A good example of measuring the importance of one’s critics occurred during the recent launch of Apple’s iPhone 4.  Released on June 24th, the iPhone 4 received praise for the entire product experience, but faced criticism by some of its antenna.  On July 2nd, in an open letter to iPhone 4 users, Apple addressed the issue by focusing on a faulty signal strength display — “Upon investigation, we were stunned to find that the formula we use to calculate how many bars of signal strength to display is totally wrong” – and, in effect, the Company downplayed the antenna design as an industry-wide fact of life – “To start with, gripping almost any mobile phone in certain ways will reduce its reception by 1 or more bars.”

Ten days later, on July 12th, Consumer Reports came down hard against the iPhone 4:

“It’s official.  Consumer Reports’ engineers have just completed testing the iPhone 4, and have confirmed that there is a problem with its reception.  When your finger or hand touches a spot on the phone’s lower left side—an easy thing, especially for lefties—the signal can significantly degrade enough to cause you to lose your connection altogether if you’re in an area with a weak signal.  Due to this problem, we can’t recommend the iPhone 4.”

Cutting his vacation short in Hawaii, Steve Jobs returned to Apple’s headquarters in Cupertino to host a 30-minute talk followed by 45 minutes of Q&A with the press on July 16th.  While the conference had some of the signature elements of a wonderfully produced Apple product launch, and took the proper step to offer consumers a solution to the problem, it was certainly held under outside pressure to respond (particularly from the Consumer Reports recommendation to avoid the phone).

New York Times’ reporter, David Carr, writes in an article entitled Post-Mortem: No Hair Shirt for Steve Jobs:

“How did Consumer Reports make Apple blink?  In large measure, the article in Consumer Reports was devastating precisely because the magazine (and its Web site) are not part of the hot-headed digital press.  Although Gizmodo and other techie blogs had reached the same conclusions earlier, Consumer Reports made a noise that was heard beyond the Valley because it has a widely respected protocol of testing and old-world credibility.  Mr. Jobs acknowledged as much, saying: ‘We were stunned and upset and embarrassed by the Consumer Reports stuff, and the reason we didn’t say more is because we didn’t know enough.’”

David Carr continues:

“It was a big week for Consumer Reports and a reminder that media that is unsupported by advertising can often have an impact that more traditional publishing, or even the most tech-savvy, enterprises don’t.”

Whether ad-supported or not, there is still a premium on quality sources, and in the case of Consumer Reports, there’s an irony that a publication that began in the 1930s — before the onset of the Internet and even television — can prompt a corporate titan of the digital age like Apple to swiftly react.

By responding directly to a specific media outlet’s criticism, a company is validating that source.  Apple may have caught a break in focusing its response on the Consumer Reports criticism, as future product reviews will now carry more weight and be read more closely by Apple’s many followers.  And if Apple’s reputation for product innovation and quality weathers this slight bump in the road caused by the faulty antenna, the future noise coming from Consumer Reports will likely be positive and amplified.

On the one hand, the recognition that the economy in which the company operates is “up there” with the United States, Western Europe, and Japan is a recognizable badge of honor and will create immediate demand from index funds.

On the other hand, if a country is judged sufficiently industrialized to join the major leagues, it means that it has been on top of the emerging market pile for a long time. As a result, almost overnight, a company based in the upgraded country will go from being a big fish in a small pond to being a small fish in a big pond. The transition can be painful, as I have recently witnessed in the case of the incumbent telephone operator in a nation receiving this honor. Instead of being benchmarked against companies that were lagging it in terms of performance and practices, the company suddenly found itself compared to companies with far better established operating and reporting procedures.

Company managements and Investor Relations teams need to prepare for this transition well ahead of time, by familiarizing themselves with the demands this new status will create, and by starting to establish contacts with their new followers. For example, on the sell-side, with the exception of a handful of truly global sectors (for example, the oil and pharmaceutical industries), it is not the same financial analyst who follows an emerging market company and its developed market competitor.

Recently, fellow ReputationPoint contributor, Peter Verrengia, and I were interviewed by Korea’s leading business newspaper – Maeil Business – in which we discussed this and other Investor Relations issues and trends facing this dynamic and successful economy. While MSCI Barra still categorizes South Korea as part of the MSCI Emerging Markets Index, it is likely on the path to be upgraded in the not-so-distant future, so that many Korean companies will need to prepare for an eventual transition to “developed” market status accordingly.

Here is a link to a more complete discussion of international investor relations for Korean companies, by us, on which the interview was based.

It will be many months before we can objectively assess the long-term impact of Toyota’s recall situation on the company’s reputation and its future success as a business.  For now, perceptions of the company’s communications approach undoubtedly are somewhat different in the US and in Japan.  Unfortunately, from any perspective, what began as a drama has turned into a crisis, which we define as an event or series of events that threaten the company’s ability to carry out its business strategy and achieve its goals.

