The link between reputation and company value–BP shows the high cost

Public relations pros often deal with the question as to how to get CEOs to pay more attention to the vital role of reputation management. Some CEO’s seems to inherently “get it,” and others, often financial-metric driven, have a harder time understanding the link because they don’t see an obvious connection between investments in reputation management or protection to the all-important quarterly results.

Crisis expert James Donnelly pointed this out in a recent post referencing a Forbes article which suggested we may be entering an age of reputation management. But, if anyone doubts the stunning impact of reputation loss on economic value, all one has to do is look at BP. One of the highest value and most respected (albeit hated by anyone who thinks hydrocarbons are evil) companies, has dropped out of the list of the 100 most valuable brands as a result of the catastrophe in the Gulf of Mexico. This according to brand valuation expert Interbrand.

I suspect that BP will be used for many years by anyone pitching PR services and particularly crisis preparation services to senior leaders. And well they should be. But I do have a fear. I’m afraid the pitch will be: See what happens when you don’t do good PR? Your reputation will go to heck and your brand value will be destroyed.  A much better pitch in my mind would be: There are some problems that even great PR can’t fix, so if you have any chance of doing some really serious damage to people, their futures or the environment, let’s look first at minimizing the risk of those bad things happening, and then let’s look at how to respond effectively if some really bad things do happen.

What are the fifteen most hated companies in America?

I’ll bet you think you can name them. BP starts the list, right, Toyota, AT&T, maybe even Microsoft. Certainly WalMart.

Wrong. According to the analysis by 24/7 Wall Street, here are the 15 most hated:

1. AIG
2. United Airlines
3. Level 3
4. Hertz
5. Citigroup
6. K-Mart
7. Blackwater
8. Dell
9. Abercrombie & Fitch
10. Chrysler
11. Dish Network
12. Rite-Aid
13. Gibson
14. Forever 21
15. Sprint

This is a surprising list and you might wonder on what basis were they selected. Here is the explanation:

We evaluated each company based on five criteria.  First, employee impressions, using research firm Glassdoor and other services, were reviewed.  Second,  we considered total return to shareholders from these companies over one-year, two-year and five-year periods, compared to the broad market and other companies within the same sector. Several firms on our list are not public. Third, customer satisfaction numbers and reputation figures were analyzed from a broad array of sources, including Consumer Reports, JD Power, the MSN/Zogby poll, Vanno, and the University of Michigan American Customer Satisfaction Index were examined. Fourth, brand valuation changes were also reviewed based on data from Corebrands, Interbrand, and Brand Z.  Finally, the views of taxpayers, Congress and the Administration of these companies were considered where applicable.

For those in the crisis management field like me, you might think public or at least consumer attitudes would trump everything. But I think these guys have it right. This is a 360 degree view of the organization. What does it matter if customers love you but the shareholders don’t? And what if you are darling of Congress, but your employees think you stink? Taking all key stakeholders groups into consideration is something we PR folks need to do a lot more. Kudos to 24/7 Wall Street for this list. And good luck to each and everyone of you who find yourself on it.

Zhu Zhu Hamsters and GoodGuides–when accuser becomes accused

In many if not most reputation crises there is an accuser and an accused. The media thrives on this because of the melodrama implied with the public good being the “maiden in distress” that the guys wearing the white hats are fighting for against the guys wearing the black hats. Round one almost always goes to the accuser because the media have an inherent interest in creating or conveying a dramatic story and that means someone or something must be at risk.

But the game is ultimately about credibility or who is to be believed. A winning strategy for the accused (black hat) is to turn the game around by accusations against the accuser and if successful the colors of the hats are switched. It all depends on whether the accuser is completely solid when it comes to credibility. This game (actually very serious business for those involved) has been played out to a T with the Zhu Zhu pets crisis.

GoodGuide, a consumer guide website with as far as I can tell, a very solid reputation, reported that Zhu Zhu pets were over the federal standards for tin and antimony. Big crisis for the company Cepia which manufactures the toys. No question about white hats and black hats.

Turns out GoodGuide was wrong in that they were using a different and apparently less stringent testing method than that required for the federal standards. The Consumer Product Safety Council verified that the pets met the federal standards. Now headlines (LA Times and US News) around the country are proclaiming “Zhu Zhu Pets are Safe.” And if you Google the related terms, unlike a couple of days ago, the biggest returns are proclaiming the safety.

