Why China’s Rise is Good for Us

For a detailed, thoughtful and realistic look into the complex economic ties between America and China, read The Atlantic Monthly’s July/August story, “China Makes, the World Takes.”

National Correspondent James Fallows takes us on an inside tour of Shenzhen, a massive manufacturing center whose frantic pace makes New York seem slow. He shows us who makes the products we use and how these products are made. More important, he describes how this economic relationship benefits people in China, America and other countries, while discussing some of its adverse impacts and long-term risks.

My respect for Fallows expanded after reading his insightful book on the media, Breaking the News. He is an extraordinary writer who, in his latest Atlantic story, looks beyond the simplified and often politicized rhetoric about the value of China’s currency, WTO and trade barriers, cheap labor taking jobs from Americans, etc. He offers a strong dose of reality along with a healthy amount of balance (though I’m sure some will disagree).

If you end up wanting more on the subject, then read the rest of the Atlantic Monthly special issue on China and visit the author’s blog, where he expands on many of the points in this article.

I’m not minimizing the very real economic, social, political and environmental challenges in China or their implications for America and the rest of the world. I have friends who are prospering from China’s rise and others whose businesses are challenged by it.

But I hope people will read Fallows’ report for its realistic look at one of today’s most important global issues involving America’s most important trade partner.

Citizenship gives pulse to corporate reputation

There were two interesting and somewhat surprising findings in the latest corporate reputation research by Reputation Institute (RI).

In assessing the 100 largest companies based in the U.S., Americans said:

1. citizenship tops the seven dimensions of overall corporate reputation, and
2. all seven dimensions play a significant role in defining corporate reputation.

These insights were in RI’s 2007 Global RepTrak™ Pulse research first reported in May on Forbes.com. This year, for the first time, RI measured the relative importance of the seven dimensions in its current reputation model, which RI has continued to fine-tune over the years.

Looking at each dimension, the U.S. general public still puts great importance on a company’s products/services (18.3% of total reputation), but citizenship (18.4%) was just as influential.

Three other dimensions have strong influence on overall reputation – workplace (14.2%), governance (13.5%) and innovation (13.2%). Leadership (11.8%) and performance (10.6%) are also important.

Findings vary by year, industry and company. But taken together, these results have important implications for companies striving to protect, build and manage their reputation. To create and leverage a positive reputation, companies should:

• support good causes (including the environment) that have a positive influence on society;
• communicate their cause activities in a clear, consistent and compelling manner;
• prepare for the possibility they might have to address all seven aspects of corporate reputation, not just one or two dimensions.

For example, public companies that focus on their Wall Street reputation should remember that Main Street thinks financial importance is the least important reputation driver overall. Main Street cares most about corporate citizenship and products/services.

And companies that don’t actively embrace causes and effectively communicate their citizenship efforts could find their reputation is holding them back.

Companies should always make strategic decisions based on data specific to their industry and business. Still, RI’s findings suggest Americans are taking a broad view of corporate reputation – a perspective most companies would be well served to adopt.

The new Nardelli?

Cerberus today named Robert Nardelli to head the “new Chrysler Corporation.”

After leaving Home Depot, it was only a matter of time before Nardelli resurfaced in another corporate leadership role. But I didn’t think it would happen this soon or at an automotive company.

Nardelli has a reputation as a strong leader. Chrysler needs clarity and momentum more than ever.

But most believe he made a critical error in focusing mostly on Home Depot’s financials. He won’t have to worry about institutional or individual shareholders at Chrysler, which is now privately held by Cerberus. That should free his time to rebuild trust with other key stakeholders, especially Chrysler customers and employees.

His reputation — and Chrysler’s success — depend on it.

I wouldn’t be surprised if he succeeds.

Less than Comcastic

This isn’t a rant about Comcast customer service, though it could be.

