Posted by
Mark Guay on Mon, May 14, 2012 @ 01:18 PM
Annual board of directors meeting season is coming to an end for companies on a calendar year basis. Some companies took the opportunity to look at how they do business. Many small companies have what is referred to as their OPERATIONAL PLANS. As it definition states, this is how they "operate" their daily business working IN their company as a W-2 employee. Congratulations, that is a good start but it is not a good finish unless you just wanted to create a job for yourself and others? If not then you need to work ON your company. In fact, working ON your business is just as important because you want more than income, you also want profit and equity ["ROE"] which are the results of ownership work - not just employee work.
The biggest mistake you will make this year is equating working IN your company with working ON your company, according to the well-known author Michael Gerber of the book The E-Myth Revisited. He states that P&Ls and tax data are static because they look backwards - not forward. Ownership work gets beyond Income only and into Profit and Equity [ROE] strategy. And isn't that why you went into business in the first place - to go beyond income? You simply can't be effective long term until you integrate what you do IN with what you do ON your company. So stepping back and doing some critical decision-making is the key. But that raises the question of who does it and how to do it?
So let's answer the first question of who is responsible for governance? In a corporation the board of directors sole job is to “govern” the company. So HOW does a board "govern"? The answer lies first in defining the difference between management and governance. Most people have a good idea of what management is so I will restrict my remarks to governance issues. Some top 10 good governance director practices are the following:
1. Strategic Planning addressing sustainability, competitive advantage, etc.
2. Corporate performance and valuation planning
3. Risk and Crisis Oversight [e.g. data security]
4. Oversight of company core principles, ethics and culture
5. Oversight of human resources [e.g. management] and recruitment of directors
6. Financial Oversight [e.g. review of P&L, Balance Sheet and Budgets]
7. Oversight of sustainability matters and stakeholder relations
8. Create/approve company-wide policies and procedures.
9. Manage Board of Directors education, meeting processes, committees, etc.
10. Oversight of corporate social responsibility
I recommend that these key governance issues be addressed by your directors. (See also NACD Directorship Board Intelligence, survey report dtd 1/2011, p. 40). Managers manage the company. Directors govern [direct] managers. They are both important but very different. The Massachusetts Business Corporation Act [“MBCA”], Section 8.30(a) defines the standard a director must comply with. It states, in pertinent part, that a director must, generally speaking, act (i) in good faith, (ii) with the care that a person in a like position would reasonably believe appropriate under similar circumstances; and (iii) in a manner the director reasonably believes to be in the best interest of the corporation.
So how does a director comply with this legal standard? The comment section to Section 8.3 provides advice by stating: “The process by which a director informs himself will vary but the duty of care requires every director to take steps to become informed about the background facts and circumstances before taking action on the matter at hand. [However], a director may rely on information, opinions, reports, and statements prepared or presented by others as set forth in Section 8.30(b).”
So who are these “others” referred to? Section 8.30(b) lists the individuals and groups (the “others”) that a director may rely on. Generally speaking, they are as follows:
(i) corporate officers or employees whom the director reasonably believes to be reliable and competent with respect to the information, opinions, reports or statements presented,
(ii) professional advisors as to matters within their professional competence, and
(iii) a committee of the board, where the director is not a member, if the director reasonably believes the committee merits confidence.
But there are two major caveats. The first is that “a director so relying must be without knowledge concerning the matter in question that would cause his reliance to be unwarranted”. The second is that “. . . in order to rely on a report, statement, opinion, or other matter, the director must have read the report or statement in question, or have taken other steps to become familiar with its contents.”
In summation, directors must become actively engaged in the governance of the company or else they should resign. So take a look at the recommendations above and ask yourself “is your board living up to the legal standards of the laws in your state”? If not, your company is at increased risk. Haven't started yet to address the governance issues of your company? I suggest you do so before a third party discovers you are running a high risk business - and that high risk is your decision-making - or lack thereof!
