John Dalton

1

2005
REPUTATION MANAGEMENT A Holistic Business Tool
Presented by John Dalton Director of LSPR
Worldwide
2
Financial performance and capital
Customer benefits
Business processes
Tangible assets
Intangible assets
Human/Structural capital
Stakeholder engagement
Culture values
Adapted from Intangible Assets J. Daum Wiley,
1999
3
REPUTATION

• If we picture a company as a living organism,
  say a tree, then half of the mass or more of that
  tree is underground in the root system. And
  whereas the flavour of the fruit and the colour
  of the leaves provides evidence of how healthy
  that tree is right now, understanding what is
  going on in the roots is a far more effective way
  to learn how healthy that tree will be in years
  to come
• Leif Edvinsson and Michael S. Malone
  Intellectual Capital

4
REPUTATION An overview

• What does reputation mean to you?
• How much is your companys reputation worth?
• Can you measure and manage your reputation?
• How much of your organisation is made up of
  intangible assets?

5
REPUTATION An Overview

• What one mistake do businesses keep making?
• Answer
• Asking the wrong questions
• Issues facing business change little, but the
  answers do
• Ask not what I should be doing, but WHAT NEEDS TO
  BE DONE source P. Drucker
• We must become the change we want to see
• - Ghandi

6
REPUTATION An overview

• Corporate image can be created, but corporate
  reputation must be earned
• What exactly does reputation mean?
• Various perspectives and meaning, both in a
  business and cultural sense

7
REPUTATION An Overview

• Hill and Knowltons Corporate Reputation Watch
  2004 Survey Some key findings
• www.hillandknowlton.com
• 93 of senior executives believe that customers
  consider corporate reputation important or
  extremely important
• 79 of senior executives believe that investors
  and lenders consider CR either important or very
  important
• The impact of corporate governance has increased
  dramatically since 5 years ago now 40 of senior
  executives believe that strong corporate
  governance is a critical factor that potential
  investors consider before committing, whereas 5
  years only 19 thought the same.

8
REPUTATION An Overview

• In 2001, the insurance firm Aon polled 2000 top
  UKs private companies and showed that loss of
  reputation was viewed as the greatest risk,
  followed by failure to change
• www.aon.co.uk

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WHO IS AT RISK?

• You are at particular risk if you
• Offer life-saving or life threatening products
  pharmaceuticals or arms
• Enjoy high, global brand awareness luxury brands
• Are based on new technology GM, mobiles
• Confront changing social mores fashion,
  alcohol, tobacco
• Produce significant spill-over effects mining,
  waste, oil

10
GLOBAL BUSINESS CONTEXT

• Pluralism over time markets are inherently
  entropic
• This leads to CREATIVE DESTRUCTION
• Sustaining a competitive brand now relies more on
  reputation than it did a decade ago reputation
  is one of the key sustaining factors

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TRUST the engineering of consent

• Trust vs. Trustworthiness
• Increased fraud reward based incentives
• Loss of authority from key institutions
• Media distortion and anti-campaigning
• Growth of urban decay and ant-social behaviour
• Poor corporate governance and corporate behaviour
  The Precautionary Principle

12
CHANGE IN ATTITUDES

• In the Industrial age, the marketing model was
  driven by advertising
• For knowledge-intensive products, inherent value
  cannot be as easily communicated in 5-10 sec
  commercial
• Therefore, products and services rely more on
  reputation the key vehicle for which is the
  BARND and its ability to create value

13
CHANGING ATTITUDES

• Corporate value can no longer be determined by
  short-term profit and sales
• Long-term, sustainability is the key
• Mobile phone industry is a classic example
• Old systems deemed employees as cost factors, not
  as value creating elements and stakeholders

14
CHANGING ATTITUDES

• Transition from the neo-classical economic
  theory to socio-economic theory stakeholders
• Triple bottom line and sustainability
• Economic
• Social
• Environmental
• Differentiate by behaviour

15
REPUTATION ICE BERG

• Union Carbide (USA Bhopal, India)
• Enron (USA)
• WorldCom (MCI) (USA)
• Shell (UK)
• Nike (USA)
• Arthur Anderson (USA)
• Parmalat (Italy)
• Yukos (Russia)

