Sustainable Leadership

SUSTAINABLE LEADERSHIP

SUSTAINABLE LEADERSHIP

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SUSTAINABLE LEADERSHIP

“A CEO is ultimately responsible for the growth of a company as evidenced by its financial performance, its capacity for selfrenewal, and its character.

The only way you can measure character is by reputation.”

Former Coca-Cola CEO Roberto Goizueta

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SUSTAINABLE LEADERSHIP

During the last few years, the world of business has undergone a game-changing transformation. The perfect storm of a shrinking domestic economy, global recession, limited capital and unprecedented competition has swept through the markets, upending conventional notions of risk, reward and leadership.

The short term, metric-driven obsession to outperform competitors this quarter, even if it requires taking aggressive risks to generate quick astronomical returns, has been tempered by the realization that sustainable market leadership requires consistency, transparency and trustworthiness. Companies that are surviving and succeeding in this new reality have embraced sustainable leadership as a management imperative.

Sustainable leadership is less about dollars and more about sense. CEOs have seen firsthand that companies built on the bedrock of positive reputation are more likely to withstand

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financial maelstroms. Apple, Fortune’s Most Admired company for three years running, experienced explosive growth even during the depths of the recession.

With some experts estimating that intangible assets account for 70 percent of the value1 of public companies, CEOs are refocusing on reputation as the most direct route to long-term growth. Research shows that culture, communication, citizenship and other intangibles that enhance stakeholder trust and earn reputational equity have dramatically risen in priority during the last two years.2

Sustainable leadership, however, is more than reshuffling the deck on corporate investments. It is a mindset.

An effective CEO understands that trust is transactional and can be gained or lost with every stakeholder interaction. Therefore, the care and feeding of reputation must become an institutional discipline that is nurtured, evaluated and rewarded along with other dimensions of performance.

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SUSTAINABLE LEADERSHIP

The sustainable leadership paradigm also redefines the hierarchy of leadership attributes, placing a premium on nimbleness and flexibility, collaboration, authenticity and accountability Warren Buffett is the prototype for sustainable leadership. He is known for empowering staff, making prudent decisions, acknowledging mis-steps and communicating regularly.

REPUTATIONAL ROI A superior reputation is synonymous with corporate sustainability and has been proven to yield numerous benefits including: • Customer/client preference/loyalty • Faster recovery from crises • Increased investment •S upport from influencers and opinion leaders • Enhanced employee engagement and productivity • More opportunities for partnerships and transactions •G reater pricing power and lower credit costs Conversely, the cost of a compromised reputation can be steep. Toyota’s poorly managed safety issues resulted in extensive criminal and civil litigation, plummeting sales (16 percent drop in January 2010, lowest level in a decade) and three percent dip in market share. Total losses to market cap are projected to be in the $25 billion dollar range. The fact that Toyota even remains in business after one of the largest recalls in automotive history is a testament to the historical strength of the company’s reputation.

There is no magic involved in reputation. Simply put, it is the ability to cultivate and maintain trust among key stakeholders. Trust builds on several intrinsic elements, such as product and service excellence, corporate citizenship, work environment, financial performance and leadership that ladder up to ultimate value. These building blocks are dynamic and delicate and will crumble quickly if organizational behavior fails to align with the brand promise and stakeholder expectations.

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SUSTAINABLE LEADERSHIP

BUILDING BLOCKS OF REPUTATION DELIVERABLES

PRODUCTS/ SERVICES

FINANCIALS

PARTNERS

CAREERS

MANAGEMENT

CSR

COMMUNITY

PHILANTHROPY

GOVERNANCE & POLICY

WORKPLACE

SUSTAINABILITY

INTANGIBLES

INNOVATION

CONSISTENCY

VISION

LEADERSHIP

INTEGRITY & AUTHENTICITY

There is no magic involved in reputation. Simply put, it is the ability to cultivate and maintain trust among key stakeholders. Trust builds on several intrinsic elements, such as product and service excellence, corporate citizenship, work environment, financial performance and leadership that ladder up to ultimate value.3 These building blocks are dynamic and delicate and will crumble quickly if organizational behavior fails to align with the brand promise and stakeholder expectations.

It is widely accepted that among the reputation drivers, leadership quality is a cornerstone. Research shows that confidence in management can account for as much as 14 percent of a firm’s profitability and heavily influence buy/sell decisions.4 The CEO bears the brunt of the reputation burden because he/she is a stakeholder’s most tangible connection to the organization. Aside from being the familiar name and face from the news, as decision maker-inchief, the CEO is held responsible for

setting the direction that ultimately shapes financial performance, work environment, culture and other outcomes.

Because a CEO is so integral to corporate reputation, his/her judgment is constantly under scrutiny.

Consequently, the ramifications of personal and professional decisions often bleed together as evidenced by the 10 percent hit HP’s stock took after news of Mark Hurd’s sex scandal broke.

… There’s one critical job only a CEO can do: link the outside world (society, economy, technology, customers) with the inside world (your organization).

A.G. Lafley, Chairman, Procter & Gamble

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SUSTAINABLE LEADERSHIP

SUSTAINABLE COMMUNICATIONS Sustainable leadership means understanding the fragile, encompassing nature of reputation and embracing a holistic, enterprisewide approach to reputation management. A sterling CEO reputation is a foundation not a solution.

Trust is transactional and every interaction with the company has the potential to strengthen or sabotage it.

A customer service gaffe, technology failure or employee indiscretion can be as damaging as a management misstep. In an era of instant information, reputation stewardship must be implemented as an institutional discipline that is nurtured, evaluated and rewarded along with other dimensions of performance.

Though not a silver bullet, communications is an extremely powerful weapon in a company’s reputation management arsenal.