Instead, it’s a tale from real life (mine) about the importance of shared accountability for corporate reputation. About aligning corporate actions with brand promises. About leveraging technology to eliminate corporate silos and empower employees. And it’s about the importance of living corporate values – all to create loyal, satisfied customers for sustained financial performance.

Comcast is under pressure. Competitors have stepped up advertising attacks. YouTube has a popular video of a Comcast technician taking an hour-long nap on a customer’s couch after the office put him on interminable hold when he called in for help. You feel bad for the customer and the Comcast guy.

Wall Street seems happy with Comcast at the moment. Most analysts rate its corporate stock an “upgrade.” Relative to competitors, it has a higher operating margin and P/E ratio, though earnings per share lag. Comcast also has much higher revenues and 90,000 employees. That’s impressive, but my latest experiences have me wondering if the street really knows what’s going on at Comcast.

We have Comcast digital cable and Internet service at home. It generally works unless the digital receiver is malfunctioning, a fairly common occurrence.

On Sunday afternoon, I got a call from Comcast with a “special offer” to change my subscription package. I’m suspicious of such offers because they often mean higher total costs over time. And my suspicions mount when the company urges me to make an instant decision, refusing (as Comcast did) to send me an email with details. How insulting. If this offer were so good, Comcast should be transparent about it.

What’s more, I was in the middle of getting acquainted with my new MacBook Pro (love it!). So I listened patiently to the sales pitch and then declined. The Comcast rep was polite and professional.

Then as I was headed out the door this morning, the phone rang. The caller ID read Comcast, and based on the way “Pete” started his spiel, I knew he was making the exact same offer I had declined yesterday. To save us both time and trouble, I asked Pete if this was the same deal.

I just assumed Comcast’s customer service records would show I had already been contacted and declined. Then again, I thought Comcast was aware I was on the national “do not call registry” – and though companies are allowed to make telemarketing pitches to current customers, I figured Comcast would think twice because I was on the registry.

Well, Pete from Comcast didn’t appreciate my offer to save us both time. Raising his voice, he criticized me for not waiting to hear how he and his company were about to do me a huge favor. Perhaps Pete concluded I lacked the wisdom to make a correct assumption. Or maybe he believed deeply in the offer. Who knows?

I didn’t go postal but offered a sarcastic reply, such as: “so this is how Comcast works to keep customers when DirectTV and DISH are enticing them to switch.” I don’t think Pete heard me because he was too busy barking. He got the 800 number in before hanging up.

Here’s my point:

• When you have a large workforce, you will get a few Petes in customer service. So you need to triple efforts to improve hiring and training practices. Make it clear at every opportunity that your corporate values won’t tolerate behavior like Pete’s. Recognize and reward those who do it right, retrain those who mess up once or twice, but dump the recidivists without hesitation. Be ruthless on quality control.
• If you outsource customer service work to suppliers, take extra steps to monitor service quality. Remember that outsourced firms are shaping your brand and reputation.
• Use databases to manage customer relationships. Employee or contractor, Pete should have known I had declined this particular offer. And if he was calling with a different offer from another part of Comcast, he still should have known I was predisposed to rejecting such offers based on my past history with his company.
• Create cultures that understand and value corporate reputation. Make sure employees know that their reputation and the company’s are linked. Talk with them about the enormous impact of word-of-mouth communication. Pete’s just one of 90,000 employees, but he should known that I would share our exchange with my friends. He should also assume I could be a blogger or reporter capable of broadcasting it to the world.

As for Comcast, I wonder if it’s putting too much effort in managing its corporate reputation on Wall Street and not enough time satisfying other stakeholders, especially customers. This is true for many public companies; they devote too much time on something that doesn’t drive reputation and, ultimately, financial performance.

Comcast’s 18% margins may lead the industry. But perhaps if they accepted 1% less and invested that improved customer service instead, their long-term performance would be even stronger.

New heroes wanted

In March, I called John Mackey, the CEO of Whole Foods, “my new hero” for slashing his salary and benefits package. There was mounting concern then about excessive CEO compensation, and this remains a governance problem for several companies, with substantive employee engagement, investor relations and public relations dimensions.