From a reputation management perspective, Toyota’s main problem is that its understanding of the company’s obligations to the public were not aligned with the public’s perceptions of Toyota’s obligations.  This happened as a result of the company’s success, and the apparent ease with which the company became the icon of quality.  This is partially the fault of an approach to branding that oversimplified the hugely complex task of generating such exceptional results.

At some point in the past decade, among consumers, investors, policy makers, and influential business and academic leaders there was a fundamental shift.  Everyone began to think of Toyota not as a car company that makes a quality product, but as quality company that happens to make cars.  When quality became the product, and reputation became two-dimensional (quality and size), reputation risk began to increase.  Because reputation is an often unappreciated component of corporate value, this increase in reputation risk invisibly increased the overall risk profile of the company—just the opposite of the expected result of the company success.

Much remains to be understood about the facts of Toyota’s situation, the company’s actions and decisions.  In the US, the cultural bias of the public is to fill in the unknown with the assumption that businesses always act out of self interest unless they are forced to protect the interests of consumers. Because automotive product risks were at the heart of America’s consumerism movement forty years ago, and the failure of homegrown automakers has been an emblem of US economic decline, the always sensitive automotive category was especially ripe for public reaction (or overreaction, depending on your point of view).

One thing that Toyota did well, in the early weeks of the situation, was to control the response to questions.  Dealers, suppliers, company executives all stayed on message and did not break ranks and defend their own interests. This was to be expected from a disciplined organization like Toyota.

However, as in any crisis involving the public in most Western economies, consumers began to manage their growing perception of risk by demanding more information.  In response, the company sought to manage its growing risk by attempting to be more certain of its facts, and therefore slower and less forthcoming with information.  In this natural conflict, cracks began to appear — internal differences of opinion, information from multiple sources inside or close to the company no longer were so controlled.  In any crisis, as individual executives or corporate allies feel their own credibility is threatened, new information emerges.  Inevitably, that stimulates consumers and their advocates to escalate their search for certainty about what happened and what will be done.  Finding no certainty, they turn to authorities—legislators and the courts—to resolve the problem and prevent recurrences.

After millions of online comments and thousands of media stories, the prevailing opinion in the US is that Toyota’s management intentionally hid the severity of quality and safety problems to avoid financial loss and damage to the brand.

Consider this excerpt from the blog of San Diego, California newspaper technology columnist Phil Baker, describing his reasoning when he became one of the first to publicly declare that there was a “cover up.”

“While I had no inside information to draw that conclusion… it was obvious that Toyota was being untruthful.  The company had failed to provide details about the tests it had conducted, and didn’t make its engineers available to discuss the issues. Since my column first appeared, much more evidence has come out that has substantiated these charges. . . .Internal Toyota memos now show that it bragged about saving $100 million in recalls by successfully negotiating with NHTSA regulators to curtail its investigations.”

The failure to produce information when the public demanded it, and the reluctance to make experts available, were signs to American audiences that the company was hiding something.  This perception is much worse than the product problems themselves.  American consumers will forgive quality problems much more readily than they will forgive a cover-up—whether the intent to hide product issues is true or not.

The speed and severity of this crisis were generated by more than the apparent facts of the situation.  Toyota has the misfortune to have its problems come to light at a time when the following four strong currents are reshaping the business environment in the US and in much of the world:

1) Involuntary transparency: Much has been written about the impact of universal, instant access to huge amounts of unedited information now available online to consumers and those who influence them.  Add to that the enormous growth of social media as an opinion shaping force, and individuals gain immediate access to the experience and expectations of their peers and experts, whether or not companies participate.  The result is the potential for involuntary transparency—the discovery and viral spread of sensitive information beyond the company’s control.

Transparency is always a critical component of reputation.  But many companies around the world feel they are doing enough, in good times and in bad, if they meet minimum standards for disclosure and reporting information to relevant authorities.  Therefore, information demand outstrips supply.  The internet fills this imbalance, sometimes with inside information from unofficial sources.  Involuntary transparency creates surprise and shame for many organizations.

US-based companies tend to be more active in the online environment than those headquartered in Japan, but most have only recently begun to use social media in the ways that individuals use it.  Most companies, in the US and elsewhere, still push information out to audiences, and may respond to specific questions.  Overall, they still favor control of information more than the participation in a dialogue.  This is a continuation of the branding approach of the past, where visibility for products was bought.

Today, in the US and elsewhere, consumers often reject the controlled environment of corporate and brand communications.  Many US companies have adapted by treating consumers, employees, investors, and other audiences as potential advocates, rather than marketing targets.  These companies aggressively monitor the online dialogue about their brands, and give communications staff and other employees the role of maintaining an ongoing dialogue with outside audiences.  This dialogue is less formal and more responsive, as it would be in a personal relationship.  There is less sense of authority and more of a sense of a shared outcome between the company and its customers.  Today, US companies of all sizes have multiple blogs, affinity group websites, and participate actively in social media like Twitter and Facebook.  Even some of the most conservative companies use these voluntary, interactive communications for official announcements, as well as ongoing discussion.