Posted by
Mark Guay on Tue, May 01, 2012 @ 08:45 AM
In the past, freshwater economists [Chicago trained] and salt water economists [east and west coast trained] have debated what “the business of business” is all about. Generally speaking, Milton Friedman [Chicago] was known for his belief in the free market system based on the efficient financial market theory. Keynesian economists [both coasts] emphasized the inefficiencies of the market due to asymmetric information that requires more government intervention when necessary.
Today, however, there seems to be some congruency in what needs to be done in view of the current recession and the plight of the environment. Simply put, it’s all about sustainability. So what do the experts say now?
In his most recent article entitled “The True Lessons of the Recession” in Foreign Affairs magazine [May/June/], Chicago School of Business Finance Professor Raghuram Rajan writes that “[t]he way out of the crisis cannot be still more borrowing and spending, especially if the spending does not build lasting assets that will help future generations pay off the debts that they will be saddled with. Instead, the best short-term policy response is to focus on long-term sustainable growth. . . . The United States, for its part, can take some comfort in the powerful [global] forces that should help create more productive jobs in the future; better information and communications technology, lower cost clean energy, and sharply rising demand in emerging markets for the higher valued goods. But it also needs to take decisive action now so that it can be ready to take advantage of these forces.” Public-private collaboration is crucial to achieve these results.
What do some “salt water” experts say? I recently attended the fourth annual MIT 2012 Sustainability Summit. It was entitled “The Horizon Event” specifically to adjust the participants sights to a long term view – a key theme of the summit. A keynote speaker Jeremy Graham, co-founder and chief investment strategist of GMO, stated that because the world’s current energy resource base is generally becoming flat [or decreasing in some cases], and the demand curve is increasing, the future is in technology. This is a major paradigm shift, not a bubble, which most previous events have been unfortunately characterized as such. Robert Eccles, Professor of “Innovative Sustainability” at Harvard Business School stated that companies that practice high sustainability are more successful long term [innovations often lower costs]. He recommends reframing the corporate identity to mind the gap between balancing corporate culture and the reality of daily activity at a company. Mindy Lubber, President of Ceres, stated that sustainability is not something you “add-on” but rather a major risk factor that needs to be addressed head on [e.g. Walmart reputation]. The duty of the Board of Directors of an entity is to look at systems change to be more sustainable in their strategic planning. “Big Data” can be employed, according to the speaker Andrew Hoffman, Professor of Management and Organizations at the University of Michigan, for the “optimization of systems for sustainability”. Supply chain, procurement, and processing data can be interpreted and integrated for the long term but it can also be misused. So how we use Big Data is critical to our success or failure. In sum, all agree that sustainability planning is the only way to progress.
Both freshwater and salt water experts agree that we are in a game changing era. Mankind will eventually live beyond its means unless we seize the moment and create sustainable practices. One speaker quoted Michael Porter as saying that “strategy is as much about what NOT to do - as it is about what to do”. Simply put, there seems to be a “third way” that both theories of economics would agree.
Sounds interesting, but how does a company get started you may ask? The best way to get started, according to MIT Summit keynote speaker Karin Ireton, Director of Sustainability Management at Standard Bank [Africa’s largest financial services group] is to [1] come up with a set of principles that govern the way you do business, [2] identify “material” systems in your business that need improvement, and then [3] take the proposed project and run it through the “filter” of your agreed upon principles. The solution lies in being innovative, being collaborative, and ultimately being a leader. The second industrial revolution, as one speaker called it, requires using innovative “black-boxes” of Big Data to stop living beyond our means and start practicing regeneration and repair of what we have already done wrong.
The “third way” is simply a “second chance” to get it right. And given the dire consequences, failure is not an option.