Mackey’s response to the compensation issue was refreshing at the time, and his company remains a role model for maintaining its narrow pay range across the organization.

But any goodwill this pay policy generated has now been eroded by Mackey’s admission last week that he had been posting anonymously about his company and its competitors.

Time, the SEC and the courts will tell if all of Mackey’s postings were legal. But we don’t need regulators, judges and juries to affirm that what Mackey did was wrong. Anonymously pumping your company’s stock while trashing competitors anywhere, online or off, is simply and totally unacceptable.

This issue can only hurt Whole Foods and its corporate reputation, which is losing some its luster. We may not see the reputation dent on company sales and profits for some time, because initiatives to add stores, increase sku’s and improve the supply chain should benefit Whole Foods’ financials for months or even years. (key metric to watch: same-store sales).

But people with even an ounce of morality and fairness are starting to question whether they can trust Mackey and his company. His future comments and his company’s future actions are bound to attract even greater scrutiny. And in the same way some Wal-Mart customers gradually switched to Costco and other big box retailers, we can expect some to slowly switch to Whole Foods’ competitors as their presence and reputations grow.

Finally, we have to wonder if any of this would have happened if Mackey had been transparent and authentic. What if he had posted his opinions under his own name?

Sure, his colorful language would have been watered down (somewhat), and his content would have been sanitized by his lawyers. But it still would have been an interesting perspective–and many of us might be extolling his transparency and candor while flocking to his stores.

Corporate reputation: A “must-do” for new CEOs

These days, most CEOs have a 100-day plan, a promise to make various changes in their first three months on the job. Such plans have considerable appeal with their stakeholders who had change in mind when they helped put the new leader in place. But stakeholder perspectives and expectations can vary greatly, and demands on new leaders are diverse. In an article just published in Direct Selling News, I outline 10 ways a new CEO can get started in framing a successful, long-term effort to enhance corporate reputation. And though this is written for direct selling company executives, I believe many of these suggestions apply to other businesses.

Read it and reap

The March 2007 issue of Direct Selling News includes a feature I wrote on managing corporate reputation. It’s a general piece that broadly covers why corporate reputation matters and how it can be protected/built.

Control freaks

It has been fun to follow the flap over the Barack/Hillary video on YouTube. You know, the one that borrows liberally (pun intended) from Apple’s “1984″ ad to ridicule Hillary’s monotonous vocal style. The piece was produced by a zealous Obama supporter whose firm was doing web work for the campaign. That firm is now looking for a new candidate.

The issue shows that it’s becoming harder for political candidates to control their image and message. Bloggers, YouTubers and others are jumping into the image-making game as candidates and their handlers freak over their loss of control.

There’s a similar wringing of hands at corporations these days. Like candidates, companies still favor the comfortable control of advertising, where every soundbite is perfect.

Desire for control has led to extreme efforts to prevent corporate leaks. Last year’s Hewlett-Packard boardroom battle over leaks tarnished the company’s reputation for effective management. And recently, Wal-Mart announced that it had fired employees for eavesdropping on telephone conversations and text messages with journalists, including a New York Times reporter.

Key details in the Wal-Mart case won’t be public for some time. The company is cooperating with federal investigators and has issued apologies. It will be interesting to learn what motivated these ex-employees and if anyone else knew about their activities.

The broader issue here is corporate trust. It sucks – and polls show it’s getting worse.

Trust matters. When people trust companies, they are more likely to choose their products, buy their stock, work for the company, etc. When people trust candidates, they’ll vote for them and give them the benefit of the doubt – even when, inevitably, mistakes are made (a phrase we’ve heard a lot lately from corporate and government officials).

It will take a major, sustained effort to improve public trust in business. Not just an ad campaign or PR blitz that touts the virtues of companies and industries. Those tactics could help – but not without the right foundations.