2) The growing role of government in business:  In the US and many other western countries, the public wants jobs and economic growth, but does not see government as a partner to business.  Instead government is seen as the counterbalance to business.  The public outcry over Toyota’s lack of transparency, and the public frustration with politicians’ inability to do more about the country’s economic problems created an air of frustration in Washington, DC that called for fast, visible action by elected officials.  Although Toyota is responsible for thousandd of US jobs, and has been a part of the US economy for decades, no amount of last-minute lobbying could overcome the fact that no politician could afford to look like Toyota’s friend once the crisis peaked.  That led to public interrogation of Toyota executives that were reminiscent of the political beating banks and hedge funds took at the height of the US financial crisis.

Although the recent economic and political scenario in the US is extreme, this potential always exists.  More active political relationship building over the long term can help.  But unless company officials in headquarters are actively involved in that process, and really understand the need to allow regulators and politicians a visible role in resolving problems on a small scale, the outcome of a crisis will always be at least symbolic conflict between the company and the government.

3) Complexity and certainty: Increasing complex products and services present a challenge to engineering-driven companies.  Problems can emerge quickly and are hard to diagnose and resolve.  At the same time, marketers want to avoid complexity and make products with thousands of parts and processes appear simple and supernaturally reliable.  So, a gap emerges between consumer understanding of risks versus benefits.  When problems do emerge, companies that take pride in their processes and engineering need to find better ways to quickly resolve internal debates about causes and solutions.  Or, if possible, make those debates more open and public, despite risks to liability or competitive advantage.

4) Multinational challenges:  Companies that operate across borders and cultures have special challenges in managing their reputation in the best of times.  That is especially true for complex businesses that face conflicting local regulations and high public visibility.  Without a consistent effort high in the organization structure, it is difficult for multinational organizations to maintain a consistent view of external reality among the members of the senior management team, looking across two dozen time zones, multiple political and economic systems, and wide variations in consumer behavior. As a consequence, in a crisis, at least 50 percent of the management team’s time is taken up by debating what the reality is outside the company’s walls.

Companies raise their risk when they fail to discuss on a regular basis how issues of public concern shape the reputation environment in which they operate.  Organizations that have rigid layers of management also face difficulties when crises strike, because time is lost, and honest appraisals may be compromised, when managers and communications executives in distant markets are prevented from direct discussion with top decision makers in the company’s headquarters.

Toyota’s situation has a long way to go.  But it is not too soon to draw some specific conclusions about the new communications environment that sped up this crisis and that has changed the context for all corporate reputations. We can also learn some specific lessons for managing reputation and communications in a large global enterprise.

• Renewed focus on communications:  It is difficult to watch a great company struggle, but adversity can be good news for communications as a function.  In major corporate crises, the business impact of communications failures becomes more obvious to senior executives throughout an industry or across a country.  As a result, the communications function often gets part of the blame, but it also gets a chance to improve, receives additional resources, and gets more management attention.  This ultimately enhances the role that communications professionals are able to play in building and protecting reputation.

• Alignment of internal standards of success and external measures of satisfaction:  An organization’s values are never more on display than in a crisis.  In Toyota’s case, it may be true that internal measures of success—like saving money and legal liability by keeping product problems hidden, or isolating information between parts of the organization to protect engineers and managers from criticism—were not ones that customers, line employees, shareholders, or policy makers would all agree were acceptable goals.  One definition of a great company is that it deals with problems well, and achieves its business goals while delivering results in a way that is consistent with the common interests of all its constituencies.  Toyota lost its ability to align quality control, financial risk management, customer satisfaction, and corporate citizenship.  But there is no reason Toyota’s recovery cannot set a new standard for alignment of corporate and public interests.

• Shift from brand thinking to reputation strategy:  A crisis that casts doubt on an iconic company, and a whole manufacturing philosophy, as Toyota’s does, can be a turning point for the communications profession globally.  Business leaders must now realize that some of the factors that make this crisis so difficult are true for all companies, and are moving the global economy from the brand era to the reputation era.

Twenty years ago, brand became the focus of value creation in many industries.  The idea then was to use the growth of media and higher disposable incomes around the world as platforms for increased consumer loyalty and price tolerance.  By reducing the story of a brand to a few attributes, differentiated from competitors, and repeated thousands of times, branding and brand awareness became a fundamental approach to marketing and communications.

• Globalize reputation management:  While some corporate structure and business culture aspects of Toyota’s situation may be unique, hundreds of companies headquartered in other countries are equally unprepared for a similar situation.

Companies with major operations in distant locations from corporate headquarters need to adopt a principles-based, rather than a centralized, rules-based approach to reputation building.  They need to create a faster, more flexible framework for making communications decisions across borders, cultures, and time zones when problems emerge.  In each major market, the company should use influencer mapping, the process of identifying technical, social, and political influencers and experts, and create a long-term, ongoing program of personal engagement between the company’s managers and engineers, and those influential outsiders.  That way, when problems emerge there is already a widespread, localized base of understanding among credible outsiders who can publicly and independently echo the company’s commitment to standards and performance.