Now it is GoodGuide that is offering a retraction, a very weak apology (we screwed up but really didn’t screw up too bad), and refusing comment in the news reports. Who has the black hat on now?

From Zhu Zhu’s position it is still a crisis coming at a most critical time for their sales. If they can keep the positive headlines going for a little while (personally, I think I’d advocate supporting that with some big ads showing the news reports), then it may actually turn out to their benefit in sales. Longer term, I can’t see how it can anything other than help them because they now have the added advantage of being victimized by someone supposedly speaking in the public interest who did them great harm.

As for GoodGuide, they had better start doing a lot better job than I see right now in dealing with this. A consumer guide service lives and dies on its credibility and it has been seriously, seriously damaged by this in my view. They havae to restore confidence. One thing it seems they must do is provide immediate assurance that they will now and forever more use the required evaluation criteria before coming out with their big headlines.

The consumers ultimately win in this. In part because I hope reporters and bloggers eager to jump in on the bad news story of another dangerous toy will stop and ask a question or two like, what testing criteria did you use, before they announce to the world that kids are going to die because of a toy like this. Second because it is a good thing for consumers to understand that the objective consumer guides are not necessarily perfect and without fault or bias themselves. Buyer beware, including when buying consumer advice.

Dave Carroll back with more music for United Airlines

I just don’t get it. After getting something like 4 million visits on YouTube for his entertaining complaint music video, Canadian musician Dave Carroll apparently is still ticked off at United. I just can’t believe they aren’t bright enough over there to give the guy the $1200 bucks he is asking for and get over this nightmare. Because now he is out with another even more clever and entertaining music video attacking United. Hey, the guy is an entertainer. He knows what his fifteen minutes of fame is worth. Why not milk it?

Now, if it turns out that United has played kissy face with him and he turned around and did this to them anyway, it will most likely blow up in his face. Watch out, Mr. Carroll. Your own self-interest, promotional instincts, pity-party or just plain greed may over take you and turn all the fame, sympathy and shared outrage against you.

But, for goodness sake United, make a dad-gummed music video saying, “Please Mr. Carroll, accept our apologies and this monstrous check,” and do it now before Carroll’s music videos top the Billboard charts. Hmm, do they still have those charts?

The new crisis management emerging–and it works

This post from Bulldog Reporter is one of the most encouraging I’ve read in a long time. It demonstrates the dramatic change that has occurred in organizations in building fast response methods to averting potential crises.

I just finished reading another WWII history book–this one called “Scramble” by Norman Gelb about the Battle of Britain. For those not up on this history, this was the battle between the German Air Force (Luftwaffe) and the RAF or Royal Air Force of Britain. Though outnumbered 3 -1, the heroic and hurriedly trained RAF pilots took such a toll on the German fighters and bombers that Hitler had to cancel his plans for an invasion of England. Truer words were never spoken when Churchill said “never in the history of human conflict have so many owed so much to so few.” Or something like that.

But, the secret to their success was really in their intelligence gathering and their superb organization. Radar was a new invention but they deployed it effectively along with ground observers. They also decoded the German’s military radio signals in a very secret operation called ULTRA. They used these various early warning signals to identify the size, direction and altitude of the incoming raids. Based on this, using their great operational control method devised by Air Marshall Dowding, they directed their overstretched fighter resources to where they could do the most good. Although knocked to their knees, the Germans could never land the knockout punch and Hitler in frustration turned his focus to attacking the Soviet Union.

The new crisis management depends on using today’s radar–social media. Monitoring it closely, and then with organization aimed at near immediate response, moving exceptionally quickly to assess the problem and respond. As the post demonstrates admirably, it works. Many crises can be averted if the problem is dealt with soon enough. The Institute for Crisis Management has reported consistently that 75% of all business crises are “smoldering” in the sense that an issue exists that could erupt into a crisis and if it does, it is usually because the issue is not dealt with soon enough.

It is very encouraging to see major corporations adopting the “Distant Early Warning” and fast response methods that have proven so effective in the past. I just blogged about the increase in trust in business. Hmmm, maybe there’s a connection.

