Spots in the Sun. How Companies Manage Reputation

Bank crisis that has recently broken out is labeled as a crisis of trust: the reputation of the bank system, as a whole, and of individual financial establishments has been damaged. Much publicized bankruptcies of recent years – from Enron to WorldCom – are the bankruptcies of reputations, too. Reputation is still the most difficult asset to be managed.

When Philip Kirkorov didn’t find pleasure in a pink blouse of a journalist from Rostov, who asked him a question, he insulted her in public. The enlightened public slammed the pop star’s behavior and challenged his future. But the ‘blouse scandal’ didn’t affect the edgy singer’s well-being: his video clips are still being aired; tickets to his concerts are on sale.

There is an opinion that in businesses that don’t have a prefix ‘show’, any spot on a reputation results in economic problems and even in a crash. But Russian companies, just like Philip Kirkorov, don’t seem to give a damn.

How Much Does a Good Name Cost?

Several years ago, in the corporate consulting market the term ‘reputation management’ (RM) started replacing the abbreviation ‘PR’, which was discredited in political clashes. New terminology enthusiasts insist that reputation management is not confined to image building only, but is an economic lever that determines the company’s shareholder value. “RM has to be regarded as a tool of economic analysis”, says Guy Khanov, president of the Publicity Communication Group, which recently published the results of the study entitled Reputation as a Factor of Value.  “The company’s reputation can be ‘calculated’, and it is possible to say how much it costs now and how much it will cost, if it is managed properly”. At the beginning of 2003, the Publicity Communication Group, together with the analysts of V-Ratio Company, ‘estimated’ the cost of the LUCOIL corporate brand (making it equal to the notion of ‘business reputation’ – «Ę0» note).

At that moment, it was several hundred million dollars, which is considerably less than the MTS brand’s cost. But it is somewhat more than the cost of such a popular brand as Baltica ($191 million in 2002 ăîäó). LUKOIL reputation cost makes only a few percentage points of the company’s market capitalization” says Khanov. In practice it means that at present, LUKOIL, due to its corporate brand increasing in value through all the years of the company’s existence, receives tens of million dollars yearly as net profit. But it can be twice as much, according to calculations made, and as the experience of such companies as RoyalDutch /Shell shows.

Many Russian companies are in the same situation, Khanov believes. “Major companies do have certain publicity; they largely invest in their image. But they are not capable of managing reputation”, he says.

Pirates and Gentlemen

Mobile TeleSystems (MTS) corporate brand mentioned by Khanov, is a classic example of how reputation, as an asset, is handled in our national businesses.  MTS company’s reputation is, first of all, the reputation of the product (such as Jeans Tariff, for instance) and quality of communication service. It is hard to estimate the reputation of the company itself. Being financed by Western investors, it doesn’t economically depend on the ‘general public’ at home (with a stock market not being properly developed in this country, the home-grown middle-class can’t be considered a potential investor). Therefore, it is not necessary for MTS to be liked by the country-fellows.

At the earlier stages, the company was following these tactics: “The less is known about us, the easier for us to conquer the market”, one of the experts of the telecommunications market, who didn’t want his name to be revealed, is saying. “By 2000, when the shareholders’ money was not enough ?for rapid growth any more, MTS “put on a tuxedo, had a haircut and went to the stock exchange”. Having received from the NYSE the required millions, the company has to maintain a pleasant image, particularly in the eyes of Western investors.”

Andrey Braginsky, head of MTS External Affairs Department acknowledges that there are good reasons to make the company look respectable for foreign shareholders, one of the reasons being the fact that MTC is trading in the stock market. “If the company’s forecasts don’t come true, legal actions transpire. The investors buy equities and securities because they are sure that what the company declares, it will meet their expectations”, Braginsky explains the specifics of information policy practiced by the public company. “We can’t afford to provide incorrect data on the number of active subscribers, for instance, unlike other companies, which are not involved in the stock market.”

Braginsky doesn’t share the opinion that in its ‘pre-stock exchange’ period the company was more closed. “At that time, we didn’t have to reveal information about, say, our financial results. Yet, we were always willing to discuss the matters that our subscribers were interested in.” he states.

The MTS company’s experience is very typical: almost all the companies that are considered to be flagships of the Russian economy, have followed the same path. And it is this experience that defines a different attitude to reputation that we can observe in our market and abroad. Western companies are more sensitive to reputation ‘nuances’. There, if private investors don’t like the CEO’s personality, for instance (or top-managers’ character traits, the level of the company’s social responsibility, the degree of political involvement, the business’s background), they will take their money away. In Russia, there’s no need to be concerned about one’s status: consumers care about the product quality, shareholders – about profits, and the business community is an inner circle comprising members who know, by their own experience, how ‘pirates’ turn into ‘gentlemen’.

Information as Diapers

It can happen that a situation develops in such a way that even traditionally closed units can’t keep silence. When the company’s reputation is likely to be ruined within an hour, ‘strong protection’, as it is said in a TV commercial, with a reference to a disposal diaper, is required. A press-service is usually playing the role of baby pampers in this case.