An important part of globalized, integrated reputation management is a long-term relationship building effort with government leaders and their staff members, regulators, and non-governmental organizations and political parties.  This is more than lobbying for specific policies.  Even in highly successful companies, it is common to find government relations conducted very separately from other reputation and relationship building efforts.  This can be counter-productive to building a focused, clear reputation for a complex company.

• Fully adopt digital social media:  The evolution of information technology is not just a matter of instant access to endless amounts of information.  The relationship between organizations and their audiences is changing fundamentally.  Businesses do not live outside of society, and major societal shifts must be reflected in corporate practices and policy.

To adapt, companies must first actively monitor trends in the content and tone of online dialogue.  Then they must learn to rapidly respond to shifts in perception, using credibility that they earn by continuously engaging in peer-to-peer relationships with outside audiences.  They should also integrate the information they gain from online content analysis with other data, such as employee attitude surveys, customer satisfaction polls, and evaluations of the company by NGOs and policy makers.

Social media are reputation builders because reputation is what others say about you.  Businesses can no longer rely on what they say about themselves, through traditional branding and corporate reporting, to build and protect reputation.  Overall, management teams must give up the idea that they can control how the company is perceived by controlling information.  Instead they can stimulate and guide the discussion about the company, and explain the context for success and the company’s philosophy.

Toyota faces the daunting challenge of fixing its quality issues, fixing its credibility, and fixing its integrated, global communications function in order to rebuild its business and its reputation.  By quickly stepping up to the practices and attitudes described here, the company can build a stronger foundation for a quicker recovery.

We invite you to listen to a recording of the 5/13/10 event accessible at this link: http://events.fleishmanhillard.com/financialservicesreform

Here is the full list of participants:

• Lionel Johnson, Senior Vice President, Fleishman-Hillard, former Deputy Assistant Secretary for the Treasury

• Jack Bartling, Consultant, former Deputy Assistant Secretary of the Treasury for Legislative Affairs, and former Legislative Counsel to Sen. Christopher Bond (R-MO)

• Emily Altman, Consultant, former Managing Director, Head of International Government Affairs, JPMorgan Chase and Morgan Stanley

• Franz Paasche, Partner, Communications Consulting Worldwide (CCW)

For over 110 years, Lincoln Electric has been a successful manufacturing company of welding devices.  Based in Cleveland, the company has consistently retained its position as the leading global manufacturer of welding equipment without resorting to layoffs at its main facility in the U.S.

Through extensive historic research, access to company records, and interviews with today’s senior executives and factory workers, Mr. Koller focuses on the culture and business practices that have enabled Lincoln Electric’s guaranteed employment program to thrive, from the policy’s advocacy by its earliest president James Lincoln in the early 20th century, to its official indoctrination as a core value in 1958.  Sure, there is fine print to the policy – employees can be laid off prior to three years of employment, and seasoned workers can be fired for poor performance, among others.  But for the most part, Lincoln Electric has done well by treating its employees well, and effectively creating trust between management and workers.

Some keys to Lincoln Electric’s successful labor relations are:

• Trust begins at the top: John Lincoln, the inventor who founded the company, tapped his brother, James, to become its visionary management leader.  “At his core, James Lincoln believed every company had to earn the right to expect hard work from is employees, but at the same time he was absolutely convinced that no employer could expect to motivate his employees to work hard just by paying money.”  They had to earn the trust of its employees.

• Direct access to management: Lincoln Electric has a strong Advisory Board made up of factory workers and an open-door policy to senior management.

• Everyone knows the deal: “Guaranteed employment, as people inside the company call it, is not about job for life. It is a contract that describes in quite precise detail the obligations of workers and management on a day-to-day basis and the penalties that ensue when the obligations aren’t met.  New employees are introduced to the policy as soon as they are hired, and in dozens of interviews over many years, I have never run across anyone who doesn’t understand the terms of the plan and what it means for them.” (Spark p.59)

• Worker flexibility is linked to merit-based bonuses: “If trust is the first overarching principle necessary in any workplace that hopes to thrive with a guaranteed employment promise such as Lincoln Electric’s, the second is surely flexibility. Everyone – from the bottom to the top of the company – must be willing to be flexible about virtually everything involved with doing a job and being paid for it.” (Spark p. 99)  An example, is the flexibility to assign and then re-assign workers where they are needed, as well as to increase hours or decrease hours at will.

• Financial discipline has been followed by management: The firm has historically followed conservative financial operating procedures, so it has avoided wild fluctuations that might force layoffs.  In addition, CEO compensation levels are below today’s exorbitant norm.  Koller cites a source saying that the average CEO in the S&P makes 344 times more than the average American worker $30,617. In 2008, Lincoln Electric’s CEO made $4.6 million, and the average worker made $70,000 – or 65 times his workers.

