pure folly. The fault lies with a plethora of PR organizations and firms that keep insisting that the top communications job is just too important to report to anything lower than the CEO.

When I worked at Bayer Corporation, I reported to the Chief Administrative Officer, along with the general counsel, the CFO, and all other corporate staff officer. No one other than the CAO reported to the CEO. This reporting relationship did not diminish my standing or my influence. I had an open door to the CEO and saw him perhaps more than anyone, including the CAO. I was his counselor, his confidant. I held enormous power and influence in the company. Would it have been any different if I had reported directly to the CEO? No! Similarly, Joyce Hergenhan, the now retired head of commmunications at GE and a very powerful figure within the company reported to the head of HR.

Only about 48% of heads of communications report to the CEO, or so they claim. I would guess that the number is far less than that in reality. There is such a premium put on the reporting relationship that many heads of communications feel less than adequate if they admit to reporting to someone other than the CEO.

Why all of this tumult about reporting anyway? I think that there are some people within the communications profession who really do believe that their counsel might not be as well heard if they did not have the direct reporting relationship. However, most others want this reporting because they are insecure. The profession of communications is a fairly insecure one as a whole, always fretting about lack of influence or lack of a "seat at the decision-making table".

The lack of influence of some will not change with reporting lines. It will come when there are better people within the profession to whom people in the organization want to listen to. Business people get listened to; communicators do not. When communications people think and act like business people rather than like artists and "creative types", they gain access to every door in the company.

I know I had enormous influence in my career. I was paid as well as anyone in the company, my counsel was sought by many throughout the company, and I was highly regarded by my staff and peers. This had nothing to do with reporting lines, but rather with my expertise and knowledge. Perhaps that's what Bill's candidate should have been worrying about.

We Need More Authenticity and Transparency

Imagine that you gave your child money to finance their education, books, room and board. Now, imagine that you called your child to ask where they were using the money and they told you that they "decided not to disclose that information". Might not be the best course of action your child should take!

This is what is happening right now with the banks that took OUR money so that they could survive the economic turmoil and free up intrabank loans and credit to borrowers. Billions have been given. The media has called the banks asking what they have been doing with the money and have been told, in many cases, that the banks "have decided not to disclose this information to the public". It turns out that Cong. Barney Frank also has received little information about what the banks are doing. Who is getting information is not really clear.

So, let's get this straight. The government uses public money--money from taxpayers--to bail out the banks and the banks then choose not to disclose how they are using the money? This does not seem like a good way to build (rebuild) public trust.

With so much public distrust of financial institutions and so much angst on "Main Steet" about not only the economy but also whether or not the $700 Billion bailout efforts by the Treasury are working, one would have hoped for a lot more. One would have hoped that the banks would in full transparency mode, trying to help a skeptical public to understand that they were using our money wisely.

Perhaps the banks have decided that it is best not to provide details to the public since these might be misinterpreted. However, the answers from the banks give no hint of this. They only smack of arrogance that has been the hallmark of the big Wall Street institutions for some time. They all got themselves into trouble with risky, ill-advised loans. Now they want us to believe that they are managing things well and do not need to answer questions from the public. Nice try!!

I really believe it's time for some tough love. We need to tell the AIGs and Bank of NY Mellon, and the other companies that do not want to share information or who decide that they will use the money for executive retainers (when there are few jobs, there is little need for a retainer to an executive), that the game is over. They have until a given date to disclose this information to Congress. If they have not met these obligations, we call back the loan. Let those who do not want to be transparent fail and consolidate with those who want to act responsibly.

The banks that are acting responsibly should start to pressure their colleagues. The reputation of the entire sector is being damaged.

British Airways and Cole Haan Have a Lot in Common

I recently returned from a reputation conference in England where I gave a presentation on brand and reputation leadership. One of the speakers before me was from British Airways. Some readers may know that British Airways and the British Aviation Authority (BAA) have been embarrassed by problems with the new Terminal 5 at Heathrow Airport in London. There have been countless problems, most now corrected. While the terminal was built by and operated by BAA, it was used exclusively by British Airways. With both the public and government irate and the news media in a frenzy, the chairman of British Airways stepped forward and took the blame and the responsibility for fixing the problem. Many questioned why he would do this rather than allowing the blame to fall on BAA, where the criticism should be directed.

I applaud British Airways for their stance. They recognized that Terminal 5 and BAA is a distributor of their brand. When travelers go to Terminal 5, they do so for one reason only--to catch at BA flight. Whether or not they liked it, it was BA's problem--it impacted their brand and corporate reputation. Kudos to BA!!

I also want to compliment Cole Haan for their commitment to customer service. My wife recently purchased a purse at one of their outlets. When we got home she found that the purse was smaller than she needed. We were walking in Center City Philadelphia and stopped into a Cole Haan retail store. She saw a purse she wanted to buy and asked if the next time she was in she could bring back the purse from the outlet. We assumed that the answer would be no. Most retail stores maintain a distance from their outlets. She was told "of course; no problem".

What Cole Haan recognizes is that its brand is one both the retail and outlet stores. People are dealing with Cole Haan and they are smart enough--actually smarter than most companies--to recognize that they should deal evenly with their brand. Kudos to Cole Haan! They have gained my trust and my continued business.

I wish more companies would recognize the leasons of BA and Cole Haan--that different distribution channels do not remove the responsibilities of protecting their brand.

So You Want to Create a New Category!?

Over the course of my career, both inside of companies and as a consultant, I have come across many people who state that if you don't like the category you're in, then change the category. That has become somewhat of a marketing mantra. The problem is, it is wrong.

Categories exist in people's minds. There is a search engine category, a fast food category, a luxury goods category, etc. Categories are collections of companies meeting similar needs. Categories do not exist because someone has decided they should. Rather, they exist because the market has put them together. It is the market that determines if a category exists.