“It was on February 28, 2004 that part of the roof in the parking lot of our shopping center in Dmitrovsky Highway collapsed,” recalls Yuliya Belova, PR manager of Metro Cash and Carry. “It happened at about 10.50 a.m. In 30 - 40 minutes all the senior managers were at the scene. The company’s main office was instantly informed”. TV channels, covering the incident in their broadcasting, were immediately provided with the company’s comments. Within the next hour, false information that was transmitted by foreign newswires – “a store has collapsed, there are casualties”- was blocked. At 1 p.m., the first press-release was sent to the Russian media. At 5 p.m., the second one, with more detailed information, was forwarded.

A memo for all Metro employees was issued at 5.15 p.m. At 7.50 p.m. a release for PR managers was delivered by the company’s main office to all the countries where Metro is operating. On February 29, Sunday, the company’s ‘crisis committee’ had another successive conference. There, a decision was made to visit all the people who were in the hospitals after they had been injured by the accident, and to send letters of apologies. On March 3, it was declared that all the losses that people had suffered, would be reimbursed. The information, both provided by the company and contained in extensive press and TV coverage, was duplicated and transferred to the main office.

“In all releases my mobile phone number was mentioned, - Yuliya Belova continues. – It is important for the company and serves as evidence of our openness, responsibility and willingness to have an on-the-spot dialogue.” According to the Metro PR manager, it is the availability of the company’s official speakers, along with the fast response, that allows to minimize reputation risks in a critical situation.

The significance of a prompt reaction is also pointed out by Eva Prokofyeva, public relations manager of the Patterson Supermarket chain that had faced reputation ‘force majeure’ recently in Samara.  A month ago, a local landlord terminated, ahead of schedule, the rent agreement forcing the company to leave the premises and stop the store operations. “We had to suspend our relations both with customers and suppliers, which destroyed all our business plans, - says Prokofyeva, - But in this situation we managed not only to minimize our reputation loss but practically to nullify it.

It was the other way around, as far as the landlord, our opponent, was concerned. At least two retailer chains challenged his credibility after the incident”.  Patterson Supermarket members’ tactics was to act faster and better than their rival, while playing their own game. The company informed journalists about the conflict, not waiting for the story to be known to everybody and interpreted in an unfavorable way. Seeking the press support, the company was issuing very detailed press-releases that explained the company’s position in the developments, as well as contained contact details of the potential commentators (those who were involved and interested in Patterson stores chain). Moreover, the company managed to gain the support of AKORT retailers association, which accused the landlord of misdeed. There was a special – ‘explanatory’ - campaign with suppliers conducted and the opening of a new supermarket was announced. The fact that all information in the course of the conflict was provided by Patterson, was reassuring for the partners, on one hand, and forced the opponent to look pathetic in the eyes of the public.

Some companies, however, have an opposite approach. The spokesman for Ashan Hypermarket, Vladimir Nazarov, for instance, believes that it’s not worthwhile to publicize every crisis. “Our reputation is the quality of our goods and affordable prices, and in this we are ahead of everybody, - says Nazarov emphatically. – The fact that dysentery broke out among our staff members, is our internal affair that was blown out of proportion by journalists.”

It is questionable though if an outbreak of a dangerous disease among the personnel that deals with unpacked products (in Ashan mini-shops producing confectionary and meat products) can be considered an ‘internal affair’. According to Nazarov’s colleague, Anna Zaitseva, who is working for The Seventh Continent supermarket, every emergency situation, which can’t be localized and eliminated within a short period of time without a danger of information leakage, should be immediately provided with the company’s comment. “In a situation, when the customers’ health and lives are being threatened, even hypothetically, the company’s openness and initiative is extremely significant, - Zaitseva believes, - Otherwise, you can find yourself  profusely apologizing. In this case your reputation is damaged enormously.”

The Main Thing is Off-screen

The press-service is a ‘battle line’. The General Staff Headquarters is usually where the top-managers’ office is located. The opinion that reputation management in crisis is not confined to reports issued by press-service only, is supported by Boris Firsov, Business Development manager of Mikhailov and Partners Communications Agency. “Reputation management is an art of ‘preventive strikes’: its efficiency depends on the management’s ability to forecast crisis and the company’ plan of actions, with detailed regulations, prepared for a would-be force majeure situation. – He says. - But the most significant are the practical measures that remain off-screen.” As an example, Firsov mentions Alfa Bank experience in crisis management. 

He considers a big advantage of the Alfa team the fact that at the beginning of the bank crisis, which took place this summer, the bank’s major corporate clients – TNK/BP and Vympelkom – announced that they were not planning to withdraw their money, and Visa and MasterCard confirmed that their credit cards would be in use. Moreover, the shareholders expressed their willingness, in public, to replenish the bank treasury with $200 million out of their personal resources, and guaranteed that a loan from the West, estimated as a quarter of a billion dollars, was available. The only controversial measure of the bank, according to Firsov, was an introduction of a 10% ‘penalty’ for clients if they wanted to close an account (read about it in a Fighting Club section on page 56). But that was a matter of estimating the proportion of benefit/risk. “They were prognosticating the situation and knew what to do”, Firsov concludes.

Interestingly, when speaking about reputation management in Russia, many consultants make a remark at first: “Generally speaking, reputation in Russia is nothing”.  Their words are easy to believe in. “Whatever the press wrote tackling this dysentery subject, we didn’t lose any customers,” the spokesman for Ashan says. “In the course of two years since we stared providing a reputation management program, there was only one client for this service.” Khanov states.