Koller is the first to admit that Lincoln Electric has a unique history and current set of circumstances that have allowed its guaranteed employment policy, and understands the difficulties at large public corporation might face in trying to implement a similar policy.  In fact, highlighting the complexity of exporting a culture globally, Lincoln Electric has hit roadblocks in some of its own overseas manufacturing operations in China and Latin America, for example.

But Koller does make a spirited argument that Lincoln Electric doesn’t have to be an anomaly.  He cites studies that say in the long run it is more expensive to lay off manufacturing workers than to keep them employed, and believes that today’s CEO – due in part to the short-term interest of Wall Street – thinks of layoffs as an automatic necessity to reducing costs.  To Koller, today’s business leaders aren’t educated enough on the advantages of guaranteed employment.

It could be argued that Koller’s own effort to sway them, might keep him employed a long time.

The implications of paying for digital information and social media services by sharing details about online habits, interests, and relationships is neatly summed up in the March 1 edition of the US version of Newsweek, by columnist Daniel Lyons.  His excellent one-page summary of privacy as currency ( “Google’s Orwell Moment”) describes the intergenerational and cross-cultural concerns presented by online business models that openly gather information from participants and turn that information into revenue.

Many people are just becoming aware of this issue.  So far, the internal debate many people are having about the value of their privacy resembles the signature comedy bit from 50 years ago by Jack Benny.  Benny, in his cheapskate persona, is held up at gunpoint by a criminal who says, “Your money, or your life.”  After a long pause, Benny says, “I’m thinking, I’m thinking.”

When it comes to the value of privacy as currency, many of us are saying, “I’m thinking, I’m thinking.”

For now, businesses that come to be known as privacy thieves will face a serious reputation problem.  Those companies pushing for the use of more private information from their online users should ask themselves if their advocacy of personal transparency is matched by corporate transparency?  So far, it’s a “heads I win, tails you lose” situation.  Most online information harvesters are saying that their proprietary business interests prevent them from sharing all the information they gather.  Understandable from a business point of view, but perhaps not from a public policy viewpoint.

The timing of the evolution of public expectations of privacy is a business issue, not just a reputation problem.  Move too soon and you act against the public interest, potentially stimulating regulatory or legislative response. Move too late and you lose the competitive advantage.

Google and Facebook are cited as two companies that are profiting from what they claim are changing social norms around privacy.  But they are only two of hundreds, or thousands.  Those who want to profit by surfing the choppy waters of change in the issue of privacy may be in for a long, rough ride.  It can’t be proven yet that this is a societal shift.  Privacy expectations may vary by generation not because of internet fluency, but because those who are younger ultimately have less to lose from sharing details of their lives and transactions.

If this is a generational shift that will reshape public expectations of privacy permanently, there is still the issue of cross-cultural differences in expectations.  The fundamental meaning of privacy varies by country and culture.  In many cultures, privacy and identity are very close to the core of human value.

Despite the internet’s demand for speed, and “launch it today, fix it later” it is unlikely a core human value will change quickly.  So the shift to privacy as currency is going to take time. When it comes to changes in basic societal values,  companies need to stop and listen, and look closely at their risks as well as their opportunities.

Yelp.com is no stranger to butting heads with the small businesses that are subject to its consumer reviews.  You don’t have to search far for www.yelplawsuit.com as well as www.yelp-sucks.com  (yelpsucks.com is already taken by Yelp.com).  Even the Common Questions section of the Yelp company web site includes the following:  “I’m considering legal action against a review and/or Yelp.  What are the precedents here?”  

Last year, Yelp.com did begin to publicize steps it was taking to give business owners more control over their online page listings.  The site now enables businesses to edit their company profiles and privately e-mail reviewers.  Yelp’s CEO Jeremy Stoppelman began blogging more frequently about how Yelp operates, opened a Twitter account, and undertook outreach to the small business community.

The small business at the center of the class action lawsuit – Cats & Dogs Animal Hospital — claims that soon after the appearance of negative reviews, the hospital began receiving high-pressure calls from Yelp advertising employees promising to manipulate the reviews in exchange for ad dollars.  On Feb. 26, 2010, Yelp.com’s CEO responded to this suit in a corporate blog post: “The reason 29 million people used Yelp last month to find a great local business is because of the trust they place in the reviews on our site.  The entire value of the Yelp community to consumers and businesses hinges upon that trust – and we would never do anything to jeopardize it.  Simply put, Yelp does not remove or hide negative reviews in exchange for money and Yelp sales people do not offer to do so.” 

