• Ken Trantowski
  Former Director, Reputation Management Practice
  Edelman Worldwide

• John La Sage
  Chairman, Midwest Division
  Burson Marsteller

• William J. Wilhelm
  Partner, Financial Services Division
  Crowe, Chizek and Company LLP

Ken Trantowski

Ben Franklin may have said it best: “Glass, china and reputations are easily cracked and not easily repaired.” Evoking this quote from the 16th Century, Ken Trantowski, former Director of the Reputation Management Practice for Edelman Worldwide, ushered in a discussion of an issue that hasn’t changed much since then: Reputation Management.

Trantowski noted that while reputations take a long time to build, they can be destroyed virtually overnight. Recognizing the fragility of a company’s reputation, the practice of reputation management began to take hold in the 1980s, spurred in large part by Forbes magazine’s annual “Most Admired Companies.” Suddenly, companies that didn’t really pay much attention to their reputations yearned to be added to this important list.

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The list analyzed corporations in eight key areas, ranking them by their attributes. To show the volatility of the issue, in February 2000, the top three “Most Admired Companies” were GE, Microsoft and Dell. By February 2002, none of the three was in the top spots, and Charles Schwab, Cisco and Dell had fallen completely off the list. Most interesting was that in the category of “Energy Firms,” Enron ranked No. 1 for many years, and was ranked second in the category for the “Quality of Management.”

John LaSage

John LaSage noted that Burson Marsteller releases an annual study of corporate reputations, and has seen some intriguing data resulting from these studies, particularly the fact that the reputation of a CEO accounts for 48% of a corporation’s reputation.

When you talk to analysts, LaSage said, 95% are more inclined to purchase stock in a company with a good reputation, and 95% are more apt to side with a company with an established reputation when its integrity is questioned by media. Most importantly, even when a stock begins to tank, 92% of analysts will maintain confidence in a corporation that has established a track record of having a solid reputation.

LaSage noted that a CEO has about five quarters to deliver results. And when a stock falls, reputations fall with it. This has prompted boards of directors to pay much closer attention to the reputation of the companies they represent, as individual members are leery of exposing their own reputations to scrutiny.

William J. Wilhelm

Bill Wilhelm began his talk with descriptions of definitions for the word “reputation” that he had accumulated from published texts. Walker Information defined reputation as “…the reflection of an organization over time as seen through the eyes of its stakeholders and expressed through their thoughts and words.” Wirthlin Worldwide suggested that “a corporate image is the sum of all impressions about a company.” While Stewart Lewis of MORI noted that “…a reputation is the product, at a particular moment, of a fermenting mix of behavior, communication and expectation.”

Wilhelm shared a CIMA business model for Truly Outstanding Companies, that encompassed criteria such as: “best products and services, customer focus, financially stable and profitable, well run and managed, displaying social responsibility and stressing employee relations.

Putting on his “accounting cap,” Wilhelm noted that a reputation is an intangible asset, and that as the fair market value of an intangible asset rises, earnings rise along with it. Intangible assets include an analysis of the strength of the work force, value of service marks and trade names, reputation and goodwill.

“Accountants historically have not wanted to value intangible assets such as a company’s reputation because it’s more difficult to value than tangible ‘hard assets’. And as you can imagine, it’s even harder to move intangibles onto a balance sheet,” said Wilhelm.

Yet, he notes that current perspectives have changed, and there is a growing recognition that a corporation’s reputation accounts for a substantial amount of a company’s market value. This is being fueled by a rise in service industries, replacing “smokestack” models, where intangibles are an integral part of the company’s assets. This might include non-contractual customer relationships, Internet domain name, unpatented technology and even databases.

According to Wilhelm, attributes of a good reputation that drive its value include

• Brand loyalty;
• Favorable press coverage;
• Employee job satisfaction; and
• Competitive pricing.

“No one has a silver bullet or a magic key on their computer to value a reputation, but valuation techniques of intangible assets are improving. Part of the challenge for PR people is to team with the financial decision makers and agree on ways to improve the valuation results,” concluded Wilhelm.

Finally, no discussion on reputation management would be complete without discussing Enron and Andersen. The panel was in general agreement that Andersen and Enron have created new “benchmarks” for illustrating how to destroy corporate reputations. It was widely felt that Joseph F. Berardino, Andersen’s CEO, waited too long to take responsibility for the Enron mess. The result is that Andersen’s future is tenuous, with. the panel predicting that corporate audit committees will be hard pressed to support a decision to hire Andersen to work on their books. What’s worse, there will be few executives willing to stand up at an annual meeting and defend their reliance on Andersen to oversee their accounting.