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REPUTATION An Overview

• Reputation is the sum values that stakeholders
  attribute to a company, based on their perception
  and interpretation of the image that the company
  communicates over time
• John Dalton Managing Corporate Reputation

17
REPUTATION An Overview

• Reputation is the principal means through which
  a market economy deals with consumer ignorance
• Professor John Kay
• Reputation exists because of asymmetric
  information

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REPUTATION An Overview

• Reputation is a collective term referring to all
  stakeholders views of corporate reputation,
  including identity and image
• Professor Gary Davies Manchester Business
  School
• Reputation experience - expectations

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IT ALL ABOUT ISSUE MANAGEMENT

• Good reputation management is based on issue
  management
• Issue identification
• Issue Analysis
• Issue Change Strategy Options
• Issue Action Programme
• Evaluation of Results
• Monitoring Weblogs and user groups online

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SOME HOT ISSUES

• Obesity, salt and food labelling
• GM technology
• Mobile phone radiation
• Stem cell and embryo technology
• Nanotechnology
• Biodiversity loss and pollution
• Compliance, governance CSR
• Off-shoring
• Innovation and value creation
• IP theft counterfeiting
• Customer retention and equity
• Development of an amateur media online

21
BRANDS AND REPUTATION
Phase I
Phase II
Phase III
Reputation
Corporate Image
Corporate Identity
Positioning
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CORPORATE IDENTITY

• Logo TM
• Name typeface
• Slogan or tagline
• Packaging and uniforms
• Colour and semiology
• Brochure and advertising
• Annual Report
• Websites
• Photography

23
IMAGE FORMATION
Communities
Communications
Attitude behaviour of employees
Quality of goods services
Corporate Image
Organisation Structure Culture
Experience
Corporate Social Responsibility
Financial Performance
Physical Environment
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ROYAL DUTCH SHELL Image problems

• Nigeria and the Ogoni People
• Greenpeace and Brent Spar 1995
• Profits before principles
• Pollution and biodiversity loss
• Reserves crisis 2004 over estimate

25
ROYAL DUTCH SHELL corporate communications

• Shells Society Report
• Shell Foundation
• Profits and Principles campaign
• Environmental Reports
• Local Reports and external assurance
• Reporting GRI and UN Global Compact
• Adaptation of International Financial Reporting
  Standards Dow Jones Sustainability Index

26
ROYAL DUTCH SHELL Corporate Communications

• Developed and pioneered scenario planning for
  crisis management
• Highly developed CSR and Branding
• Corporate communications centralized
• Significant alteration to organizational
  structure
• Strategy of stakeholder engagement
• Listing on the Dow Jones Sustainability Index

27
TELECOMS Orange - rags to riches

• Classic example of corporate brand-building
  success
• 1994 equity worth little by 2000, Market Cap -
  50 billion
• Strategy brand focused
• Good use of corporate identity name and slogan
  use of semiotics
• 1996 IPO youngest company ever to enter
  FTSE-100
• Integrated marketing communications campaign
  strong positioning against competitors

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TELECOMS Vodafone

• Vodafone is the worlds largest mobile
  telecommunications community, employing over
  65,000 staff and over 130 million customers
• Success and reputation because of its brand
  brand driven

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TELECOMS Vodafone

• Brand strategy key to its success
• Operates over 300 of its own stores
• Sells through independent retailers
• Extensive sponsorship
• Advertising - high profile-celebrity endorsement
• Extensive below the line promotion
• High profile involvement in CSR award winning

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TELECOMS Vodafone

• Extensive market research and focus groups
• Innovation Vodafone live!
• Increased penetration of new data services
• Sponsorship of
• Ferrari and Formula 1
• Manchester United
• English cricket
• Epsom Derby

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GUINNESS A REPUTABLE DRINK

• 250 year-old beer brand
• Well know and identifiable
• Irish provenance
• Made from nature ingredients
• Owned by Diageo- UK
• Sold in 150 countries brewed in 49
• Brewed for local tastes
• In UK, Europe, USA Guinness Draught
• In Africa, Asia and Caribbean Foreign Extra
  Stout
• Nigeria largest overseas market
• A pint of Guinness has less calories than
  equivalent Semi-skinned milk
• In Muslim countries sold as Malta Guinness
  non-alcoholic