Isolate the “sinner”–great strategy during blog attack

Here is a terrific example of how to deal with a very negative blogger.

As you can see from this account, the blogger had his own agenda and purposes. Mostly likely trying to build his own rep and traffic by being seen as the unconventional critic. Fine for him, unless you are the victim of it. It’s the way it is with most activists and attackers in my experience. They have their own objectives and ambitions, and their take on you is just a means to an end. Nothing personal, so to speak. But in that case, reasoning with them is clearly not going to do any good. Engaging with them in any way isn’t–certainly not in the deceptive way one employee tried to do.

What Mr. Strong advocates is what I call “isolate the sinner.” Or marginalize. By “sinner” I am referring to the designation of three categories of audience in a major issue debate: saints, sinners and saveable. The saints you have with you. The sinners, against you. And the saveables are the swing vote, and that’s where you focus your effort. As I have commented many times before, many of those who appear to be “sinners” are actually saveables. So don’t presume anything. In fact, even in this case, you want to make certain that the blogger is immune to engagement before isolating, because obviously he/she is not going to like it. But, when they have their own agenda, as I said, nothing you can do.

I have used this method many times myself in tough issue management situations. If you go directly after those people closest to the attacker and confront them simply, clearly, kindly, graciously with the facts, the truth, no spin, and plenty of respect, it can do amazing things. They are forced to choose between the credibility their attacker friend has in their mind, and the truth. If you are persuasive, the result will be loss of credibility in their friend. The truth is, either you are telling the truth, or they are. But you better dang well be telling the truth, wholly and completely.

In battles like this, it is always about credibility. The initial win almost always goes to the attacker because you have the motive of profit and cannot be trusted. But if they can be shown to be less than fully and completely honest or if their own motives and agendas becomes obvious, you have a chance not only to level the playing field but win the battle. It always comes down to credibility.

Case Study–Dealing Aggressively with Reputation Attack: Houston Livestock Show

I’ve advocated that there are some times in a reputation crisis when you have to take the gloves off. I know I have done this on several occasions, particularly when the activist/opponent shows little regard for the truth and they are getting traction. These battles always come down to credibility: who is to be believed and when your opponent is misrepresenting the facts, sometimes you just have to pounce.

That’s what I see the Houston Livestock Show and Rodeo doing against a determined and experienced activist.

Here’s a copy of an email that the organization distributed (sent to my by my brother who is a Fair manager and obviously interested in crises involving similar organizations): (For those not interested in reading the entire piece, my concluding comments are at the bottom of the italicized text.)

A PUBLIC MESSAGE FROM THE HOUSTON LIVESTOCK SHOW AND RODEO

In a widely circulated e-mail, Ben Mendez, political activist and spokesperson for the National Hispanic Professional Organization, has presented a list of inaccurate statements and facts accusing the Houston Livestock Show and Rodeo’s volunteer leadership and salaried management of deception and non-compliance with state and federal requirements for non-profit organizations.

More importantly, Mendez accuses the Show’s volunteer leaders and management of personally enriching themselves from money intended for scholarships: “An Organization that claims to be all about scholarships is really a money-making machine for those in leadership positions.” His document is full of misleading statements and outright lies. Please see Ben Mendez’s full e-mail below.

NOW THE FACTS:

The Show was going to move to the Port City Stockyards after the Democratic Convention Hall burned in 1936. Houston urged Show officials not to do that and the city built the Sam Houston Coliseum to house a variety of activities, including the Show.
The Show management was in private offices (sometimes sharing offices with the Houston Chamber of Commerce) until it moved to the Astrodome complex in 1966.
In 1966, the Show, at the request of Harris County, abandoned its plans to build its own coliseum (where the Northwest Mall is now located) to build a convention/livestock exposition building to support the Astrodome. The Show built the Astrohall, the Astroarena (Reliant Arena) and its year-round offices (at its own expense) and donated them to Harris County.
The Show paid for the build-out of its offices in Reliant Center. The Show’s direct contributions and bond coverage funding for Reliant Stadium and Reliant Center is $87.1 million. The Show pays $1.5 million in annual rent for its use of Reliant Stadium.
The Show’s board is reflective of the volunteer makeup of the Show (more than 21,000 volunteers) and it includes at least nine Hispanics (the Show does not track ethnicity of its membership). The Show has one Hispanic and one African-American among its 18 volunteer vice presidents (the second highest volunteer position in the Show).
According to a survey of Hispanic surnames conducted by Show volunteers Rey Gonzales, Joe Vara, Santa Gonzales and Amanda Salinas, during 2008 at least 1,324 Hispanic volunteers served on 89 of the Show’s 93 committees and they held leadership positions on 48 percent of the committees, to include being chairman of four committees.
African-Americans and Hispanics are setting a fast pace through the Show’s volunteer ranks based on dedication, commitment, continued service and merit.
The Show is a color-blind, equal opportunity employer that prides itself on being ethnically neutral.  There are 25 (not seven) minority employees (Hispanic, African-American, Asian-American and mixed-race) among the 100 full-time Show employees.  Their jobs include specialists, technicians, computer programmers, accounting and customer service, and management employees. The Show does not employ groundskeepers – that is the responsibility of Harris County. In addition, 76 percent of the Show’s full time staff is female. Forty percent of senior management, and 57 percent of all Show management, are women.
The Show does not hide its six-figure employee salaries as Mendez reports. In fact, anyone can access numerous public Web sites, including guidestar.com, to see the Show’s latest 990 tax return where they can view the salaries of the top eight Show employees.
The Houston Chronicle has reported the Show’s top management salaries on several occasions in recent years.  In a March, 18, 2008, article (written by Alexis Grant) the Chronicle stated that, “Only one of the Show’s 91 full-time employees, Wagner, makes more than $300,000. Two other employees, Chief Operating Officer Leroy Shafer and Chief Technology Officer Andrew Sloan, make more than $200,000.”
The same Chronicle article referenced Dan Parsons, the Better Business Bureau president, who said that those salaries are comparable to others in Houston’s nonprofit sector. An independent compensation consultant reporting directly to the Executive Committee determined that salaries were very much in line with comparable positions in similar organizations.
The Show has never taken in $120 million in a year (as Mendez claims). In 2008, the Show’s operating revenues were $85,185,000. Program expenses (the Show’s real exempt purpose is to put on a livestock show and fair, using some of the net proceeds for education and building) were $53,875,466. This accounted for 63 percent of the gross revenue. $15,603,897 went to Texas youth through auctions and educational support (18 percent of gross revenue). Combined, 82 percent of all gross revenue covered expenses that met the Show’s exempt purpose. The Show spent $5,757,965 on administrative expenses (7 percent) and $4,117,247 on fundraising (5 percent).  The Show had a net income from operations of $5,841,277 (7 percent). Net profit is used to build reserves to be used for three purposes:
Provide organization funding in the event there is a catastrophic event and the Show can’t be held (this possibility was very realistic after the damage caused by Hurricane Ike);
Provide the ability for the Show to make capital contributions to Reliant Park facility projects (as it has done on every project so far);
To quasi-endow the educational programs so that the Show can continue to have an impact on youth and education even if it someday is not as financially successful as it has been recently (that possibility was a real possibility in the mid-1980s with the “oil bust”).
Mendez references the Show’s $50 million in awarded contracts. The Show does not award anywhere near that dollar amount of “contracts.” It is the assumption of the Show management that he is referring to the non youth and education expenses of the Show from the audited financials. If so, those expenses included more than:
$10.5 million in city, county, and facility-related fees and expenses (expenses that cannot be bid by the Show);
$5 million in non-cash expenses (i.e. depreciation);
$14,500,000 in non-vendor-related expenses such as cash awards to exhibitors and contestants; salaries and salary-related expenses for the 695 full-time staff, part-time staff and security; U.S. Postal Service fees; etc.;
$7,600,000 to stadium entertainers which are negotiated and agreed to by the entertainers’ agents;
$1,400,000 in advertising (a considerable amount going to Spanish-language media) that in most cases is paid at the going market rates unless the vendor offers a discount; and
nearly $2,000,000 in alcoholic beverages (which as a retailer, state law requires us to purchase from distributors).
For the 2008 fiscal year, the Show paid over 8,000 vendors.  Vendors are selected by Show staff and thousands of committee members.  The Show gets multiple bids for products and services based on the type of purchase, and takes bids from qualified entities.  Some are bid project by project, some by year, and some multi-year, depending on the type of product or service provided. The bidding requirements start at $1,000, based on the size/type of the project.  If the lowest bid is not selected, a strong reason has to be demonstrated as to why it was not (i.e. turnaround time, quality of sample products provided).