In particular, companies need to start living their stated values day in and day out. Leaders have to model and promote these values, holding themselves and everyone in their organization fully accountable. Excuses won’t fly, and half-apologies couched in abstract corporate speak won’t cut it.

It’s not merely a question of greater transparency, though many companies could benefit from more of that. Companies really need to get real and be authentic. They need to act and speak like you and me. They must accept they can’t control the dialogue about them and start to engage in it. They will win some arguments and lose a few too. But over time, people will respect companies that are genuine, authentic, real and engaged. And with respect, trust will follow.

My new hero

In the early 1990s, when I worked in Japan during a prolonged and severe recession, I saw many corporate leaders voluntarily cut their pay and benefits. Their logic was simple: before asking their subordinates to make sacrifices, they felt it was essential for them to make the first sacrifice. This tactic worked to maintain harmony and employee engagement during tough times.

So I was interested to read in the February issue of Fast Company excerpts of a letter sent by Whole Foods Markets CEO John Mackey to his employees last fall. In this, Mackey first informed employees that the company was raising its salary cap from 14 to 19 times the average pay for a Whole Foods’ employee. Why? To help retain corporate leaders who, due to the company’s success, had become prime targets to work elsewhere.

Mackey noted this new multiple was still far below the standard at other Fortune 500 companies, who in 2004 paid their CEOs 431 times as much as their average employee.He also said 93% of the company’s stock options had been distributed throughout the entire company, with just 7% going to the top 16 execs. Wow – Mackey had me at “19x salary cap.” He was already my new hero.

But then he went on to tell employees that he was slashing his own annual salary to $1 and had instructed the company’s board to donate any future stock he might be awarded to the company’s charitable foundations. He admitted the obvious – that he was wealthy and financially secure – in a humble and sincere way that was positively arresting.

A recent Wall Street Journal column gave mixed reviews to CEO salary cuts at other companies. It said some had been effective but noted how others had backfired when, for example, some CEOs made up for lost compensation as soon as sales and profits rebounded.

This really is all about common sense. If a CEO or any business leader has a good grip on reality and is a true “servant leader” who consistently models the values he/she professes, then most employees will remain engaged, loyal and productive.

I’m all for capitalism and free-market principles, in executive compensation and business in general. But reason must prevail, and boards have to start taking more aggressive steps to narrow the enormous compensation gap at most corporations today.

Corporate reputation – and future success – depends on it.

Saving corporate reputation

Some organizations have turned killing worthwhile initiatives into a core competency. Here are 10 ways corporate cultures will try to kill reputation initiatives, based on real-life experience – with some practical suggestions for repelling such attacks.

1. Consistently break laws, rules and societal norms. Perfection is not possible or expected. But companies that make it a point to go by the book minimize mistakes and have the best reputations.
2. Use several reputation measurement models. Get everyone on the same page. Find one reputation measurement tool that fits your business and stick with it across the enterprise and over time.
3. Assume reputation measures are the answer. Measures are a great start. But they won’t contribute much unless they are fully integrated into reputation planning and rewards systems.
4. Sideline the CEO. Stakeholders ultimately will hold the CEO accountable for building and protecting reputation. He/she has to own and drive the effort.
5. Make reputation management a “nice to-do”. If the CEO says reputation is a strategic priority, management and employees will make it one.
6. Approach reputation management as a two-year project. Treat it as an ongoing priority that’s central to the way the company operates, now and in the future.
7. Assign reputation management to one department. Reputation management is a team sport, and almost every department has to get in the game. Use cross-functional reputation teams to share accountability and boost engagement.
8. Delegate reputation management down. Priority initiatives must be led by people with the resources and organizational influence to get things done. Put the best senior people on reputation teams.
9. Perpetuate a “fire-fighter culture”. Manage the short-term while planning for the long-term. Make reputation management part of everyone’s responsibility.
10. Reward sales and profits only.

What gets rewarded, gets done – so add reputation goals to the corporate scorecard and reward management for reputation success.