The|Intangibles

Newcastle United - How NOT to Manage Reputation

Newcastle United FC is a storied franchise in English football and 'my club' in the sense that I was born a Geordie (the name used to describe people from the northeast of England) and therefore am genetically predisposed to being a member of The Toon Army, as frustrating as that can be. My father (long deceased) was a friend of one of the team's legends, Jackie Milburn ('Wor Jackie' as he is known), from when they both lived in Ashington in the 1940s.

This past season was a disaster for the club, with managers changing three times during a 38-game season and poor performances on the field by highly paid "stars'. The result is an ignominious demotion to the Coca-Cola Championship from the Barclays Premier League (where such other well-known franchises as Manchester United, Chelsea, Arsenal and Liverpool play).

The owner -- Mike Ashley, who has been problematic, if not a disaster, from the beginning according to most reports -- has been trying to sell the club since at least the last day of the Premiership season. It is now being coached by an interim manager.The players are furious and many of the first string players are asking for transfers. Even Ashley admits he has made a mess of things: “It has been catastrophic for everybody. I’ve lost my money and I’ve made terrible decisions. Now I want to sell it as soon as I can."

I have watched the public relations calamity unfold online on an almost daily basis through news reports from British newspapers and the NUFC's website (which tends to report absolutely zilch about what is going on). The extraordinary thing is that management appears to be saying naught. News reports are based almost exclusively on comments by players or "sources' close to the club.

From what I can tell, management has said nothing to reassure the city of Newcastle nor the club's extraordinarily devoted fans that the coming season in the lower division will be nothing short of a debacle. No reassurances are being given; no sympathy expressed; no plans outlined; no time frames given; no deadlines offered . . . in other words, completely counter to basic crisis communications principles.

Okay, maybe management doesn't see the situation as a crisis. Maybe management's solicitors or investment bankers have said it must say nothing. Maybe it is sending out news updates that no news outlet is picking up. Maybe it has a social network, YouTube channel, blog or Twitter presence which I just haven't been able to find. Or maybe management simply doesn't recognize the damage that is being done to its reputation.

The supporters will be there for the players on the pitch when the dust settles: but when Geordies are called on to support an NUFC management business initiative, when the city is asked for a concession or a tax, or when the club's history is written, who will be there to defend management's interest and its "license to operate" the Geordies' club?

McKinsey & Company Agrees With Me

I was delighted to discover today that McKinsey & Company agrees with me about the reputation challenges facing companies globally and the new approaches needed to meet those challenges.

Okay, maybe I am not given credit anywhere in the McKinsey Quarterly article called Rebuilding corporate reputations (registration required). Yes, I know others have been saying the same thing for a number of years. And native humility prevents me from claiming anything more about my contribution to these discussions among public affairs specialists. But it was satisfying nonetheless to read that the consultants in McKinsey & Company's strategy practice ALSO agree there are three changes profoundly altering the reputation management landscape:

"Those changes include the growing importance of Web-based participatory media, the increasing significance of non-governmental organizations (NGOs) and other third parties, and declining trust in advertising."

Add to this the recognition in the report that traditional media relations strategies alone are simply inadequate to deal with dispersed opinion shaping never mind stakeholder expectations for participation, dialogue and transparency, and you have the skeleton of most of what many of us who advise companies on reputation management have been clamoring about for a number of years.

Perhaps now that McKinsey & Company has said it senior executives will be more disposed to our strategies.

Reputation Risk and Water

Reputation risk for companies is an underestimated consequence of global concern about climate change. Rather than expending more inventive energy on denying a relationship between CO2 concentrations and global temperature, smart businesses should be looking for ways to gain come reputation capital by managing climate change risks in cooperation with communities and global agencies.

Last week, the UN Global Compact and the Pacific Institute released a short paper on climate change and its impact on water which recommends a number of sensible management strategies. The context for the paper is the statement that:

"There is overwhelming scientific evidence that burning fossil fuels has altered the chemistry of the atmosphere. Figure 1 shows that atmospheric CO2 concentrations are reaching levels that are likely higher than in the last 20 million years.Rising CO2 concentrations along with other greenhouse gases (GHG) are changing the planet’s climate. Global mean temperatures have increased three-quarters of a degree Celsius since 1900 and 11 of the 12 warmest years since 1850 have occurred since 1996.These climatic changes are expected to accelerate over the coming decades."