As the Show literally has thousands of people handling its purchases, it is believable when Show officials hear that some vendors find it hard to determine how to submit bids or learn about upcoming projects.  The Show is committed to improving that process.  After this Show is complete, officials will review the process to see what improvements can be made (vendor seminars, Web site submission of information, etc.).  This would be open to all vendors that are interested in doing business with the Show. The Show knows of no one who has been unable to approach the Show about doing business.
The Show’s entertainment budget for 2009 is $8,300,000. The actual expended budget will be between $7,310,000 and $8,260,000 – depending on performance payout options. Not one entertainer will be paid between $750,000 and $1,000,000 (Mendez reported that all non-Hispanic entertainers get paid that much). If all entertainers got paid equally at the Show (they do not), each entertainer this year would be paid around $377,000. The Show never reveals a specific entertainer salary, but it would be ludicrous to compare Little Joe’s salary from 18 and 20 years ago with today’s entertainer salaries.
The Show negotiates all of its entertainer contracts based on market value (understanding that it pays a premium over market because of the one-off nature and the size of the venue).
The Show’s entertainers are evaluated, selected and contacted by the Show’s entertainment department – under the direct supervision of the managing director of entertainment. The evaluation is based on numerous surveys, computer models, record sales, comparable concert sales, and consultation with radio station program directors and others in the industry. In the case of entertainers for Go Tejano Day and Black Heritage Day, entertainment department staff consults with the leadership of each committee regarding talent. The Show has repeatedly told Mendez this and he continues to report that they have not been consulted. Like any business, the Show’s goal and fiduciary duty is to maximize attendance at the most economical level to the Show, not to the entertainer.
The managing director of entertainment reports directly to the COO and often briefs the president and CEO, and chairman of the board. The Executive Committee is not involved in this process and does not know the entertainer lineup before it is announced.
Mendez says, “Basic information has been requested year after year and every time we are given excuses. What is there to hide?” The Show knows of no request from Mendez or Sen. Gallegos prior to Feb. 10 of this year (a Texas Non-Profit Corporation Act information request from Sen. Gallegos). The information was delivered Feb. 20, while preparations were in full-swing for the 2009 Show.
During the past year, Harris County Commissioner Sylvia Garcia requested the ethnic makeup of the Show’s scholarship recipients. The Show could not respond because it had never tracked the ethnicity of its students. Because of ongoing misinformation on this issue, the Show instructed its education department in early February to pull all winning scholarship applications for the past three years and to note ethnicity of each student from the attached high school transcript. Commissioner Garcia was given that information last week. The Show believes the ethnicity of the scholarship recipients in the Houston metro area reflects the ethnicity of the area’s population.
The Houston Livestock Show and Rodeo is a responsible 501(c)(3) nonprofit organization that complies with all requirements of the IRS and the Texas Non-Profit Corporation Act. This should be evidenced by several requests from Houston media over the years. The Show does not reveal the individual salaries of its entertainers as that is proprietary and trade-secret information. Each salary is negotiated and it would be extremely damaging for other artists, agents and managers to know each salary.
If you are a member, volunteer, or supporter of the Houston Livestock Show and Rodeo, take pride in the fact that you know the facts about the Show and pass this information on to all of your friends and associates.

ACTUAL BEN MENDEZ E-MAIL
From: Ben Mendez [mailto:benmendez@thehoustoncalendar.com]
Sent: Wednesday, February 25, 2009 12:14 AM
To:
Subject: Rodeo Protest Scheduled for March 13

The Hispanic and African American communities are protesting the lack of
diversity within the Houston Livestock Show & Rodeo.  A press conference
is scheduled for Friday, February 27, at 10:30 a.m. at the Harris County
Administration Building located at 1001 Preston.  Everyone is welcome to
support the cause.

