A perfect example of the importance of company reputation is demonstrated by an incident involving Johnson & Johnson (J&J), a leader in the pharmaceutical industry, one of the toughest for reputation management. When seven people died in 1982 after taking Tylenol capsules (made by a subsidiary of J&J) laced with cyanide, J&J’s reputation was clearly at stake. J&J, however, was able to draw on a previously strong company image and together with sound crisis management strategies, recovered. J&J now enjoys one of the best reputations in the business community, as studies conducted by Harris Interactive and the Reputation Institute show. The gravity of the crisis faced by Johnson & Johnson in 1982 and its relatively positive resolution- the company regained almost all of its pre-crisis market share - proves that a company’s reputation is “its most valuable asset”, as Alsop puts it, in times of crisis.
Contrary to popular belief, reputation is far more than ethical behavior. “Though certainly of growing importance, ethics and social responsibility are but two elements of the equation. Financial performance, the workplace environment, the quality of products and services, corporate leadership, and vision also figure into reputation”. Alsop actually argues emotional appeal - the link between people and a company - is “the primary driver of reputation”. For example, J&J, a company that understands the importance of emotional appeal, has made a conscious decision in their marketing and advertising to focus on baby products even though it comprises a small proportion of their total business. Society, J&J rightly believes, associates more positively with babies than drugs. Similarly, despite the financial and strategic challenges being faced by the Walt Disney Company, because of the “special aura” surrounding the Disney family, e.g., Mickey Mouse, the company’s reputation remains strong.
Alsop effectively covers such topics as instilling a culture of transparency and ethics in employees, making sound CSR program choices, and dealing with new fast-paced means of communications such as the Internet. Every significant issue relating to the management of one’s business name is covered.
Foreign companies operating in
China should also learn from Alsop’s case studies and recommendations, as still too large a number lower their ethical standards when doing business in the Chinese market. Building a good reputation in the local communities in which foreign companies operate could bring them wider benefits in the long run such as a stronger reputation at home and increased local legitimacy. Foreign companies doing business in emerging economies can help set the standard in areas such as the protection of labor rights and hence improve the overall business environment.
Likewise, Chinese companies can also benefit from Alsop’s eighteen laws, as more and more try to develop their brand outside of China.
CNOOC’s failed bid on American Unocal, Haier’s failed attempt to buy Maytag, and the US Congress’ refusal to use Lenovo products in classified areas of government departments should indeed act as warning signs for Chinese companies wishing to go global. Quality of customer experience is not enough in the current international business environment for today’s cynical consumers, nor is writing a cheque to a charitable organization.
The reputation rub-off associated with the “China Inc. perception” (discussed on this blog), makes the need for Chinese companies to fully integrate and embrace the concept of reputation capital, in its broader form, much greater. Not merely concerning core stakeholders- i.e. consumers and investors, but also including internal communications, community relations, and the media.
An article published in the May issue of the China Economic Review titled “Battle of the Brands” calls into question, however, the role of brand building for Chinese companies operating domestically. The article explains that a very fragmented national retail market means “substantial barriers exist to those trying to create a nationwide brand”, which translates into price and distribution being “more important to success than marketing” and premium foreign brands having a clear advantage over domestic firms. As they consolidate, it will be crucial for Chinese brands to understand the importance of corporate reputation and act accordingly.
In the short-run however, Alsop’s eighteen laws might not be as immutable for Chinese companies operating domestically as they are for other firms.
Review by Diane Faure, Assistant Account Executive at AC Capital Strategic Public Relations, Beijing.