Shareholder and Stakeholder Engagement Dr Dominik Heil Managing Director, Reputation Institute September 2010
Huge Centripetal Economic Forces are Pulling Us Apart
While Geological Forces are Taking their Toll
Contributing to a Wild Ride in the Financial Markets
And Putting “Reputations” On Everyone’s Mind Many of you are also experiencing internal presure to show leadership… In a study by Arthur Page…
Toyota is Reeling from Unintended Effects of Cost-Cutting
BP is Reeling from a Huge Oil Spill in the Gulf of Mexico
Clearly Reputations are Always at Risk "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 9
Organizations that manage their reputations successfully: Best practices Organizations that manage their reputations successfully: Adopt a common model for reputation management across organizational functions Understand what the reputation dimensions and attributes mean to different stakeholders Align corporate messaging and reputing activities with key drivers for their stakeholders Create employee alignment with their reputation platform Create a cross-functional reputation committee to ensure coherent actions Monitor reputation with different stakeholders against relevant competitors Integrate reputation management into the business process
RI has conducted Global Reputation Studies since 2000 34 Countries & 24 Industries –65,000 Consumers Airlines & Aerospace • Automotive • Beverage • Chemicals • Computer • Conglomerate • Construction & Engineering • Consumer Products • Electrical & Electronics • Energy • Financial – Bank • Financial – Diversified Services • Financial – Insurance • Food Manufacturing • Industrial Products • Information & Media • Pharmaceuticals • Raw Materials • Retail – Food • Retail – General • Services • Telecommunications • Transport & Logistics • Utilities
Lesson #1: A Corporate Reputation is an Emotional Bond …and built on 7 Pillars
Lesson #2: Reputation Operates “Below the Line” Strategic Goals Business Results Corporate Initiatives Perceptions of Company Supportive Behaviors
Lesson # 3: Improving Alignment Increases Reputation What Companies Say Inconsistency How Companies are Perceived Inconsistency What Companies Do Inconsistency
Lesson #4: Improving Reputation Increases Support Improve Reputation by 10% – Increase Support by 10% McDonalds are moving up in recommendations – in 2009 43% of the US general public would definitely recommend them – now 47% would Source: 2010 Global Reputation Pulse (U.S. Results)
Lesson #5: …and creates Financial Value Top 30 in Reputation Bottom 30 in Reputation Ratio of Market Value to Book Value 3.79 1.42 % Change in Market Value = 1.3 * % Change in Reputation So, on average: 10% Improvement in Reputation 13% Improvement in Market Value
Lesson #6: So that Investing in Higher Reputation Firms Can Pay Off Cumulative Returns HIGH REPUTATION PORTFOLIO S&P 500
Lesson # 7: But Reputation Requires Vision & Governance Energy Auto Banking Tobacco
Lesson #8: And a Focus on Products & Innovation
Lesson #9: Companies have to Do the Right Thing “You can make money without doing evil” Is Google a great place to work because its stock is at $483, or is its stock at $483 because it's a great place to work? --Business Week, January 22, 2007
Lesson #10: As Well as Do Things Right
So a Mind-Shift is Taking Place From Brand to Reputation The promise a company makes to its stakeholders “Owned” by the company Reputation The degree to which the company fulfills its promises “Owned” by stakeholders A brand is a promise… when you live up to that promise you build Reputation 22 Reputation Institute – © Harris-Fombrun Reputation QuotientSM 22
The World’s Best Corporate Reputations (2010) So who should we look to for best in class? It’s Up to You - Country, Region or Industry Does Not Stop Companies from Being Trusted
Stakeholder Experiences How are Corporate Reputations Created? Products Customer Service Investments Employment Stakeholder Experiences Corporate Reputation Corporate Reputation Branding Public Relations Marketing Social Responsibility Corporate Messaging Perceptions Trust Admiration Respect Good Feeling Print Broadcast Internet Media Conversation 24 Reputation Institute – © Harris-Fombrun Reputation QuotientSM 24
Reputation is driven by 7 dimensions RepTrak™ measures them The RepTrak™ Scorecard has been developed though research over the past 10 years This scorecard is the basis for standardized and custom work that RI conducts around the world with all stakeholder groups Reputation Institute has been building a proprietary database of reputation research in 32 countries around the world enabling geographic and industry benchmarks
Measuring and managing reputation: Understanding the dimensions of reputation Do stakeholders think highly of the products and services the company provides? Are products and services associated with quality and value? Does the company stand behind its products? PRODUCTS/SERVICES PERFORMANCE What is the perception of the company’s financial performance and the prospects for future growth? How do stakeholders perceive the leaders and management competences of the company? Does the company appear well organized with a clear vision for the future? LEADERSHIP Is the company perceived as innovative and skilled to meet market changes? Does the company regularly introduce new products? INNOVATION Does the company contribute positively to its surrounding community in a socially and environmentally responsible fashion? CITIZENSHIP Are employees treated fairly and paid a decent wage? Does the company invest in developing employee skill sets and career opportunities? WORKPLACE Is the company business run in a fair and transparent fashion? Do stakeholder associate the company with high ethical business standards? GOVERNANCE
RepTrak™ Framework integrates perceptions across stakeholders General Public/ Opinion Elites Academia Advocacy Groups Customers Prospective Employees Partners Current Employees Media This is very interesting b/c of their marketing campaign and how it targets the GP Financial Analysts Individual Investors Industry Analysts Institutional Investors