A protest at Reliant Stadium is scheduled for Friday, March 13, at 5:00
pm.  The performer for that evening will be Clint Black.

The Houston Livestock Show & Rodeo was established in 1931 and has used
government facilities since 1938.  Millions of tax dollars have been
used to create venues and provide year-round office space for the rodeo.
For this reason, leaders from both communities feel the rodeo should be
inclusive of all communities.

At the press conference, the following issues will be addressed:

1.  Board Members

There are 320 board members at the Houston Livestock Show & Rodeo, of
which 233 are voting board members and only 7 are minorities.  The
process of becoming a board member is dependent on being a big donor,
serving on the Houston Livestock Show & Rodeo Committee for decades, or
being recommended by the executive board members. There are many
minorities that have volunteered for the rodeo for decades, yet they
have never been recommended to serve as board members.

2.  Board Executives

There are 42 executives on the Houston Livestock Show & Rodeo board,
which includes 17 vice-presidents.  Of the 42, there is only one
minority.   By the way, the rodeo will consistently show him in the
press to show they are diverse.  Why don’t they show the other 41
executives on television?

3.  Full-Time Employees

There are 90+ full-time employees at the Houston Livestock Show & Rodeo.
There are only 7 minorities, which are groundskeepers and other low
level employees.  The rodeo executives have consistently hid the
salaries of employees for their own benefit.  They do not wish to show
anyone their hefty 6-figure salaries.  The rodeo is a non-profit
organization using government property.  There should be no reason to
hide these facts.

4.  Scholarships

The Houston Livestock Show & Rodeo will bring in approximately $120
million in 2009 and yet it only has committed to award $11 million in
scholarships, which amounts to 9% of the total funds collected.  An
organization that claims to be all about scholarships is really a
money-making machine for those in leadership positions.

5.  Concerts

The Houston Livestock Show & Rodeo has 20 concerts per year.  One day is
dedicated to Hispanics and one day is dedicated to African-Americans.
Are we to celebrate this?

6.  Contracts

This year approximately $50 million will be awarded in contracts by the
Houston Livestock Show & Rodeo.  Has anyone seen a Request for Proposals
distributed to the community?  I didn’t think so.  There is no process
in place to ensure minority contractors and vendors have a fair
opportunity to bid on any of the contracts associated with the rodeo.
It is the good ole boy network at its best.

7.  Pay Parity

The average attendance for the concerts at the Houston Livestock Show &
Rodeo is 55,000 a concert.  Go Tejano Day (now called Hispanic Heritage
Day) averages almost 70,000.  Go Tejano Day has consistently broken
attendance records throughout the years and yet the artist performing on
that day have consistently been paid much less than their counterparts.
The average pay for a performer for each performance is between $750,000
and $1,000,000.  Little Joe, a Tejano music legend, was paid $40,000 for
a concert.

8.  Open Records

The Houston Livestock Show & Rodeo has consistently avoided being
transparent to the citizens of Harris County.  Basic information has
been requested year after year and every time we are given excuses.
What is there to hide?

9.  Selection of Artists

The selection of entertainers is done by Houston Livestock Show & Rodeo
executives with no input from the Go Tejano Committee or the Black
Heritage Committee.  I guess this executive committee knows it all.

I hope this information gives you insight as to the real issues
regarding the Houston Livestock Show & Rodeo.  If you are interested in
joining us for the press conference or the protest, please contact me at
benmendez@thehoustoncalendar.com.

Thank you for understanding our concerns.

Ben Mendez

Things to learn and imitate:

1. they emphasized the facts–straight ahead corrections of where the facts were misrepresented

2. they mostly avoided harsh, emotional criticism–a little too much of it came through in my mind

3. they included his actual email–shows they wanted you to read it and not rely on their own interpretation

But, I do have some criticism. I looked on their website and there was no reference to this controversy on their site. I did a search and came up with nothing. I noticed they have a myspace page and went there and managed to find the statement after a little digging (and listening to some country music ). They could be doing much better on the internet side of the communications here. Where is the opportunity to respond? Why do I have to look so hard to find their side of the story–their site is one of the first places I would go if I was involved in this more.

But, I like the aggressive, headon approach and I like they way they are focusing this on credibility.