Posted by
Mark Guay on Wed, Apr 11, 2012 @ 08:55 AM
The famous psychologist Carl Jung once said that "enlightenment is not imagining figures of light but making the darkness conscious”. So how can business people do that? Every business decision is based on a model of projected facts and circumstances and then ultimately a strategy to resolve the matter. But to create a great strategy requires a great decision-making model. Simply stated, decision models are designed to create a structure of thinking and dialogue so that you are better prepared to create a sustainable competitive strategy. Have you ever heard of the expression “that’s a solution in search of a problem” or “we’re climbing the right ladder but up the wrong wall”? These expressions come about because too often the decision-making model is not known, much less ever discussed. So a critical decision model is replaced sometimes with such a superficial approach such as the “traditional” model of “that is the way we have always done it” to the “different” model of “its new and improved” - and every construct in between. Yet, looking back, it’s the decision-making model itself that sets the course for the ensuing disastrous results [i.e. think Titanic]. So what are some of these key decision models?
Some of my top 10 decision-models are the following:
1. Johari- window
2. Flow
3. Long Tail
4. Black Swan
5. In-On Model
6. Hersey-Blanchard
7. Mechanism Design Model
8. Balcony- Dance Floor [or System 1 & 2]
9. Timelines [Making-of Model]
10. De Bono 6 Hat Model
Of course it is not possible to briefly describe all these models in one blog post, so I will try to do so in my upcoming blogs. However, what is important to know is that these are key tools to help you make decisions beyond what you are perhaps unconsciously using now. So if you don’t know, don’t use, or don’t KNOW HOW to use, these various models, then you are perhaps accepting more risk by not taking advantage of some key tools that will allow you to make better decisions. "So what" you may say? Have you ever said to yourself “What happened”? The more tools you have at your disposal, the better chance you have to make an intelligent decisions.
Or, as Carl Jung would perhaps agree, decision-making requires one to first shine the light on the darkness of the way you think.
Posted by
Mark Guay on Tue, Mar 27, 2012 @ 08:54 AM
I went to two lectures this month. One was put on by Gordon College [a breakfast at the Marriott Long Wharf Hotel] and featured a conversation with Gerard Arpey, retired Chairman and CEO of American Airlines. The other was a Hesburgh Lecture put on by [and at] Catholic Charities and featured a talk by Rev. David T. Link, J.D., LL.D., D.Lit,. and D Sc., former Dean of Notre Dame Law School on “Social Concerns and the 2012 elections”. Both were very different topics but had a good deal of alignment in what their core message ultimately was.
Gerard Arpey spoke about the most recent “tactical” bankruptcy at American Airlines and the drivers such as retiree costs, union costs, competition, etc. He discussed the pre-911 AA and the post-911 AA. He distinguished the two by stating that pre-911 he loved his job, loved airplanes, loved to fly, and most importantly, he loved his people. After 911 he said he still felt the same as before 911 but with one exception - after 911 it was, as he simply said, “deeply personal”. In fact, one of the reasons he resigned was that he disagreed with the strategy of a “tactical bankruptcy” and its implications to some of his people. He went on to talk about virtues and values and how they impact his daily life both at work and after work. And he talked about Wall Street’s short sightedness by simply saying “how do you fit buying airplanes worth billions of dollars into a quarterly report”?
Rev. David T. Link told stories about his life before the priesthood – being married for 45 years, 4 children, and the loss of his wife. He spoke about his years as a business attorney at a big firm in Chicago. He then spoke of his ministry, the center for ethical leadership he helped create at Notre Dame, his work with the homeless shelter in his community and his work with prisoners in maximum security prisons. He felt that his role as an attorney and as a priest were similar, they should both be healers. He then went on to discuss social concerns and politics. He said that “his people” needed to be taken care of. He brought them hope, but so many more needed help, so he reached out to our audience, and to all politicians, to take care of his people by simply quoting Matthew 25:40: “Truly I say to you, to the extent that you did it to one of these brothers of Mine, even the least of them, you did it to Me”. The work he did was, for him, deeply personal, and he wanted everyone to know that he votes for whoever will take care of his people – the least of us.
One speaker worked with people at a giant, publicly traded, global airline. The other speaker worked with people at a distinguished law school, homeless center, and security prison. Regardless, both made it clear it was all about your values and your people. And ultimately it was “deeply personal”.