Different dimensions are important to different stakeholders (illustrative only…) Customers Employees Investors Government Media Regulators
Disgruntled Supporter Stakeholder Reputation and Supportive Behaviour - Most Stakeholders are between Active Detractors and Evangelists Evangelist Believes that company has a strong reputation and is willing to provide support (e.g. buys products/services and recommends them to others). Active Detractor Believes that company has a poor reputation and acts negatively towards the company (e.g. dislikes company and actively discourages others from buying its products/services) Unsupportive Admirer Believes that company has a strong reputation, but does not support with any action. (e.g. likes company but does not buy its products/services) Disgruntled Supporter Believes that a company has a poor reputation but nonetheless continues to support it (e.g. dislikes company, but continues to buy products/services) Unsupportive Admirer Evangelist High Reputation Active Detractor Disgruntled Supporter Low Low High Supportive behaviour Source Study: Comparison of Reputation (Using Reputation Quotient: Harris Interactive/Reputation Institute) and Supportive behaviour Intent (Employment, Investment, Purchase). Fame and Fortune: How Successful Companies Build Winning Reputations. Fombrun, Van Riel, ©2004, p.68
Supportive Behaviour Explained – stakeholder support with a great reputation… Opportunities Risks Employees Unsolicited applications Ambassadorship Best candidates do not apply Lower productivity Customers Builds market share Encourages repeat purchase Declining sales and boycotts Lower prices Investors Lowers capital costs Attracts new investment Lower stock prices Increased capital costs Media Favourable press coverage Trust in crisis Negative coverage Lack of trust Financial analysts Favourable ratings Recommendations Lower ratings Fombrun, C. & C.B.M. Cees 2004: Fame & Fortune, Prentice Hall, US
How do we tie Reputation to Business Results How do we tie Reputation to Business Results? RI’s model – enabling strategy development Stakeholder support: - Buy - Recommend Invest Work - Support What are our reputational strengths and weaknesses? What are the drivers of our reputation and business-critical stakeholder support? What actions and communications should we focus on or change in our interactions with our most important stakeholders?
The Changing Face of Reputation… How the concept of reputation has evolved Not long ago the concept of reputation was an academic exercise centering on 4 basic questions… How is reputation defined? Does reputation matter? Can reputation be measured? Is reputation valuable? We now know: What reputation is: the trust, admiration, good feeling and overall esteem people have for an organisation. Reputation is created by perceptions people have about 7 key reputation dimensions. Strong reputations lead to supporting behaviour. Supportive behaviour leads to improved organisational performance.
Critical Considerations: How are corporate reputations influenced? Several years ago we knew that reputations were influenced by: 1) Excellence in performance on all reputation drivers 2) Excellence in communications 3) Understanding the context in which the company operates We now know that reputations are influenced by: Stakeholders Experiences: peoples’ personal experiences with the company. Corporate Messaging: the company’s corporate communication and initiatives. Media Coverage: How and what the media and third parties are saying about the company.
Communication Platforms – Communicating with Stakeholders Communicates Appropriately to everyone… Carries out Visible Stakeholder Initiatives… Participate in Worthy Social Initiatives Visible Is Recognizably Different… Makes a Distinctive Promise… Stands Out… Distinctive Walks the Talk… Is Easily Identifiable in its Communications… Conveys a Consistent Message Consistent States Its Beliefs Openly… Discloses Information in a Timely Fashion… Shows Responsiveness to All Stakeholders… Transparent Is Credible and Sincere in its Communications… Is Honest… Is Appealing to Deal With Authentic
RI’s Reputation Equity Process Reputation Landscape Phase 1 Reputation Platform Phase 2 Reputation Workout Phase 3 Reputation Activities Phase 4 Stakeholder Alignment Phase 5 Audit: Stakeholder mapping, scorecard development, stakeholder perceptions, reputation profile and drivers, strategic reputation framework Strategy: What is company’s core message/story and promise to its Stakeholders? How does it correspond with current position and drivers? Planning: What can company do to manage reputation actively through activities and communication initiatives? Action: Execute against strategy and plan by intiating stakeholder engagement- and branding activities both internally and externally Monitor: Track effectiveness of actual performance in the stakeholder marketspace – optimize stakeholder engagement
Who is the Reputation Institute? Reputation Institute is the leading international organisation devoted to advancing knowledge about corporate reputations. Through systematic research and analysis, Reputation Institute helps companies build comprehensive strategies and make operational decisions that are designed to align stakeholders with corporate objectives and create tangible economic value. Reputation Institute's global network of local offices, associates, practitioners, and academics regularly produces thought leadership about corporate reputations that is shared in our conferences and workshops, and gets featured in our newsletters and peer-reviewed quarterly journal, Corporate Reputation Review. Reputation Institute Network Australia Brazil Chile China Croatia Denmark France Germany Greece India Italy Netherlands Norway South Africa Spain Sweden Switzerland Turkey UK United States Global Headquarters 62 William Street New York, NY 10005 USA Phone: +1 212-495-3855 www.reputationinstitute.com South African Office 128 Tenth Street Parkmore, Sandton 2196 Phone: +27 11-666-4794