Let's look at a few examples: FaceBook was a new type of social networking site, but it joined the category of social networking sites with MySpace, YouTube, and others. It did not form a new category. It positioned itself as point of parity against its competitors--that is, like but better than others. It's value proposition was that it fulfilled a need and interest other sites did not. When Google came into the search engine market, it did not try to form a new category. One already existed called search engines. It too sought out a point of partity differentiation.

Recently, I heard a Wendy's commercial in which it says it is "way better than fast food". Really? There is a fast food category. What category is Wendy's in if it is not in the fast food category?

Al Ries, the brand expert, talks about "category before brand". People think category first and then seek the brand that defines the category.

It is possible to create a new category, but that can only happen when there is a disruptive technology that allows a company to change the entire way something is done. As Clay Christensen of Harvard Business School, the creator of the concept of disruptive change, notes, this type of change occurs when an industry is doing things in a certain way and then something comes along to change the way it is done. It can create a whole new category because it is so different. The Internet was such a disruptive technology. It helped to create whole new categories that never existed before.

Just because a company believes it may have a better value proposition than its competitors does not mean that it can create a new category, even if it does not like the category that already exists. Differentiation is important in brand and reputation, but differentiation does not mean a different category.

There is a brilliant article in the current issues of Corporate Reputation Review by King and Whetten who note that there is a difference but a link between what they call ligitimacy and reputation. Companies they note must first establish legitimacy within their industry group. Reputation is being distinguished from peers. It is a great concept. Similarly, brands must establish their legitimacy within their category and can enhance their equity when they are distinguished. But, it takes a whole new way of doing things to create a new category.

A New Concept of CSR is Needed

The term Corporate Social Responsibility (CSR) is a catch phrase that means different things to different people. To some, it suggests philanthropy, to others is means getting involved in the community, to others it means sustainability (e.g., triple bottom line measurement of a company on its impact on society, economy and environment).

There are several things I dislike about the concept of CSR. First, it suggests that a company do something, anything to "benefit" society. This leads to all kinds of investments by companies in things that have little ROI to them or to the larger community. There is no strategy; it is purely a tactical attempt to be nice to someone in hopes that it will pay dividends or because the CEO has a special pet project. Second, it makes companies think that they can boost their reputation purely by doing something for the community. No company that I know of has built a reputation purely through CSR.

Now, let's understand that companies that want to be considered leaders are expected to be leaders in the larger society. They will be conspicuous by their absence. One cannot hide if one wants to be a leader. In fact, the concept of leadership mitigates against wanting to hide--one wants to lead, to be seen, to inspire and engage others.

I believe that CSR should be redefined as corporate social engagement (CSE). CSE is active; CSR can be passive. CSE is broader also. To become engaged, one needs to understand and respect the larger society and the pushes and pulls of various stakeholders. One negotiates and builds relationships rather than acting like a wealthy donor. Companies have adopted the concept of "noblesse oblige"; that those with wealth and social standing owe something to society. I believe that those who have been blessed with such good fortune should want to help society improve, but it depends how it is done.

CSE is a different concept. It means thinking about the issues of society that also involve the company and engaging in dialog and relationships to create something better "together". It means taking a systems approach and seeing the company as part of the larger social system.

Let's take an example. GM has given away a lot of money. Now, it is nearly broke and is cutting out both its CSR programs as well as some marketing activities like car shows and NASCAR sponsorships. If GM had a sense of CSE, it would never have allowed its CEO to travel to Washington to beg for money by flying in a private jet which was met on the tarmac by a private limo. The company would have understood that its relationship with society had changed and that it needed a new way of behaving. Some have suggested that this was a PR failure--they should not have allowed themselves to be seen as being this callous. I disagree. It was not a PR failure. It was a GM cultural failure. It is just one of the signs of what has gotten them into trouble in the first place. The management gets rich so they have to make the workers rich and they end up making cars that are too expensive for the market. They don't really engage in the outside world--they only study it through marketing research, so they continue to make Hummer's even though they know that oil prices will at some time go through the roof. Some people don't get it (read my blog about AIG, another company that cannot be educated.

Under the old concept, I'm sure that the folks at GM would say: "let us get rich again and we will give away large amounts of money like we used to". That's the wrong way to think. That's akin to steel companies making millions in Pittsburgh yet suffering through riots because of their poor employee treatment, yet getting praise for building libraries, museums and schools. That is the feudal prince approach, not an engagement.

Don't get me wrong, there are a lot of "little people" and their ranks are growing everyday in our current financial meltdown. Lots of people need help. It is times like this when companies say that they would love to do something but do not have the money for CSR. They may not, but they certainly have and have had the "sweat equity" of their expertise to help the larger community through engagement. There are many financial experts in large companies who could help non-profits and city government manage through difficult times--that kind of investment would be true engagement, would help tremendously, and be valued. It might not be as visible and it might be a longer-term activity, but it would start to get the company out of its insulated perspective and help it to become part of the larger society.

That's the point between CSR and CSE that is important. The concept I would like to see is for companies to consider themselves as part of the larger society--part of a system--rather than defining themselves as "us" and the rest of society as "them". A boss of mine early in my career cautioned me to not allow myself to get caught up in what he called the "convent mentality" of most companies. Within the convent, everyone has the same religion and the same spirit of love for "the one true God". Outside of the convent are all those who need to be saved because they do not have the "right religion". Too many companies have behaved this way. I believe in the Unitarian principles, that we are all seeking the same spritual path but in different ways that need to be respected, even if not understood. We have to find ways to engage if we are going to move along the path together, while still allowing each company to follow it own "spiritual path".