Yelp.com does disclose that it has its own software algorithm for determining which user postings remain on the site or are removed.  On March 1, 2010, Yelp.com’s CEO took to explaining this secret sauce further:  “We’ll be the first to admit that, by conventional standards, Yelp can seem weird.  We’re different than other review sites and that can throw people off.  The main basis for confusion:  Yelp has an automated system in place that helps to maintain the legitimate quality of content.  This automated system often removes reviews from business pages that people don’t want removed….We purposely stop short of describing the review filters’ mechanics as it’s a Catch 22:  the more descriptive we are about what makes an established user or a valued review, the less effective our filter is at fighting shills and malicious content.” 

But what is at issue are the negative and inflammatory reviews that unfairly and anonymously attack businesses in the first place, like the one currently up calling a veterinarian at the Cats and Dogs Animal Hospital: “the rudest vet I’ve ever been to… probably one of the rudest people I’ve had the displeasure of meeting” and then signed by “Kay K.”  I wonder if Yelp would be better off saying it was posted by a rogue ad salesperson and that the Yelp forum really does work – kind of like David Stern calling Tim Donaghy, the NBA referee caught manipulating games a “rogue, isolated criminal.” 

The only problem is that in reality the good reputation of Yelp.com is based on its software catching every overly impulsive consumer with Internet access and a grudge and determining when comments cross the line, and as long as users posts can be anonymous, that’s nearly impossible to do.

This situation leaves me wondering:

• Is the burden on the reader to determine what posts are legitimate?  Is that half the fun of visiting these rating sites, which then makes them part entertainment site, part business tool?  (Yelp does encourage visitors to vote on whether a post is ‘useful’ or ‘funny’ or ‘cool.’)
• Or is the burden on the small businesses to come up with their own creative strategies for defending themselves online and offline?  (One creative pizza joint poked fun at the over-the-top negative Yelp comments by printing them prominently on staff t-shirts.)
• Or is Yelp.com responsible for maintaining a fair forum, and if not, can they be legitimately sued by small businesses?

The effect of the accident itself on his reputation, and on his career as an endorser, should have been minimal.  But Tiger may be making the situation much worse by his subsequent choices.  Now he has stimulated the imaginations of millions of people by compounding the mystery of what actually happened with behavior that appears evasive, if not suspicious. 

Fans of irony will also appreciate the unintended consequence of one of his most visible campaigns.  Plastered over the walls of airports everywhere is the image of Tiger Woods considering his next shot in Accenture’s long-running ad series.  The headline reads: “It’s what you do next that counts.”

No kidding.  Especially in public situations.  Tiger’s decision to hide and ask for privacy offers lessons for individuals and organizations facing the heat of unplanned attention.

The first, and biggest, point we can take away from Tiger Woods’ brush with infamy is that public figures can have no expectation of privacy in a 24-hour, instant-information world.

This is especially true for people who sell their celebrity as endorsers, as Tiger Woods has done.  Even beloved celebrities don’t earn the right to privacy–no matter how much they protest to the contrary.  At best, well-liked public figures with “good guy” images may have more reputation resilience.  That is, their reputation will recover more quickly, overall, than others in similar situations.  But if fame has a cost today, it isn’t just the loss of privacy, it is the risk of instant infamy.   

The second lesson to take from the Mr. Woods’ experience is: No matter what, celebrities, executives, and organizations that come under investigation should rapidly declare their intent to cooperate with authorities.  Declining to be interviewed by the police in an accident where you were the driver just looks like defensive legal maneuvering, or arrogance.  Neither is good for anyone’s reputation.  Cooperation may not be the best legal approach for people or companies that have something to hide, but that’s just the point.  Resistance to an official inquiry is widely seen as a signal that there must be more to know, information that is worth trying to keep out of view.  There is no better bait for the gossip media and public speculation.

Like the maxim in science that nature abhors a vacuum, celebrity gossip also hates an absence of information.  If the people involved don’t talk,  everyone else will, including the police.  Once the speculation is out there, and especially if there isn’t much factual information to go on,  the same theorizing and assumptions are replayed over and over.   As a result, a celebrity drama can quickly be blown up into a crisis.  Thanks to the long-lasting nature of internet content, it stays out there in public view, no matter what is ultimately disclosed. 

What is the economic impact of this imbroglio on Woods and his sponsors? That question is worth hundreds of millions of dollars.  The outlook for Tiger is probably good, unless there is a lot more, and worse, that we haven’t yet heard about his situation.   The volatility and recovery of the economic value of reputation can be measured and tracked over time.  So, we can say with certainty that celebrities, executives, and companies with mostly positive reputations will almost always bounce back from their first scandal. 

It’s important to realize that reputation isn’t just one thing.  It is a collection of attributes, and each attribute of Tiger’s reputation that this event harms will recover at a different rate.  Eventually, when more is known or more time has passed, his reputation value will recover overall.  But certain elements may never be strong again and a lot depends on how much more there is to the story he wants to suppress.  

