How are CEOs rated by technology companies
Expert opinion: Morals and ethics are important success factors for companies
We spoke to Stephen Hahn-Griffiths, Executive Partner and Chief Research Officer at the Reputation Institute. The Reputation Institute is best known for its RepTrak annual ranking1, which rates 7,000 companies around the world based on their reputation. Each of these companies receives a score between 0 and 100 points based on more than 170,000 assessments from interviews with citizens of the world's 15 largest economies, including the US, Brazil, Australia, France, Germany and the UK. From the headquarters of the Reputation Institute in Massachusetts, USA, Hahn-Griffith told LexisNexis why a good ethical and moral reputation is more important to the success of a company than ever before.
What factors affect a company's reputation?
Hahn-Griffiths: The corporate reputation can be derived from the public support a company gains. This comes partly from the emotional affinity people have for the company and partly from the general understanding of what the company does and what it stands for.
Have the possible influences on company reputation changed over time?
Hahn-Griffiths: The 2017 RepTrak data shows a clear shift in that companies are measured by their approach to corporate social responsibility (CSR). We found that the aspects of good governance and good citizenship taken together are actually more important to a company's reputation than its products and services. It is an extreme change that the company behind the product is now more important in defining its reputation than the product it is made. It underlines the great importance of morally correct behavior, honesty, openness, integrity and a commitment to making the world a better place. Most of the companies in the top 100 places on our ranking are primarily defined by these metrics.
What do the top companies in RepTrak do best, and what can others learn from them?
Hahn-Griffiths: If we look at the top 10 of 2017 - we're talking about companies like Lego, Google, Sony, Rolex and Walt Disney - they all work with honesty and integrity and stand for things that are important to people around the world. These are, for example, diversity and integration, environmental protection or education. The companies have been associated with specific topics and concerns and that strengthens their reputations because they are known for doing the right thing.
How do these companies benefit from such a moral business model?
Hahn-Griffiths: We are seeing more and more how reputation mobilizes the markets. There is a strong correlation between a company's capital markets valuation and its ability to build a good reputation. The last few years have shown that a good reputation has the power to change the world: it played a role in Brexit, the election of Donald Trump or the emergence of the #MeToo movement. The reputation of CEOs around the world is now under scrutiny for incidents of inappropriate sexual behavior.
We are currently experiencing the emergence of a reputation economy. The good reputation is now the currency on which everything else is based. At the company level, reputation determines whether employees speak positively about you. On a private level, it defines one's own job, career and the next steps in life. The call is always present in our life and controls human behavior.
The LEGO Group topped the 2017 rankings. What has this company done particularly well?
Hahn-Griffiths: LEGO is an extremely focused company. It is committed to promoting playful learning and developing new solutions for our planet. It applies CSR at all levels, and not just lip service. It focuses on teachers as a key stakeholder and the importance of the relationship between children and their parents, and develops programs to implement these principles.
What are the factors that cause companies to perform poorly on the RepTrak Index?
Hahn-Griffiths: Companies have done poorly if they haven't been able to provide credible assurance that they are trying to make a positive impact on our society. There have been high profile examples of illegal behavior over the past two years - just think of Volkswagen, which allowed a fraudulent device to be installed in newly produced vehicles. This was a result of poor judgment and poor management of the corporate infrastructure.
The matter has turned into a worldwide scandal and has caused considerable damage to Volkswagen's reputation. Companies that behave immorally will be punished in the court of public opinion. It's difficult to build a reputation for yourself when people don't trust you and assume that you are only interested in profit.
It is far more difficult to sell Volkswagen now, and other brands in the Volkswagen Group, such as Audi or Porsche, have also been affected. In markets around the world, Volkswagen must now create greater incentives in order to win customers over to its cars. As a result, Volkswagen is finding it more difficult to find investors and hire the best workers worldwide. Of course, this is not the end of the world for Volkswagen. But success will be far more difficult for the company at the moment because of this reputation damage. Reputation can be a driver or an obstacle to the business.
Have there been any companies in the last few years whose reputation has improved or deteriorated significantly?
Hahn-Griffiths: Disney's reputation went through some ups and downs in 2017. But overall it has improved compared to four years ago. To achieve this, the company developed a strong CSR agenda, which was also supported by the company's management. All areas of the company were taken into account and all dimensions of reputation were taken very seriously. Disney ranked 3rd on our 2017 index, so it has been able to regain more of the magic than we have seen for a while.
How can a company win the trust of investors, customers and third parties?
