New Perspectives

Three-Part Harmony: Managing
Corporate Reputation
for Competitive Advantage
by Mark Bain

You have a schedule conflict. Tomorrow, you have concurrent one-on-one meetings with Nelson Mandela and Howard Stern. You can't see both, so who will you choose?

Which large global company would you prefer to do business with-Johnson & Johnson or Altria, the tobacco giant?

Where would you encourage your children to work-Avon or Halliburton?

Would you buy Google or Tyco stock if their share price, results and forecasts were identical?

These individuals and companies are all successful. But in a world of choices, reputation often distinguishes the best from all the rest.

This is especially true in direct sales, where every company offers an income opportunity and many companies market similar products. A strong reputation can be a powerful differentiator, providing competitive advantage in recruiting, retention, sales, productivity and market share.

New Management Process

A new management process is gaining traction around the world-corporate reputation management. This can be defined as a disciplined process by which a company systematically harmonizes its values, actions and communications with key stakeholder groups to build value and gain competitive advantage.

In managing reputation, leading companies.

• Use research to determine perception drivers for key stakeholders.
• Set reputation goals and develop strategic plans based on these drivers.
• Implement plans that harmonize company values, actions and communications.
• Measure enterprisewide results against goals.
• Reward success for achieving reputation and other business metrics.

In simple terms, corporate reputation is shaped by everything a company does and says, day after day, everywhere it operates. Given this, effective reputation management hinges on close alignment of corporate activities and expressions.

Three-Part Harmony

Corporate reputation is rooted in corporate values-the principles every firm has to encourage responsible conduct.

Values are complemented by the full range of corporate actions, including product quality and value, customer service, workplace practices, financial performance, innovation, governance and more.

And communications-advertising, public relations, branding, sponsorships, events, Web sites, etc.-help shape stakeholder attitudes.

These three forces converge to form stakeholder perceptions and influence behaviors, preferably in a company's favor.

Stakeholders Galore

Every company has multiple stakeholders.

For direct selling firms, internal stakeholders can include:

• Corporate and advisory boards
• Employees
• Temporary staff/contractors
• Independent salespeople

External stakeholders can include:

• Customers and prospects
• Shareholders and analysts
• Legislators and regulators
• Consumer groups and other NGOs
• Suppliers and partners Neighbors

Each of these stakeholders can be split into smaller subgroups when finer distinctions are useful.

From Solo to Orchestra

Before the 21st century, customers drew most of a company's attention. Take care of the customer and all else will follow, the thinking went. The word stakeholder wasn't broadly used until the late 1990s.

It was different then. Business was more local and national. Companies had greater control over communication channels and usually dictated the terms for stakeholder engagement (with some notable exceptions).

But with at least a billion people on the Internet today, business operates in a more dynamic, transparent and global environment in which all stakeholders interact. Stakeholders now want two-way, ongoing dialogue with companies. Investors are joining consumer groups, environmentalists and others in corporate activism. Legislators and regulators are cooperating across borders to restore trust in business. And through all this, control is shifting from companies to a broader base of stakeholders.

Customer satisfaction still depends on features, benefits, price, convenience and service. Today, however, it also depends on executive conduct, governance and employment practices, investment policies and more-putting pressure on firms to harmonize their efforts across all stakeholders.

Liability and Responsibility

Salesforce behavior is a primary reputation driver for most direct selling companies. Sales and recruiting experiences can leave lasting impressions, as every direct selling firm knows.

Despite this, some companies, when pressed on salesforce misconduct, default to a legalistic response, arguing they shouldn't be held accountable for the inappropriate actions of a few independent contractors.

To be fair, it's difficult to herd a large, diverse, dispersed group of motivated entrepreneurs. There will always be a few bad apples. And there are limits to companies' legal liability.

But there are no limits to reputation responsibility.