While his reptuation value may recover, his reputation risk will be higher.   Reputation risk is the likelihood of further negative change in reputation value, whether from deeper impact of the current situation, or a new pattern of negative events or other reptuation damage.  For a visible public figure who is compensated as an endorser, higher reputation risk may lead to the quiet renegotiation of contracts at a discounted fee, or if things get worse for him, the end of sponsor relationships.

But, as this situation unfolds or is resolved,  some of Tiger Woods’  reputation elements may rise in value.  He may also be more attractive to some new sponsors who are looking for a little more edge, and want to take advantage of his temporary (we assume) brush with infamy.

How could Tiger have avoided most of the impact of this situation on his reptutation and its value?  For well-regarded, high-profile personalities or visible institutions and their leaders, the best antidote to instant notoriety is already well known:

1. Announce at least the basic facts yourself, before the media and amature gossip sleuths go off hunting for experts to speculate on what happened.
2. Cooperate with the authorities, or at least declare your intent to cooperate.  
3. Aim for quick resolution, including disclosure of enough details to avoid independent digging for “what really happened.”
4. Admit  fault, to some degree, and commit to do better. (Tiger Woods did say the accident was his fault, but he eliminated the benefit of that statement by asking for the impossible–privacy–and declining the opportunity to look contrite and cooperative when the police asked to interview him.) 
5. Follow the resolution of the incident with a period of being as boring as possible.  The person in the spotlight should recommit to focusing on the  activity, skill or talent that created the original reason for his or her  fame. 
6. Celebrities and high-profile executives should rehearse what to do in the event of a situation that can attract negative attention.  Organizations invest time preparing for inevitable, but unpredictable, crises.  Individuals can do the same.

 As the ad says, it’s what you do next that counts…Tiger.

http://www.nytimes.com/2009/11/22/weekinreview/22bowley.html?ref=weekinreview

A new book, Bright Sided: How the Relentless Promotion of Optimism Has Undermined America, by Barbara Ehrenreich, chronicles some of the perils of optimism and the power of positive thinking.  She links those now stereotypical American traits with the housing bubble, among other ills.  But she isn’t describing a one way street with too much optimism at a dead end. In her essay last month in Time magazine (October 10 cover date), Ehrenreich is quick to point out that the opposite of optimism need not be pessimism, but a realistic view of how things are and how they could be.

Realism is often in short supply in corporate board rooms.  Anyone who has ever been involved in a corporate crisis, or worked on a turnaround, knows it isn’t uncommon for an organization’s perception of itself, at the highest levels, to be out of sync with the perceptions of the company among employees, investors, customers, and policy makers.  Leaders very often take a too-positive view of how they are understood by outside audiences and over estimate the “benefit of the doubt” their reputations will provide during difficult times.  In many situations, this “reality gap” is a major barrier to resolution and progress, or at least the cause of unnecessary friction.

Over many decades, business leaders have used optimism to literally move mountains in the pursuit of objectives.  But today it is fair to ask, has too much optimism also contributed to the failures of business and economic leadership?  Extraordinary optimism has been a defining feature of American public life for several hundred years.

The can-do spirit has also become a defining characteristic of the American style of business leadership, exported around the world.  But even the most positive-thinking executives have experienced the limits of optimism in the past 12 months, and that has consequences for progress, as well as reputations.

What’s the connection between optimism and reputation?  Whenever expectations are being created or changed, reputation is a major factor–the reputation of individual leaders, companies, and brands.  It might be called motivation, or optimism, or can-do spirit, but very often people in charge communicate in a way that makes it seem like they heartily believe no one should let the facts get in the way of their certainty that progress is possible.

Sometimes, extreme optimism works.  In those cases, it appears that a leader’s confidence and commitment, or the motivation of the team have overcome barriers.  As a result of this “optimism risk,” a leader’s reputation is improved.  More often, in the age of instant information, the barriers are very apparent to employees at all levels, as are the business’s bumps along the way.  Over-optimistic change management often fails, and a leader’s credibility suffers.

That’s when we hear people say “management just doesn’t get it.”  So, what don’t they get?  Senior executives of the organization generally do understand the business facts they face.  But it is likely that those same executives believe other people’s expectations can be “managed” to overcome the obvious negatives or hurdles that the business faces.

Unfortunately, managing expectations often takes the form of over-optimism–saying “we can do it” without directly addressing the challenges, or how the individual can address the challenges and help the broader cause.

Too Much Optimism Slows Companies’ Progress

Even in good economic times, over-optimism stifles real progress in many organizations.  This is a striking unintended consequence of the way management teams often communicate in corporate turnarounds, post merger integrations, or leadership transitions.

If over-optimism characterizes communications from the top in a company, then it is unlikely that employees–and even investors and partner businesses–can have a frank, productive dialogue about the company and its issues.  So, over-optimism leads to other problems that go well beyond the tone of discussion from the top.  But the top is where it starts.

By making balanced, realistic communications the template for the company’s relationships, management not only builds credibility, but generates better interaction among groups and individuals at all levels, and stimulates faster progress for the company as a whole.