In today’s 24/7 global media environment, communications can destroy as much as defend and must be handled with utmost dexterity. As with leadership, communications rules have been rewritten. Sustainable communications is predicated on three core principles:

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To be persuasive we must be believable; to be believable we must be credible; credible we must be truthful.

Edward R. Murrow

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SUSTAINABLE LEADERSHIP

BE TACTFUL (TRANSPARENT, AUTHENTIC, CONSISTENT, TIMELY) The way to gain a good reputation is to endeavor to be what you desire to appear.

Socrates

Perceptions are shaped every minute by the myriad conversations happening across multiple networks of influence — mainstream media, social media, peer-to-peer. For corporations, the price to participate and potentially influence these perceptions is consistent, real-time, honest disclosure. Whole Foods CEO John Mackey learned the hard way that there are no secrets in cyberspace.

After posting more than a 1,000 times on a Yahoo message board under an alias, he was called out by other members of the board and the incident was covered in The Wall Street Journal.

The importance of TACTful communications is further validated by the findings of the latest Reputation Quotient Survey from Harris Interactive. The research found that a number of financial firms topped the list of companies whose products are least likely to be purchased or recommended, despite an aggressive push by corporate communications.

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Robert Fronk, SVP Harris Interactive, surmised that this disconnect occurred because the [firms were] not seen as being sincere, transparent, accurate, or consistent in their communications, all of which have a very high correlation with positive reputation.”

Moreover, the power dynamic with stakeholders has changed. Just like consumers own the brand, stakeholders have become arbiters of reputation – and they know it. Force-fed, one-way messages and generic press releases are no longer acceptable as stakeholders increasingly demand direct dialogue and engagement.

Adapting to this model requires a fundamental shift not only in the content and character of communications but also in platforms.

Forums that are most likely to resonate will encourage stakeholder feedback and demonstrate a willingness to listen.

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SUSTAINABLE LEADERSHIP

WELL DONE BEFORE WELL SAID Spin is no longer an acceptable substitute for substance. Leadership’s job is to demonstrate acumen and ability to create value. Communication’s role is to fan the flames of support and enthusiasm for corporate initiatives and help contain crises.

The quickest way to undermine stakeholder trust is using communications to camouflage a lack of strategy, or lack of action.

BP is a classic example of when communications and action do not function

as a partnership. As one of the greatest oil disasters snowballed, BP hid behind its “green” messaging as an environment leader and pointed fingers at other parties.

Not only did the Company fail to present a cohesive and decisive plan of action, the CEO failed to demonstrate any genuine concern, which in turn undermined its “reputation rehab” advertising and public relations campaign.

ENGAGE YOUR TOTAL STAKEHOLDER UNIVERSE The globalization of business and proliferation of social networking has broken down information silos and rendered the traditional notion of message mapping obsolete. Stakeholders no longer stay in their lane – they communicate, connect and crosscultivate. There are no secrets. Consumers have access to SEC disclosures. Analysts can reach customers and employees are the unspoken hub that touches all of a company’s stakeholder spokes.

Utilizing a total stakeholder approach enables companies to leverage the influence that stakeholders have over each other to tell their story effectively, generate goodwill, engage influencers and reinforce trust.

Total stakeholder engagement is not without challenges. The process and speed of information sharing has not altered the fundamental human interest in “what is in it for me?”

Yet, those “me’s” rarely have fully aligned values and interests and often include conflicts where good news for one group means bad news for another. Attempts to customize content can be viewed as pandering, or worse, dishonest or manipulative behavior. A CEO’s challenge is to keep the respective demands and rewards for each stakeholder group balanced and to encourage each group to buy-in to the overall strategy.

60% of all management problems are due to faulty communication Peter Drucker

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SUSTAINABLE LEADERSHIP

CONCLUSION By many measures, it is clear that the business environment has changed profoundly over the past few years.

The global recession and the global explosion in information technology have come together in a gamechanging way – one that demands a paradigm shift in leader behavior.

More than ever before, a company’s success – its sustainability -- is rooted in its reputation and its ability to generate trust among its many stakeholders. And more than ever before, the CEO is central to this equation.

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But to build and sustain a strong reputation – and the trust at the center of it – the CEO must be willing and able to communicate in an effective way. Transparent. Honest.

Substantive. Collaborative. The CEO’s communication must be all of these things … and more.

Simply stated, this is sustainable leadership, and this is the new normal for success.

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SUSTAINABLE LEADERSHIP

SOURCES 1. Reputation Leadership, Its More Valuable Than You May Think, by Nir Kossovsky, Leadership Excellence Magazine May 2010.

2. From findings in IBM’s biennial Global CEO Study of 1.541 CEOs, general managers and senior public sector leaders across 28

countries, fielded between September 2009 and January 2010 as well as the 2008 Management Action Programs Inc. (MAP) Quarterly CEO Survey conducted by Vantage Research.

3. The Reputation Institute uses these criteria in its annual survey to assess the strength of the world’s 600 largest companies (by revenue) in their home countries. Harris Interactive also assesses similar drivers, namely emotional appeal, social responsibility, financial performance, products & services, vision & leadership and workplace in its Reputation Quotient™ (RQ) survey

4. Tough at The Top, Economist, October 2003 – statement of Professor Nitin Nohria, current Dean of Harvard Business School (HBS) and former co-chair of HBS’ leadership initiative.

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FOR MORE INFORMATION, PLEASE CONTACT: Michael W. Kempner President and Chief Executive Officer 201.507.9500 | mkempner@mww.com

Carreen Winters

Executive Vice President, Corporate Communications Reputation Management 201.964.2410 | cwinters@mww.com

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