Hahn-Griffiths: There is a global crisis of confidence, accelerated with the advent of fake news, and directed against the people who run our countries and our businesses. While we know that trust is priced at skyrocketing, companies need to do more than just tell us we can trust them. Trust is something that you gradually gain over time - through every single interaction and experience you gain with a company. It's hard to gain the trust of others, and even harder to regain after losing it. Reputation is an extremely dynamic unit of measurement that can go up or down in the blink of an eye.
How important is the CEO to a company's reputation?
Hahn-Griffiths: Another trend over the past few years is the rise of what I would call CEO activism. There is now an expectation that the CEO of a company should have a clear stance on social issues. CEOs can no longer pull themselves out of the affair by portraying themselves as apolitical. Society expects CEOs to speak out on issues such as immigration, women's rights, the right to education and public order. For example, if a company is not known for advocating diversity and equality, it damages its reputation. For this reason, CEOs need to show their colors and speak out clearly against sexual harassment in the workplace, for example. The CEO is the lightning rod for how the company is rated and has to speak out on important issues. This is currently happening in Europe and we will see it as a clear growing trend around the world in the years to come.
Which CEOs did this job well?
Hahn-Griffiths: A good example is Jørgen Knudstorp [former CEO, now Executive Chairman] of LEGO, who embodies the brand and its commitment to social responsibility with heart and soul. In tech, we have Satya Nadella from Microsoft, who is considered a caring and quiet person with an almost Zen-like aura. He has helped Microsoft grow from one of the most hated companies in the world to one dedicated to compassion for humanity. There are examples of all kinds of CEOs willing to take a clear stance on big issues and support best ethical practices - and they've helped their companies generate good sales on the side!
Have investors and customers' expectations of companies changed?
Hahn-Griffiths: Yes. The way companies are judged has evolved. People still expect companies to be well run and to meet their tax obligations, but increasingly they also judge them by their moral responsibility; do you behave correctly even when no one is paying attention? If companies can prove this, customers and investors will believe them even when in doubt.
Today, investors and customers expect companies to behave in a morally appropriate manner without being controlled and to take social responsibility more seriously than their sales. Investors want to know that companies have the necessary licenses, are not scrutinized by regulators, and are able to conduct their business freely. Ultimately, all of this is closely related to a company's good reputation.
Do you have any examples of how expectations of companies have changed the way certain industries operate?
Hahn-Griffiths: When looking at the carbonated soft drink market, there are growing doubts about the impact these companies have on weight management and dental hygiene. The question therefore arises as to whether they will remain legally competent in the long term. Smart companies like Coca-Cola realized long ago that in the long run they could generate higher income with non-carbonated drinks like still water. In this way, they cause less damage to the environment and at the same time behave more morally. Then there are companies that are thinking about sustainable types of packaging instead of non-recyclable materials that land in the dump. The same goes for tech companies and banks; they have to take social and environmental factors into account.
How can a company improve its reputation?
Hahn-Griffiths: First of all, our data shows that it's as much about the CEO as it is about the company. More than ever before, CEOs are being placed on a pedestal in a wide variety of ways and exposed to the critical gaze of the public. A CEO's attitude and total compensation affects a company's reputation.
Second, companies can improve their reputations by pursuing a specific purpose; that is, if they stand for something that goes beyond the products they make. It's about establishing a value system and a moral barometer on which decisions are based. And it must be clear that these values are not just pure rhetoric. The business decisions must be clearly aligned with the purpose. For example, some companies recently fell into disrepute following the bloody incidents in US schools for associating with groups of gun advocates. Many other companies have publicly spoken out in favor of making arms sales more difficult; you have made a meaningful decision. and their reputation has improved.
How can companies recover from moral missteps?
Hahn-Griffiths: It all depends on the industry and the type of company. We have found that all companies have certain forms of missteps or misconduct. How deep and persistent the resulting damage is depends more on how the company reacts to it. In the event of a reputation crisis, many companies resort to covering up or denying what has happened. When a Germanwings pilot deliberately crashed his plane in 2015, Lufthansa denied its connection to Germanwings to a certain extent. A clear trend is that how a company deals with such problems is more important to its reputation than the actual problem.
Companies need to be transparent and take responsibility instead of apologizing for what has happened, and then come up with plans on how to solve the problem and prevent it in the future. Companies that do this are forgiven faster than those who try to deny the story and pull themselves out of the affair.
Mr. Hahn-Griffiths, thank you for talking to us.
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1 Global RepTrak 100 Research, Reputation Institute
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