Posted by
Mark Guay on Wed, Feb 29, 2012 @ 10:07 AM
Around 2,000 years ago Aristotle wrote the now famous book entitled Nichomachean Ethics. In it he espoused the virtue known today as the “aurea mediocritas or the "golden mean”. He set forth a theory of life that created a balance between two extremes. For example, “courage” is the golden mean between cowardice and recklessness. The concept is based on the continual improvement of ones character by creating balance in all things in life just as one finds in nature. When you do so you can achieve fulfillment or happiness, the Greek word for which was eudaimonia. The best way to achieve the “golden mean” was to use your mental power of reasoning.
Fast forward to today and we have a new oracle - the famous “Oracle of Omaha”. In a recent article for Fort
une magazine Warren Buffet wrote about – you guessed it –a reasoned approach to investing. He showed his feelings about gold as an investment by comparing buying gold versus stocks. In a nutshell he wrote: “Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side [Picture it fitting comfortably within a baseball infield.] . . . It would be worth about $9.6 trillion. Call this cube A. Lets now create a pile B costing an equal amount. For that, we could buy ALL U.S. cropland… plus 16 Exxon Mobils… After these purchases we would have about 1 Trillion left over for walking around money…. Can you imagine an investor … selecting pile A over pile B." To Buffett, gold represented extremism based on fear not sound beliefs. It seems unreasonable yet people continue to invest in it. Put another way, the Nobel laureate Daniel Kahneman would perhaps call this type of investing as being based on the “inside view” - the tendency to ignore outside data and independent decision-making. Instead gold investors use the circular logic of past performance and belief in the mantra that their commodity is different. So Buffett and Aristotle think alike.
So stop digging. Instead, start designing an “outside view" strategy based on your own deep roots and critical thinking. That is where you will discover the real gold. As J.R.R. Tolkien so eloquently wrote in the book "The Fellowship of the Ring":
“All that is gold does not glitter,
Not all those who wander are lost
The old that is strong does not wither
Deep roots are not reached by the frost.”
Posted by
Mark Guay on Wed, Feb 08, 2012 @ 09:28 AM
In a blog post I wrote awhile back I talked about author Keith Ferrazzi's book “Who’s Got Your Back”. He wrote that most great performance oriented people will prepare, you guessed it, performance goals, also known as the POT OF GOLD goals. He then said that if you truly want to build a great organization you must also create learning goals, also known as RAINBOW GOALS. So what is the difference? Pot of Gold Goals are about your sales and revenue targets. Rainbow Goals are about learning the new models and systems you need to achieve them. Pot of Gold Goals are what you want to achieve, Rainbow Goals are about how you plan to achieve them. Put another way, without a destination you don’t know where you are going. Without a road map, you don’t know how to get there. You need both. But HOW do you achieve performance goals? Don Seidman has the answer in his book, appropriately entitled "HOW", he shows why you need to align your performance goals with your learning goals because the traditional ways "are no longer sufficient". The answer is in how you conduct your business.
In the cover story for the recent CR magazine , Dov Seidman has added the missing metrics that he refers to as the "National GCLA" findings. GCLA stands for "governance, culture, leadership, and assessment" and he calls them tools that will drive your success. He based the National GCLA metrics on his national performance study in which he correlated high self governance with high performance. He defines high self governance organizations as "organizations that are primarliy values based ... [which] inform decisionmaking and guide all employee and company behavior. In short, people act on the basis of a set of core principles and values that inspire everyone to align around a company's mission, purpose and definition of significance. Employees at all levels strive to be leaders and the company is focused on its long-term legacy and endurance." He summarizes the findings in CR magazine by simply saying that "In today's New Reality progressive leaders realize that the ultimate source of sustainable competitive advantage is in how an organization behaves rather than simply what it produces".
