Corporate Reputation Stumble Rate is High

The ability to sustain a corporate reputation is a difficult task. The complexity of modern business, a human predisposition to assume to coast once a first victory is achieved and the pervasive effects of short term thinking are among the reasons. Leslie Gaines-Ross at Reputation Rx comments:

"Each year Weber Shandwick measures the rate at which companies lose their #1 most admired position in their respective industries on the Fortune World’s Most Admired Companies survey. We call this the “stumble rate.” Between 2010 and 2011, 43% of the world’s largest companies (22 in absolute) experienced a stumble, down slightly from last year’s 49%.* While this marginal improvement is a positive sign for the stabilization of reputation, the fact that 4-in-10 companies lost their enviable industry position during the past year highlights just how difficult a good name is to keep.

A few things distinguish reputation stumblers from non-stumblers:

•Reputation stumblers had more CEO transitions or changes. Those companies that lost reputational status had more CEO transitions and retirement announcements during 2010. This is perhaps not surprising since change at the top can signal that a company is in turmoil or that a new strategic direction has been set. On the other hand, rankings may be very sensitive to the uncertainty of any CEO transition – voluntary or not.
•Reputation stumblers underperformed non-stumblers in terms of financial performance. Stumblers’ average share price rose 9.5% year over year compared to the 21.2% for non-stumblers . Although it might seem confusing that stumblers’ share price rose, it is important to recognize that stumblers are most admired companies.
•Reputation stumblers did not lose admiration for any one particular reason. Stumblers lost reputational equity for a variety of reasons such as governmental investigations, bad loans, poor returns on mergers/acquisitions or issues related to the housing market. No one reason appeared to stand out.

Reputation Drivers Most Affected

Weber Shandwick dug deeper into Fortune’s nine reputation drivers to explore possible reasons for stumblers’ loss of reputational esteem. Of the 22 stumblers, we found that:

•The most pervasive loss of reputational equity between 2010 and 2011 was in the area of “wise use of corporate assets,” perhaps a sign of the challenging times. This attribute was the most frequently dinged by survey respondents – industry peers, financial analysts and board members.
•Other factors that appeared to affect the overall stumble rate were perceptions on “people management,” “management quality” and “long-term investment value.” The rankings of 15 stumbling companies on each of these factors dropped since 2010, possibly reflecting a lack of confidence in a company’s overall long-term strategic direction.
•The least damaged driver during 2010 for stumblers was “financial soundness.” Only 8 of the 22 stumblers lost credit on this attribute, perhaps because of an improving economy and/or raters cut their peers some slack, recognizing how hard it’s been the past few years to grow a business.

*Fortune reports 22 companies out of 57 industries experienced “tumult” (p111, March 21, 2011 issue). A reader would interpret that as a 39% stumble (22/57). Since Weber Shandwick is tracking the rate over time, our base of industries needs to include only those that are reported year over year. For example, the Packaging/Containers industry was not reported in 2010 so Weber Shandwick excluded it from the total 57 industries reported in 2011. In total, six industries were excluded for the 2011 stumble rate to net a base of 51 industries (22/51=43%).