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Bayer Pharmaceutical’s experience with Lipobay and Merck’s experience with Vioxx show just how quickly a single event can severely tarnish the reputation of a company that has been established over many years. What these and other companies have learned through bitter experience is that unless the company has a well-orchestrated program informing all of its stakeholders about its actions and intentions, it will leave itself at the mercy of the popular press. The consequence is that the corporate communications function, long regarded as something just to help put a positive “spin” on things, must now be seen as core to the company’s success. Actions by the plaintiff’s bar and aggressive regulators only make the stakes higher. Lawsuits and investigations can take a devastating toll on a company in terms of its reputation, its stock price and its profitability when large settlements are paid out.
As a result, managing a company’s reputation and the risks to its reputation has now become a major concern of the board of directors. Since the board is responsible for acting as a fiduciary to represent shareholders’ interests, it needs to concern itself with anything that will hurt a company’s reputation and thus its value in the marketplace. Product recalls, earnings restatements, failure to comply with laws and regulations in all of the countries in which it operates, and slow responses to threats from new technologies and actions by competitors can all lead to a substantial reduction in shareholder value in a small period of time. This situation only becomes worse when a company’s corporate reputation is only tenuously established in the public press, even it is a positive one.
Media relations thus becomes a central element in enterprise risk management. The key to success in managing media relations in support of a company’s reputation is making sure that the company’s media presence exceeds an “Awareness Threshold.” Failure to do so means that media relations’ efforts will have little affect and will put the company at risk to stories being created about it by others. Achieving the Awareness Threshold requires constant and diverse news about a company, and especially from company sources. This provides the foundation for establishing a strong and positive reputation which is the key to building public trust in the company. Of course, this is most effective when the news from the company is good and this depends upon strong performance and good risk management which supports this performance.
Prof. Robert G. Eccles
Founder and President of Perception Partners, Inc.
Senior Fellow of PricewaterhouseCoopers (PwC)
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