The paper argues that a significant body of scientific evidence suggests climate change will affect the scarcity, sustainability and quality of the global water supply, which increases business risk, especially with respect to energy supply management, raw material inventories, industrial production systems and the associated financing costs.

Reputation risks can easily follow, for example as "people become more aware of their rights to access water . . . local businesses may find themselves using copious amounts of water in regions where people lack sufficient water to meet basic needs."

The paper outlines some business strategies which mirror two dominant themes on how businesses today need to think of corporate responsibility (CR): CR as part of business strategy discussions (integrating "water and climate change into strategic business planning and operational activities") and engagement of stakeholders in responsible planning (engaging "key stakeholders as a part of water and climate risk assessment, long-term planning and implementation activities").

Restoring Reputation

The stock of CSX Corp., a Jacksonville Florida-based railway company has been discounted as a result of lingering criticism of "poor management", according to UBS analyst Rick Paterson as reported today in the Financial Post. (I can't find a link: The Financial Post's website doesn't make it easy.) It should be trading at a premium to its competitors according to Paterson.

He goes on to say "Four or five years ago that ("poor management") was probably true, but we think these days are long gone and (mis)perception is lagging reality."

If that's the case (and I have no idea if the company has been actively trying to restore its reputation), then why is it that investment bankers and equity analysts stubbornly resist the idea that a good reputation, consciously developed, nurtured and communicated, can have a measurable impact on valuation? And why is it that some companies have such a hard time understanding that reputations don't recover solely through solid financial performance?

There are strategies for reputation recovery. But they require commitment, humility and honesty . . . and the support of financial advisers, lenders and legal counsel.

Philanthropy - No Stand-In for Better Behaviour

The Economist, not normally a booster of corporate social responsibility (CSR) or sustainability as it  tends to be known in Europe, this week has a piece on CSR that hits the mark. The author concludes that corporate philanthropy (contributions to charitable causes) is being cleaved but the attention being paid to behaviour -- ethics and governance in particular -- is holding steady, as it should.

"There is one other important reason for thinking that companies will maintain their commitments to sustainability through the downturn and beyond: the need to restore confidence in business. The financial crisis was triggered by a bout of corporate social irresponsibility on a massive scale that has tarnished the reputations of even the bluest of blue-chip companies. Now corporate leaders have a chance to show that they are not just motivated by short-termism after all."

As Intel (a client) says in the management analysis and strategy portion of its 2008 corporate responsibility report (Note . . . I agree with ridding CSR of its restrictive 'S'),  "By incorporating corporate responsibility directly into our strategy and objectives, we manage our business more effectively and understand our impact on the world more clearly."

Corporate or 'strategic' philanthropy is a programmatic means by which a company contributes to its community. Philanthropy evidences a corporate recognition that profits are derived from the community and that a return to the community in the form of wages paid for labor and consistent dividend payments to shareholders as well as steady share price growth is -- at least in terms of today's social expectations -- insufficient.

Communities expect companies to give back, and companies have obliged either through random acts of kindness or more structured investments in causes which match company values or business goals.

But let's be honest. Philanthropy is unlikely to define or affect company behaviour when it comes to choosing business strategy, rewarding employees, managing supply chain relationships, committing to respectful and sensitive business principles and overseeing board and C-suite conduct. 

A generous philanthropy program, and commitment to a cause, can comfortably sit side-by-side with dishonest accounting, excessive senior executive compensation, autocratic and harsh management, deferential governance, poor labour and sourcing practices, and denial of environmental impact. Philanthropy provides a reputational sheen, but it doesn't de facto require ethical conduct or a socially astute business strategy. Philanthropy buys goodwill but it doesn't drive responsible behaviour nor build social trust.

If The Economist is right, and I think it is, and the decline in spending on smoke-screen philanthropy is NOT being matched by a retreat from investment (time, focus, intensity) in better behaviour, then maybe out of the current crisis we will see a steady push-back within companies against insular corporate boards, inappropriate rock star-like CEO salaries, and short-sighted and opaque business strategies.

Blogs on Leadership

CEOs must have a tough time deciding what to read among all the blogs, online news sites, management school journals and mainstream media which offer points of view on how CEOs can lead better. Alright, they likely don't read any of them.

Should they change their minds, here is a recent addition to the plethora of leadership punditry that may be worth watching: The Syd Blog is by Sydney Finkelstein, the Steven Roth Professor of Management at the Tuck School of Business at Dartmouth College. The blog is subtitled "Insight into the force and follies of leaders."  His latest post looks at how Bank of America CEO Ken Lewis, who was stripped of his chairman title last week, may still lose his CEO position even though Bank Of America is run by what Finkelstein calls a "rubber-stamp board."

