Maintaining Reputation In a Time of Global Change Corporate Communication Institute December 1, 2006 Gary F. Grates President & Global Managing Director Edelman Change and Employee Engagement

“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.” — Warren Buffett “If you have no reputation, you have no business.” — Dr. Guruswami Raghavan Professor of Finance SDM Institute for Management Development

Why is reputation so important today? 59% of organizations surveyed state that corporate reputation is becoming a key source of competitive advantage as products/services become less differentiated Source: “Reputation: Risk of Risks” Economist Intelligence Unit 2005 Survey

Reputation is the A-1 priority 84% of companies surveyed state that the CEO/President/Chairman takes personal responsibility for their organization’s reputation… Source: “Reputation: Risk of Risks” Economist Intelligence Unit 2005 Survey …because nearly 97% of them understand the linkage between reputation and financial performance. Source: “Return on Reputation” Corporate Reputation Watch 2006, Hill & Knowlton

And it starts inside  Building reputation begins inside with engaged employees because they…  Embody the organizational values that reputation is built on  Fulfill the company expectations every day  Shape the company’s reputation, for better or worse

Reputation represents who a company is  The summation of the people who work for it every day  Their understanding of customer expectations  Their commitment to fulfilling those expectations – everyday  FedEx’s on-time delivery  McDonald’s dependable flavors  Nordstroms’ consistent customer service and support  Apple’s innovation

How do you build reputation in today’s complex business environment? The Age of Transparency  Customers, employees, shareholders, investor community are privy to higher levels of product information and company knowledge A New Corporate Ecosystem  The lines between stakeholders are blurred; all are integral parts of one organization Growing Sense of Distrust  Recent events have elevated concern about corporate governance A New Balance of Power  Balance is shifting away from management to employees, suppliers, distributors, customers, business partners and other stakeholders

The Reputation Challenged

Continuous global change Truths…  Technology will always advance  The world will get smaller every day  Relationships becoming more important  Trust impacting internal and external relationships  New business models forcing major changes in employer-employee compact and organization- customer dynamic  Leaders must act fast to change

The impact on business The purpose, premise, rationale and viability of every organization are under attack because of an environment that is increasingly: Global Complex Chaotic“Loud” Commoditized

The impact on constituents  There’s a breakdown in relationships and trust:  Organizations v. employees  Organizations v. communities  Organizations v. stakeholders  Inside: Paralysis – employee confusion about their purpose and role  Outside: Loss of credibility – reputation plummets

The impact on employees  Only 25% of employees understand personal accountability  84% don’t believe information flows freely in their companies, depriving them of critical, job-related info  Majority of employees of large companies believe their size makes them less nimble  Wide gap between senior executive and employee perceptions on the functionality and health of their organization Study: A Global Check-Up Diagnosing the Health of Today’s Organizations Booz/Allen/Hamilton (2005)

2004 Employee Engagement Index Gallup Management Journal The impact on employees  29% of employees are actively engaged in their jobs  54% are not engaged, distracted  17% are actively disengaged

Employees are working with the “volume off”  Noise – people are inundated with so much information – most of it irrelevant and conflicting – that it overwhelms and confuses them  Creates cynicism instead of enthusiasm, like watching a sports event with the volume turned off  Employees determine truth and reality by watching behavior -- they are watching but choosing not to listen…

Outside the company If people do not trust your company they will…  Refuse to buy your products or services (84%)  Refuse to invest in your company (74%)  Refuse to do business with you (75%)  Ignore your attempts to communicate with them (54%) Edelman’s 2006 Trust Barometer

People gravitate to institutions that are… …such as: Apple, Citigroup, Goldman-Sachs, Coca-Cola, JP Morgan Chase, Intel, Nokia, Motorola, GE, Duke Power Solid Stable Consistent Trustworthy Credible Secure

What defines them…  Organizational Trust: leadership does what it says  Organizational Consistency: organizational performance/service meets or exceeds standards  Organizational Accessibility: is available to internal and external stakeholders – is transparent  Organizational Responsiveness: organization senses and responds to internal and external issues, inquiries, etc.  Organizational Commitment: organization meets/exceeds stakeholder wants/needs  Organizational Affinity: organization gives stakeholders a reason to care about and identify with the organization’s mission

Case in point Apple Computer — a new product dynamo Lives up to its reputation  Known as iconoclastic risk-taker  Stood PC industry on its head with Macintosh  Constantly breaking new ground  iMac, eMac, Mac OS X, reinvented iMac (multiple times)  Revolution: iPod and iTunes Music Store  Reinvented Apple and the music industry  Changes the game in other industries  Drew out new competitors  Everyone else is playing catch-up — Sony, Dell, Microsoft, Time- Warner, Yahoo, et al.

Case in point  CEO Steve Jobs’ vision is key  Invites people along for the ride with cutting-edge products that define and enhance their “digital lifestyle”  Put Apple at the forefront of new lifestyle trend  Apple’s reputation is built on its unique ability to communicate that vision effectively to its many constituencies  Customers, investors, employees, media, etc.

Traditional Approach (Disciplined Process) Progressive Approach (Organizational Priority) PurposeMessaging; Convey informationBuild/strengthen relationships Role Produce/distribute info on initiatives, programs, industry awards/recognition Provide context, interpretation, relevancy PerspectiveReactiveAnticipative, creative Integration w/Strategy Little, sporadicExtensive, well-planned ApproachPushHolistic SkillsJournalistic Human behavior: Sense what people need to know, feel, do Information Flow Top-downTwo-way, lateral Measures“Clips/clicks/hits”Business success From a communication perspective, managing reputation in today’s business environment requires a different approach

What effective communication can accomplish  It can is provide a path for people outside the company to rediscover a company’s positive aspects…  It can teach and lead employees to what’s important regarding reputation… …what to do, to stop doing, to think and talk about

Key strategy: Discover vs. Sell (Promoting vs. Doing)  If the organization’s goals are understood, then communications can help stakeholders to experience the changes needed and the benefits of initiatives  Communications can provide context and relevance, helping people to “connect the dots”  Discovery carries far more credibility than something that has been spoon-fed (“sold”)

Discover vs. Sell  Asks the right questions  Drives business strategy  Establishes the right mindset  Influences desirable behavior  Unleashes competitive advantage  Shapes the organizational challenge  Builds relationships

Maintaining Reputation In a Time of Global Change Key takeaways…  Companies need to acknowledge there is a gap between how they perceive their own reputations and what its stakeholders believe and experience.  Companies must take an “outside in” approach to reputation management.  Communication can strengthen relationships with internal and external stakeholders. Effectiveness must be measured in communication “outcomes” rather than communication “outputs.”

Maintaining Reputation In a Time of Global Change …in a world of constant change and constant information, you can't control reputation globally. What can be managed:  management protocols and decision making  issues management and crisis management  open, clear communications internally  employee engagement and involvement

“The way to gain a good reputation is to endeavor to be what you desire to appear.” — Socrates