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GUINNESS A Brilliant Brand

• Brilliant marketing communications advertising
• Highly innovative and adaptive
• -introduced larger Harp
• -introduced Guinness Draft Extra Cold
• -in Nigeria it is seen as a Nigerian brand
• Large degree of passion involved with the brand
• Single global brand vision Power Goodness
  Communion
• Brand experience perfect pint campaign
• Good congruence in sponsorship

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INTANGIBLES

• The last two decades have witnessed a revolution
  - transfer from industrial capitalism to a new
  knowledge-based economy
• Industrial capital based mainly on physical
  assets
• New economy based on intangible assets and value
  creation

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INTANGIBLES
Market Capitalisation
Brand
Reputation
IP
Customers
Employees
Innovation
Organisational structure
Book value ___________
The above would also be affected by other
variables including
macroeconomic factors, shareholder sentiment
and market speculation
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INTANGIBLES

• A companys market value is driven by its
  anticipated earning potential the net present
  value of its future economic profit
• Intangibles are systematically underreported
  within existing accounting practice

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INTANGIBLES

• The Brookings Institute found that in 1962 - 62
  of an average companys value was represented by
  physical or hard capital - by 1992 this had
  decreased to 38 and in 2000 was as low as 20
• The market to book value ratio

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INTELLECTUAL CAPITAL
MARKET VALUE
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INTANGIBLES

• Welcome to the world of intellectual capital
• Human capital
• Structural and organisational capital
• Customer or stakeholder capital

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INTANGIBLES

• Market to book ratio
• Dell 17.5
• Pfizer 18.2
• Capital is now not just financial it is
  anything that adds wealth and value
• Back in 1999, only 6.6 of Coca-colas market
  capitalization was reported as book value

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INTANGIBLES
Brand capital
Sales push focus Customer pull focus
Human capital
Production focus Customer focus
Working capital
High Low (WIP, finished goods)
(direct delivery
to customers)
Physical capital
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INTANGIBLES
Market value

• Development of the value of intangible assets as
  a percentage of total market value of S P 500
  companies between 1982 and 1999. Intangible
  Assets J. Daum (1999) Wiley, p4

42
INTANGIBLES
Market value as a multiple of net book value
Taken from eCFO, Wiley 2001, p95
43
INTANGIBLES AND ACCOUTNING

• Off the balance sheet
• Problems with global accounting - do not
  properly allow the inclusion of internally
  generated assets, except those obtained by
  acquisition
• The issue of goodwill
• REPUTATION IS AN INTANGIBLE ASSET IN ITS OWN RIGHT

44
REPUTATION AND METRICS

• The FT Worlds Most Respected Companies 2004
  Financial Times November

• Coca-Cola
• Dell
• Wall-Mart

• GE
• Microsoft
• Toyota
• IBM

45
REPUTATION INDEXES

• The Harris Fombrun Reputation Quotient (RQ)
• www.thereputationinstitute.com
• Fortune Magazine Global Most Admired Companies
  www.fortune.com
• Management Today Britains Most Admired
  Companies
• FTSE4 Good Index www.ftse4good.com
• The Dow Jones Sustainability Index
• Financial Times Worlds Most Respected
  Companies www.ft.com

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REPUTATION AND METRICS

• Vital Attributes
• Corporate Governance
• Shareholder value
• Innovation
• Corporate responsibility (CSR)
• Role and leadership of CEO
• Satisfied employees!
• Value creation that is sustainable

47
DRIVERS OF CHANGE

• Increased specialisation outsourcing and
  disintermediation
• Relationship marketing one-to-one customer
  relationship
• Business is increasingly customer-led rather than
  production driven
• Alliances and partnerships
• Vulnerability of brand equity
• Decline in trust especially institutional

48
DRIVERS OF REPUTATION

• Financial performance and shareholder value
• Corporate responsibility
• Corporate governance compliance and regulation
• Technology Internet and wireless
• Weblogs (blogs) over 5 m web journals
• Investor engagement (SRI) and NGOs
• Stakeholder convergence and managing
  stakeholders expectations
• Employee expectations
• Brand and operational risk