As companies prepare their fiscal year strategy, remember that strategy is only half the battle. The other half is HOW you operate your company to get there. Put another way, its not just what you do that counts, its learning how to do it that defines who you ultimately are and whether you will succeed in the long term.
Posted by
Mark Guay on Fri, Jan 20, 2012 @ 11:00 AM
Whether you like it or not, shopping is a national pastime. Even consumers like me, who try to keep it to a minimum, there still is no way you can avoid what I call "trademark shop talk". For retailers, depending on how well you executed on your marketing plan, Q4 shopping is all about whether your brand for quality gets rewarded by a sale of goods. Then, in Q1 of the new year your pricing strategy gets rewarded by a follow up sale perhaps. Either way, what the average consumer thinks of your brand is essentially how your trademark translates into a metaphor. For example, if I say STARBUCKS®, what image comes to your mind? When I go to buy some TYLENOL® surely I do not confuse that with EXCEDRIN®? You may recall that in 1973 Paul Simon used the phrase “So Mama, don’t take my Kodachrome® away” in his song KODACHROME® (but only after some serious trademark rights negotiations with Eastman Kodak Company).
So how does trademark imagery become “trademark shop talk”? Simple. People like to abridge their sentences. For example, texting is part information and part Haiku. If I were to send a text that said “going to buy a pair of NIKES”, you would probably know what I am talking about. Likewise, if I texted you that I am “going to buy a pair of MICHELINS”, you would also know what I meant. You understand my text despite the fact that the products are not listed and are completely different. If so, marketeers feel the brand they created is working. Trademark attorneys, on the other hand, will fret about how their clients’ trademark is being used as a noun and not an adjective. So why the big rift between the two camps of advisors - when both have as their ultimate goal the success of the client? The answer lies in how we characterize a trademark or service mark.
Simply put, the question is whether a trademark is a proper adjective or a proper noun. If marks are considered as adjectives, as current trademark law so states, then we all know that an adjective needs to modify a noun so the noun MUST be inserted after the trademark adjective. So, to use the example above, when I was texting I should have written that I was “going to buy a pair of NIKE® sneakers, and also “going to buy a pair of MICHELIN® tires. But, in the fast paced world we live in, such usage requires more words. But many folks think that is unnecessary - everyone knows what we are talking about. The purpose of trademark law is essentially to identify the source of the goods or services. The purpose of language is to communicate with each other. Both texts above accomplish these dual goals. So if the purpose of trademark law is as a source identifier, and if the average consumer is using the marks as such in noun form, then as the famous WENDYS® advertisement stated “WHERE'S THE BEEF™”?
Can the world of trademark law co-exist with trademark shop talk and who cares? Without getting into the complexity of trademark law nuances, and linquistical analysis of descriptive versus prescriptive language, [see “The Grammar of Trademarks” by Laura A. Heymann, 2010 for further information] a quick review of trademark history goes back to at least 3,000 B.C. when stone seals were used to indicate who made certain items. Contrast that with today, according to the Brand Names Education Foundation, the average supermarket carries thousands of separate items most of which have brand names. So if shoppers can identify the source of their purchase, and if trademark enforcers can ensure that the product is not a “knock-off”, then linguistic usage can and should live harmoniously with legal rights. This would reduce the current conundrum of overly policing commercial speech. Or to quote a famous Beatles song [ironical in that one of the more acrimonious multi-million dollar disputes in music trademark history was over the mark APPLE®] we should all just “LET IT BE”. Communication and risk management are in a WIN-WIN situation.
For more information on trademark protection, check out our free e-book on the subject. Please note that the marks above are the registered trademarks of their respective companies.
Posted by
Mark Guay on Tue, Jan 17, 2012 @ 10:36 AM
The famous writer, business consultant, and anthropologist Angeles Arrien was quoted by Mark Nepo as saying that her grandparents told her to “never hide your green hair, they can see it anyway”. So when a company starts a new plan for the year, a new project, or a new product, the question they need to ask is how does this improve the overall unique strategy of the company – the “green hair” so to speak - that makes each company different.