Sounds like Finkelstein would not be displeased.

Tightening the Rules

The legislators in the Canadian province in which I live recently charged the Ontario Securities Commission with reviewing corporate reporting standards in order to establish best practices for disclosure of environmental, social and governance practices. The commission has been asked to report back to the House by January 1st of this year. The announcement warranted only about 125 words in Canada's national newspaper which means it can easily die a languid death.

Behind the order to review disclosure practices (other than the standard opportunism of politicians looking to take personal advantage of a crisis in trust), is acknowledgment that the public and minority shareholders have this indistinct but genuine feeling no one in corporate boardrooms is championing good behaviour.

Never having sat on a corporate board (I have been a director on a hospital foundation board) I have no idea how discussions about things like executive compensation, minority shareholder rights, and environmental and social commitments are raised and debated. Having read Dickens, Marx, Althusser and Levy, and being ready to believe anything Gretchen Morgenson writes about boardroom mischief, I do feel a sort of native mistrust that the impact of a decision or policy on ordinary shareholders or a community ever factors into the colloquy. Worse, I end up silently cheering regulators (although seldom legislators) when they study corporate reporting standards and insist on more transparency, even though I know I shouldn't given the nasty stuff they can foist on business.

By all appearances, I'm not alone in mistrust.

But I also know that many corporate directors are honest and ethical people. They work hard to balance conflicting interests and to do what is right for the company, its shareholders and the community. So let's hope that out of the OSC's review the government doesn't default to punitive regulation. Rather it should encourage board-lead custody of ethical, inclusive and open behaviour. A good start would be to put forward suggestions for ways boards can collect and aggregate meaningful contributions (not just by shareholder resolutions and voting proxies)from people who deserve to have a say in crucial (not all) decisions -- in particular minority shareholders and 'communities of interest'.

Corporate Blogging: Still Hesitant After All These Years

More Fortune 500 companies are blogging, but the pace of growth is still shall we say restrained.

The full results of a study by Dr. Nora Ganim Barnes, Ph.D. and Eric Mattson, CEO of Financial Insite Inc., a Seattle-based research firm are available here and a summary of the key findings are in a news release by the Society for New Communications Research.

Of the findings posted in yesterday's statement, here are few of particular interest:

• 81 of the Fortune 500 or 16% currently have public-facing blogs, compared with 39 percent of the Inc. 500, 41 percent of the higher education sector and 57 percent of the nation’s Top 200 Charities.
• 28 percent of the Fortune 500’s blogs link to Twitter accounts
• 90 percent of the Fortune 500’s blogs have the comments feature enabled

Maple Leaf Foods' Launches "Crisis" Blog

Maple Leaf Foods (not a client) today launched a blog in response to the 2008 Listeria deaths caused by eating its deli meats and, as with much of how the company handled the crisis, it is a very good model for the language and tone of effective messaging . . . frank, honest and contrite. (Although its design is quite lackluster.)

The first post is by CEO Michael McCain and here is how it begins: "Since August 2008 twenty-one Canadians have died after eating Maple Leaf deli meats contaminated with Listeria.  We all watched in horror as the worst food safety crisis in modern Canadian history rolled across the country." Now that's frank and the antithesis of how many companies begin apologies after serious events.

Later in the post Mr. McCain writes "This was by far the most awful event in the one hundred year history of our company.  I can’t properly describe the overwhelming sense of grief and responsibility we all felt … I felt, personally (emphasis added).  You may remember seeing me on television back then, apologizing for the tragedy and vowing to develop the most comprehensive anti-Listeria program of any food company in Canada." He then goes on to outline in details the changes Maple Leaf has made to reduce Listeria findings in its plants.

Even more significant he actually raises three subsequent issues related to Maple Leaf Foods' safety performance that most people had likely forgotten.

Textbook . . .

Some Corporate Directors Like Conversation

Buried in a recent survey of corporate directors conducted by McKinsey is a finding that 29% of respondents report that one of the procedural changes corporate boards are making to deal with economic turmoil is "Promoting conversations that are more frank than usual"; further, 24% believe this is an additional change boards should make "to become more effective in managing the global economic crisis".

No mention is made of whether Twitter is a preferred tool for intermediating this new focus on conversation.