The Recession Effect

The context of a severe recession and concerns about the global financial system highlight the risks for senior executives who are too focused on the upside.  The traditional “go team!” can-do spirit can sound very much out of tune against the backdrop of extreme negative news.  That has led many business leaders in the past year to say very little, since they had only one tool in their employee, investor and marketplace motivation tool box.

Other leaders who do not typically try to stimulate confidence and action by conveying a sense of unrealistic optimism have had an advantage in the current environment.  Not only have they continued to be more credible, but the absence of peers who would usually be taking up a lot of attention by “accentuating the positive” leaves space and time to hear the realists’ story.

In what is usually a highly optimistic business culture, especially in entrepreneurial companies, this shift to either silence or more-realistic leadership messages did, and still does, create concerns among employees in many companies and among others who are more used to the usual rah-rah, no-negatives approach.  The shift to realism, against a negative backdrop, is unsettling.  Along with other sources of corporate anxiety, like rumors about layoffs and compensation cuts, this has created a very anti-optimistic environment in many companies during the past year.

But Not Enough Optimism is a Problem, Too

Beyond optimism, and equally problematic, is too much pessimism from management, or too much acknowledgement of the world’s pessimistic view of the company.  The tendency, especially in struggling companies, to under emphasize optimism is just as likely to hold progress back.

There are times when leaders simply must ignore the critics and present a cogent strategy designed to stimulate action.  Too much heavy handed reality, threatening the company’s existence or its markets, just contributes to apathy or resistance.  Even in the darkest times, any organization that has not completely ceased to function produces stories of small successes or individual efforts.

A nod to the facts is often enough to maintain credibility for senior executives who have to communicate in difficult times.  Leaders who go too far and are overly pessimistic lose their credibility as agents of change and creators of a better future.  That sets the tone for a generally pessimistic corporate environment, which — just as in the case of over optimism–prevents meaningful, productive dialogue with employees and outsiders.

In a dark time, the people closest to business relationships or important processes will miss the chance to identify new opportunities, which always exist, despite difficult circumstances.  Without interactions framed by a plan and some hope, the organization as a whole stays under a cloud of doubt longer than necessary.

Leadership Imperative: Timing Matters as Much as Tone

Picking the right balance between optimism and acknowledgement of realistic challenges isn’t the only choice.  Usually, companies and their leaders are about six months too late to turn down the optimism.  They miss the optimal moment to turn up the discussion of realistic challenges and commitment to address them, doing so when the outside evidence of shortfalls threatens their credibility.  The opposite is also true. Leaders of companies generally are about six months too late inserting a fresh injection of optimism into the internal and public dialogue.

Part of the role of leadership, from a reputation and communications point of view, is to declare when the organization or its operating environment is crossing the line between one stage and another.  That is one of the most powerful levers of persuasion and motivation, because people need permission from an authority to switch gears mentally from offense to defense and back again.

Hitting the balance between optimism and harsh realism is especially important now.  As the recession turns into a slight economic upswing, many organizations are starting that process of declaring the shift and constructing the new expectations that they will meet or exceed.

Is Obscurity the Real Reality?

But more than optimism and pessimism, executives display an unrealistic sense of their organization’s visibility and relevance.  Many leaders suffer from misplaced confidence that the world is watching what happens in, or to, most companies.

It is hardly surprising that senior executives who spend their whole adult lives trying to achieve difficult business targets imagine that the world cares.  But often, no one outside is thinking about the company at all.  This is especially true as the credibility of companies in general declines, the performance of the economy disappoints, and individual companies stumble.  The next stop is irrelevance.

Across the spectrum of misplaced optimism and unnecessary pessimism, the mismatch is most apparent in crises, when 50 percent of time is lost debating reality rather than deciding what actions and statements will be most effective in the objectively real circumstances the company faces.

The best cure for that is objective analysis of how a company is understood by its employees, customers, investors, business partners and policy makers.  The best approach is a quantitative-research based comparison to peer companies or to organizations that a management team admires.  This evaluation has to go beyond opinions about trust in the company and its leaders, to examine both visibility and credibility of the company and its top executives on the dozen or more attributes that act together, across time and audiences, to create reputation.

How much positive thinking is too much?  How much reality is too much?

There is no absolute measure of too much optimism.  It is a powerful, often misused tool that has to be applied with judgment, experience and good information.  For leaders at the economic crossroads who are looking for the balance between motivation and credibility, a ride on the New York City subway system offers a bit of philosophy.  As part of an ongoing series, the Transit Authority has posted thought-provoking quotations and poems among the subway advertising. Some trains have this excerpt from Schopenhauer:

“Every man takes the limits of his own field of vision for the limits of the world.”

Reality is what the world says it is, not just the little piece that can be seen from the boardroom window.  Leaders need to get beyond what they and their close associates think in order to understand their own reputations, and to have an accurate view of the expectations others hold about their organization.  Only then can leaders pick the right mix of optimism and reality.