The problem is many companies ask the wrong question, and therein lies the biggest mistake they will ever make every time they do so. What is it? In the book “Understanding Michael Porter” by Joan Magretta [2011 – HBR Press] Magretta interviews the famous Harvard University Professor and who responds that the “granddaddy of all mistakes” is confusing marketing plans or operational effectiveness [“OE”] plans with overall corporate strategy. Why? Simply because trying to “be the best” by definition presumes you are providing goods or services the same as your competitors which ultimately results in what he considers a “race to the bottom”. Strategy links your demand side with your supply side to create a sustainable competitive advantage. “Strategy is about the whole enterprise, not the individual pieces” as Porter explains. Put another way, “better” in strategy parlance means different or unique – your “green hair” so to speak. There is no one path to success, just many interrelated activities that make your company unique. The author cites many examples such as IKEA, Starbucks, Apple, etc. All these companies practice the concept of overall company strategy, not just marketing strategy, not just OE strategy. Porter calls it a framework, not as linear as an economic model and not as specific as a case study. Once you decide what your unique value proposition is, then you need to communicate and ultimately achieve alignment with your organization, both your inside team and your outside team.
So how do you do it? Porter states that every 12 to 24 months all companies need to have a formal strategic planning process, with quarterly reviews. But don’t confuse your business model with your business strategy. Your business model should ask the question how you will generate income and control your expenses, basically your P & L Statement that you review with your accountant [when you do your tax returns]. Your business model looks back and analyses your financial data. Conversely, your corporate strategy looks forward. It asks the question - what is your sustainable competitive advantage? How do your relative prices and relative costs compare to your competitors? What value proposition and value chain can you tailor to make you different. In a nutshell, Porter states that your business model is a basic “analyzing” step, but your strategy is the next level “forecasting” step that will make you viable.
So when do you do it? Each year the management of a company gets together to have an annual meeting to decide the strategy for that year. Each year has its own challenges and opportunities. If all that these meetings produce is budgeting and growth rate projections then Porter says all you have achieved is a business model, but you have done no debate and decision making on your competitive strategy. Your competitive advantage is already known by your customers - that is why they picked you or not. Your failure to leverage it will ultimately result in your competitors using it against you. Its that simple. So sit down with your trusted advisors who can facilitate a dialogue to help you create a framework for your company strategy – you know – the one that starts with “Our company's green hair is . . . “
If you don’t it’s the biggest mistake you will ever make this year because your competitors are doing it - and they know what your green hair is.
Posted by
Mark Guay on Wed, Nov 02, 2011 @ 01:10 PM
In my last blog I wrote about the concept of corporate reputation as a function of how a company transacts business. Its sometimes called ‘Reputational Capital”. I cited writers who state that it roots are deep, it is values based not a veneer. They say HOW you do business is as important as what you do. But why?
In his latest book “Boomerang” Michael Lewis coins a new term which is “service level insolvency”. What he means, for example, is that when a community installs a new community center for seniors it cannot be operated because it lacks the funds to do so. It means substantially cutting back local service providers, like first responders, librarians, teachers, etc. because there are no longer sufficient funds to pay them. What does this ultimately lead to you may ask? The answer is what he refers to as “cultural bankruptcy” which happens when the basic core values of a society are seriously impacted. So what does this have to do with business? The answer is that in order to answer the question of HOW you choose to do business as a company, you must first answer the question of WHY you are in business in the first place?
To answer that question, let me digress for a moment. The debate about the obligations and liability of officers and directors of a corporation, and the rights of shareholders is front page news and subject to major recent court decisions at both the federal and state level. Trying to determine who is at fault for corporate misbehavior is the quintessential “Whodunit” detective perspective. These are all legitimate exercises in ensuring that our ways of doing business are congruent with our understanding of the risks and rewards in investing in a business. But it doesn’t answer the macro question of why we are collectively in business at all? That requires a broader view of the type of society we collectively want to create. When Allen Greenspan stated that the Wall Street is based on greed, what is the ripple effect for society as a whole? What is the reputation of that society on the road to “cultural bankruptcy”?