49
DRIVERS OF REPUTATION
Indicators

• Shareholders
• Number of shareholder resolutions
• Results of shareholder satisfaction survey
• Customers
• Satisfaction survey
• Customer complaints
• Third-party ratings and awards
• Employees
• Employee turnover
• Employee profiles (ability, gender, race)
• Employee satisfaction
• Society
• Boycotts, marches, incidents
• License to operate
• Direct action
• Media reports
• Partners
• Quantity of partnerships accepted, sanctioned or
  rejected on basis of stewardship criteria
• Health and safety records of partners

Indicators

• Cash flow
• Earnings
• Costs
• Capital expenditure
• Market growth

Financial performance
Sustainability
Indicators of reputational value taken adapted
from eCFO C. Read et al, p115, Wiley, 2001
50
DRIVERS OF REPUTATION

• A more intrusive and sensational media media
  amplification
• Need for transparency (disclosure) and
  accountability
• Companies as social institutions
• Globalization and the rise of corporate brands
• Notion that ethics counts
• Historical Enron and WorldCom
• Reputation as an asset in its own right -
• Victim culture insurance claims

51
CORPORATE GOVERNANCE

• Good corporate governance and compliance are seen
  by many as the primary force behind reputation
  management
• FSA in (UK)
• Basel II
• Sarbanes Oxley (USA)
• Role of compliance officers

52
REPUTATION an enabler?

• Gain control and anticipate events
• Avoid long-term brand equity damage
• Avoid boycotts or sale losses
• Ensure compliance and shareholder value
• Better stakeholder relations NGOs
• Better media relations and issue management
• Understand your risk exposure and allow easier
  entry into new markets and brand extensions
• Improved investor relations and profile

53
REPUTATION an enabler?

• Better employee output, retention and internal
  communications
• Better understanding of issues
• Preparation for crisis situation
• Alignment of strategy with key stakeholders
  expectations
• Sustainable wealth and value creation
• Development of alert systems and a radar

54
REPUTATION an enabler?

• Positive influence on regulators when issuing
  licenses
• Local authorities may take it into account when
  considering planning applications
• In the financial markets more likely to raise
  capital
• Reduce the cost of entry into new markets,
  thereby securing a price advantage

55
MEDIA MANAGEMENT

• Good and diligent management of the media is
  central to reputation management media profile
• Learn which media are the most influential within
  your target group
• Supply the press with information that is
  accurate and useful
• Build relationship with journalists
• Look for triggers within issues monitor the
  media and other users groups
• Use media intelligence agencies

56
MEIDA INTELLIGENCE

• Romeike www.romeike.com
• Metrica www.metrica.com
• Echo www.echoResearch.com
• Prnewswire www.prenewswire.com
• Prweb www.prweb.com

57
PR AND REPUTATION

• World of confusing terms
• Public relations a discipline in transition
• Public affairs and lobbying
• Corporate affairs
• Corporate communications
• Reputation management
• Whats the difference?

58
PR AND REPUTATION
PR
REPUTATION
BRAND
Desired image
Vehicle of promise
Delivery of promise
59
CORPORATE COMMUNICATIONS
Marketing Communications
Management Communications
Organisation Communications
- Van Riel (1995)
60
REPUTAION An Overview
Organisational Reputation
Brand Reputation
Stakeholder Reputation
Reputational Radar
61
Relationship between PR and Reputation

• Public relations and reputation are intricately
  linked
• PR more specific issues media relations,
  public affairs, crisis management, event
  management and branding
• Reputation management is more holistic in its
  approach and involves all employees.