Stakeholders expect companies to enforce codes of conduct, provide effective training and market responsibly. They expect their personal interests, time and privacy will be respected. And if just one of their expectations goes unmet, stakeholders will not hesitate to withhold or withdraw support. Some may even become adversarial.

Not Alone

This dynamic isn't unique to direct selling. Automakers sell through dealers, and fast-food chains have franchises. Consumer products companies use retailers, while soft drink companies use bottlers and retailers. Pharmaceutical companies depend on doctors and nurses, while credit card companies count on millions of retailers and hundreds of banks to connect with their customers.

Yet Toyota, McDonald's, Procter & Gamble, J&J, Pepsi-Cola, Coca-Cola and MasterCard have some of the best corporate reputations in the world, according to respected studies.

Why? Because each accepts responsibility for its corporate reputation, and each takes a disciplined approach to managing its reputation with multiple stakeholders.

The Trick

Reputation management is easy to conceive but challenging to execute because it touches on two weaknesses of many organizations-managing for the long term and collaborating across multiple countries and departments.

Many executives are desperate for a quick-and-easy solution. They manage quarter-to-quarter and place excessive faith in silver-bullet ideas and programs. But reputation takes years to build, and requires sustained commitment and support from the CEO suite down. Worse, reputation built over years can be destroyed in just minutes.

That's why reputation management requires shared accountability. Several business units and departments must work together to develop and implement reputation plans. They must share responsibility and rewards for achieving reputation goals, not just revenue and profit targets. They must manage for the near and long term. But none of this is first nature in short-term organizations operating in functional silos.

The same is true for the field. Salespeople (especially leaders) must understand and accept their role as reputation role models. After all, their personal reputation and business success are directly tied to the corporation's, and vice versa.

Important Steps

Data confirms the direct selling industry suffers from negative perceptions among several of its key stakeholders in the United States and other world markets.

The WFDSA and USDSA started to address this years ago with an initial focus on improving salesforce conduct. Now there are stricter codes of conduct with buy-back terms, cooling-off periods and extraterritoriality provisions, for example.

Lately, DSAs have taken proactive steps to communicate the industry's positive aspects through socioeconomic impact studies, business features, advertising campaigns and industry causes. Of note, Canadian DSA members recently embraced a common industry cause, mentoring youth.

Good Examples

These are positive steps in the right direction. But direct selling must do even more to lift its overall reputation, as other industries have done.

The American Chemistry Council provides an excellent example. About 130 competitors in that business united in 2005 to fund research into perceptions of five key stakeholder groups. From this, they developed a distinctive integrated communication campaign to promote the essential role chemicals play in everyday life.

Their "Essential2" campaign, funded from member dues, spends approximately $20 million annually on research, advertising, public relations, speeches, events and Web communications. Virtually every member company has appointed a coordinator to work on this campaign. Most important, this campaign has improved awareness, attitudes and behaviors of targeted stakeholders, according to a council spokesman involved in the effort.

Direct selling can learn from this example, along with efforts by the Edison Electric Institute, the American Petroleum Institute and others. A rising reputation tide will lift all boats.

Getting in Tune

More than most, direct selling companies understand "what gets rewarded gets done." However, most still base their incentives for salespeople and corporate executives almost completely on sales.

Instead, if most direct selling companies were to reward for sales and reputation success, some believe direct selling would be a $200 billion global business right now, with dramatically higher rates of recruitment, retention and satisfaction.

It all comes back to finding harmony-between the short and the long term, sales and reputation, company and seller, various stakeholder groups, corporate business units and departments-and most of all, between company values, actions and communications.

Direct selling companies that learn to harmonize these forces will reap the valuable business and competitive rewards of a strong reputation.

Mark Bain is President of upper 90 consulting and a Senior Advisor to the Reputation Institute. Previously, he was head of corporate communications worldwide for Alticor Inc., where he helped to create and lead Amway and Quixtar reputation initiatives. Mark received the WFDSA's Distinguished Service Award in 2005 for his efforts to improve direct selling's global reputation.

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