In his seminal books, Wayne Dyer wrote, “If you change the way you look at things, the things you look at change”. We all agree we need to change, but is change going to be a veneer or is it a change of values. New rules and regulations can only go so far to force people to change the way they do business. But long term change will only occur when we collectively agree that WHY we do business at all, beyond basic survival level reasons, needs to be addressed. To revisit the metaphors in Michael Lewis’ books, real bankruptcies today will be assigned a “trustee” in bankruptcy that handles the case. So if we consider ourselves trustees, how would we do business differently? The irony of it all is that the zero sum business model referred to by Mr. Greenspan has been shown to be infinitely less productive as a sustainable tool for business than the general collaboration precepts such as the mechanism design theory.
So why do we not collectively change? Are we all doomed or how do we foster a better approach to meta decision making? In his book “How We Decide” the author Jonah Lehrer concludes by stating “The best decision makers don’t despair. Instead, they become students of error, determined to learn from what went wrong. They think about what they could have done differently, so that the next time their neurons will know what to do". He goes on to state that the basis for the Cockpit Resource Management [“CRM”] model based on a NASA study in the 1970s of pilot error, were the result of the “God-like certainty” of the pilot in command. The lack of consulting with the other crew members resulted in a decision made with tragic consequences. The goal of CRM was “to create an environment in which a diversity of viewpoints was freely shared”. In recent years it has evolved into the “See it, Say it, Fix it” in hospitals and other institutions to enable diversity and debate [not blame] to avoid costly mistakes the next time. In sum, it fosters teamwork and collaborative thinking to deter the stifling effects of perceived "certainty".
So when we SEE the things that need to be fixed at the company and government level, lets start by SAYING "why" first until it generates collaborative strategies, then FIX the problems for shared social purposes. The time for binary outcome models is over. Our new slogan should be “THINK COLLABORATIVELY”.
Posted by
Mark Guay on Tue, Oct 25, 2011 @ 04:15 PM
The word "reputation" conjures up many definitions as to what it means, how important it is or not, and how to create one and make it stick. But for me, the person who said it best was the financier Warren Buffett who simply said when testifying to Congress on the transgressions of his firm Salomon Brothers that he once took over: “Lose money for the firm and I will be understanding: lose a shred of reputation for this firm and I will be ruthless”. So what does Warren Buffett see in the simple word that many companies either do not understand or simply choose to ignore?
In his seminal book “How” Dov Seidman devotes an entire chapter to the above subject. He refers to the corporate culture of an organization as its “reputational capital”. He writes: “Great companies and leaders today know that their reputational capital is as valuable to their success as their physical capital”. The problem he writes is that many companies “look at reputation as a silo to be managed, a story to be spun. . . . Whoever can gain control of the message can prevail. This thinking, with its roots in fortress capitalism, stands little chance of success today”. He goes on to state that reputation is much more than externally marketing your “brand”, it is all about who you collectively are internally as a company. Paraphrasing Jeff Kindler, CEO of Pfizer, he states that it is a distinct culture, character, and set of values and objectives that makes you different. Simply put, reputation is a value not a veneer. You need to earn it.
In 2010 HBR came up with a concept they called managing your "externalities” to address how businesses go beyond "shareholders" to address the broader field of a company's "stakeholders". That is only half the battle. The other half is learning how to manage your “internalities”. When the Economist magazine did a study of the difference between good companies and great companies they discovered one key difference. Great companies had great cultures [i.e. values and traditions"]. So as you wind down your 2011 business plan and start your 2012 plan, ask yourself “Are your company policies and procedures based on values based principles? If not, then take the time to create a new set of principles for your business. Then go back to your policies and procedures again and ask yourself whether they collectively foster the reputation you want to earn?
Or as they say in my wife's home state of Missouri "I am from Missouri - you have got to show me".