62
Traditional PR
Reputational Management

• Strategic in nature
• Integrated
• Holistic - long-term
• Involves all employees
• Aims to deliver an image and brand promise
• Uses all forms and opportunities to communicate
  policy and values
• Greater emphasis on multiple stakeholder
  relationships

• Less strategic
• Non-integrated
• Focus - short-term
• Key people involved
• Aims to give the best possible image
• Media relations focused
• Focus on transactional stakeholders

1980, 1990s, 2000 2010
63
Some Traditional PR functions
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Some Key Tools For PR Practitioners
65
Integrated marketing communications
66
BRAND AND REPUTATION

• What is the difference between brand and
  reputation are they the same?
• Brand promise
• Reputation delivery on the promise

67
THE BUSINESS CASE FOR REPUTATION?

• Links between reputation and financial
  performance are not easy to generalize about
  evidence to-date unclear and inconsistent
• Question how do you measure and what?
• Mathematical co-relations do not necessarily
  demonstrate causality
• The question is complicated and multidimensional

68
BUSINESS CASE FOR REPUTATION

• Does a good financial performance develop a
  perception of a good reputation?
• Good links do exist between corporate image and
  customer satisfaction
• Satisfied customers are not always loyal

69
REPUTATION AND FINANCIAL PERFORMANCE

• Risk and reputation are linked
• Traditional methods of assessing risk
• Value at risk VaR a measure of the riskiness of
  a portfolio, based on assessing the maximum
  amount that would be lost 19 out of 20 days,
  given typical levels in market prices

70
BUSINESS CASE FOR REPUTATION MANAGEMENT

• How do FTSE 100 companies currently measure
  performance?
• Growth in earnings per share (EPS)
• Total Shareholder Return (TSR)
• Earnings before Interest and Tax (EBIT)
• EBITA
• Economic Value Added (EVA)
• Return on Capital Employed (ROCE)
• Net Operating Profit After Tax (NOPAT)

71
BUSINESS CASE FOR REPUTATION MANAGEMENT

• How do FTSE 100 companies currently measure
  performance?
• Cash flow
• Cost of capital management
• Market share
• Strategic targets

72
BUSINESS CASE FOR REPUTATION

• Measuring Shareholder Value
• EVA (rate of return - cost of capital) x
  capital employed
• Other ways of measuring shareholder value
  include
• Net Present Value (NPV)
• Price/earnings ratio (P/E)
• Capital asset pricing model (CAPM)
• The Du Pont Equation
• The Wealth Added Index (WAI) www.sternstewart.co.u
  k

73
REPUTATION AND CREDIBILITY FOR FOREIGN FIRMS

• IPO
• London Stock Exchange
• Alternative investment market (AIM)
• OFEX
• Share price is now an indicator of
• a companys reputational capital

74
FOREIGN FIRMS AND REPUTATION DEVELOPMENT

• Develop investor relations and financial
  communications
• Produce detailed Annual Reports
• Develop media profile
• Work towards best practice and compliance with
  corporate governance
• Establish a strong and transparent working board
• Integrate risk analysis in all areas of the
  business
• Develop strong and clear corporate responsibility
  polices
• Appoint risk and reputation officers

75
INVESTOR RELATIONS

• Educate key stakeholders NGO
• Help shape and modify legislation
• Correct misconceptions
• Lobby on behalf of a trade body
• Lobby at the Diplomatic level
• Highlight unfair or restrictive practice
• Grassroots campaign development
• Develop high profile media campaigns

76
THE STAKEHOLDER IMPERATIVE

• Classic discussion based on whether a company is
  solely responsible to just its shareholders or a
  wider range of interests
• Pure economic argument focuses on optimising or
  maximising shareholder return
• BUT modern business operates in a volatile,
  hostel environment a more pluralistic approach
  is required

77
STAKEHOLDERS

• COMMUNITY
• Consumers
• Regulators
• Government
• Local community
• Media
• NGOs
• Trade groups

• CONTRACTUAL
• Customers
• Employees
• Distributors
• Suppliers
• Shareholders
• Lenders
• Alliances

78
STRATEGIC APPROACH TO REPUTATION

• Since 1980s Three big ideas
• TQM - Xerox and Motorola
• Reengineering
• Intellectual Capital (KM) GE
• It is not the strategy itself sometimes, just
  the way it is executed.

79
STRATEGY AND REPUTATION

• An organisations strategy describes how it
  intents to create value for its shareholders and
  stakeholders
• What is the link between reputation and
  intangibles?
• Intangibles are hard for competitors to imitate,
  therefore they are a source of competitive
  advantage
• Co-creation of value

80
STRATEGY AND REPUTATION

• Intangibles per se do not directly affect
  financial performance instead they work more
  indirectly via a complex chain of cause and
  effect
• The impact of a new tangible asset tends to be
  more immediate
• Intangibles need to be generally combined with
  other assets HR and IT

81
BALANCED SCORECARD

• Kaplans and Nortons Balanced Scorecard
  approach and strategic maps
• Four perspectives
• Financial
• Customer
• Process
• Developmental

82
CASE STUDY Coca-Cola problems

• Poor executive reshuffle
• Anti-Americanism Mecca and Zam Zam Cola
• Problems in Belgium 1999
• Faltering financial performance
• Crisis with Dasani drinking water UK 2004
• Obesity issues
• Problems with NGOs in India
• Trying to grow faster than the market
• Deaths in Colombia

83
Coca-Cola Solutions

• Continuous brand equity building within
  communities
• Citizenship initiatives
• Work with Greenpeace on reducing carbon dioxide
  emissions
• Open acknowledgement of the obesity issue within
  the US
• Sustaining brand identity and Image
• Re-evaluation of strategic growth

84
HOW TO DEVELOP A REPUTATION

• Quality of products and services
• Passion for brand
• Customer relationship marketing
• Strong corporate governance and compliance
• Integrated risk and issue management
• Crisis planning
• Corporate responsibility (CR)
• Strong brand values, experience and
  communications
• Organisational culture and structure
• Contract fulfilment
• Business presentation and conferences
• Customer facing staff

85
HOW TO DEVELOP A REPUTATION

• Innovation
• Vision and leadership by CEO
• Investor relations and public affairs
• Intelligence gathering
• Developing media profile
• Adaptive and ability to reinvent
• Community relations
• CEOs reputation
• Core competencies
• Establishing networks and alliances
• Understand the market
• Develop brand experience moments of truth

86
HOW TO DEVELOP A REPUTATION

• Clear strategies and resources
• Learning from others mistakes
• Listening to customers opinions
• Audit and assurance
• Measuring and evalutation
• IP protection
• Stakeholder analysis, mapping and engagement
• Deliver on customer promise
• Think global, act local

87
HOW TO DEVELOP A REPUTATION Organisational
Structure

• Who talks to who?
• Final gatekeeper responsibilities
• Question of internal communications
• Vertical to global matrix to e-business network
  structures
• The Case of ABB Asea Brown Boveri

88
A REPUTATION PLAN
CEO leadership and senior management commitment
Communication audit
Frame your corporate communicational structure
Implementing programme and resources
Maintaining and evaluating
89
HOW TO CONDUCT A COMMUNICATION AUDIT

• Based on GCI group Corporate Brand study
• Internal management survey - employee survey
• External Stakeholders survey
• Assessment
• Gap analysis
• Structural equation modelling
• Sensitivity analysis
• Competitor analysis
• Strategic communication planning
• Communication programme implementation
• Evaluation, measuring and monitoring

90
CONCLUSION

• The early part of the 21st Century is the era of
  reputation management and the management of
  intangibles
• The ruthless organisation cannot succeed
• Companies must adopt pluralistic approaches to
  managing risk and reputation- must adopt a
  socio-economic approach
• Emphasis must go on pro-active approaches, risk
  and issue management - not just crisis management

91
CONCLUSION

• Reputation management must be strategic in
  nature, but must incorporate emergent properties
  and reporting involve everyone, not just
  managers
• Getting organisational structure right and
  managing structural capital is critical

92
CONCLUSION

• Corporations must be innovative, passionate, and
  adaptive
• Reputation must be viewed as a strategic weapon,
  emergent and monitored
• Stakeholders views must be measured and
  evaluated what is stakeholder reputation?
• Reputation management should not stop at senior
  management and customer facing staff all
  employees should be involved

93
CONCLUSION

• Brands are the glue of reputation
• Develop brand equity internally and externally
• Ensure your employees understand your intangible
  assets
• Be proactive with the media

94
CONCLUSION

• Ensure your brand is not too easily copied or
  imitable differentiate by behaviour
• View CSR as a way forward, not a defence
  mechanism
• Develop first rate corporate governance
• Ask the right questions, then integrate,
  integrate, and integrate