The public at large may be suspicious of PR. Journalists may underplay its role. But try telling that to the new-age CEOs. The annual PRWeek/Burson-Marsteller CEO survey has found overwhelming evidence to suggest that after years of under-appreciation and misunderstanding, CEOs increasingly value public relations and its practice, and are more and more clued in to reputation management.
The public at large may be suspicious of PR. Journalists may
underplay its role. But try telling that to the new-age CEOs. The annual
PRWeek/Burson-Marsteller CEO survey has found overwhelming evidence to
suggest that after years of under-appreciation and misunderstanding,
CEOs increasingly value public relations and its practice, and are more
and more clued in to reputation management.
The survey polled CEOs at companies in all size ranges, from Fortune 500
giants to companies with sub-dollars 1 billion in revenue. In each
revenue bracket, there was a widespread recognition of the importance of
PR. Four out of five CEOs (79.9%) believe that PR is more important to
their company than it was five years ago.
Among the very largest firms, with revenue of dollars 5 billion or more,
the number is even higher, at 90.9%.
More encouraging still is the fact that an even greater number, 85.1%,
believe PR will become more important in the next five years. Indeed
100% of CEOs at companies with revenue of more than dollars 1 billion
believe this to be so.
Why is this?
It’s a complex web of factors, but this wouldn’t be America if money
didn’t come into play. In the past, intangibles such as brand value,
employee retention, strength of management and others have been played
down as factors influencing stock prices because they do not show on the
balance sheet. But the clear majority (85.5%) of CEOs now believe that
effectively managing their company’s reputation affects the stock price
(see table 6). And in the largest companies (with revenues in excess of
dollars 5 billion), more than nine in every 10 CEOs (91.4%) accept this
as fact.
Exactly what has created this shift in share-price formulas is hard to
say. One of the key ingredients has been the dot-com startups, which are
the last word in intangibles: overnight they can be valued at prodigious
prices, based not on results but on a loose mix of buzz and potential
and proximity to other business models. ’When venture capitalists hand
the check over to the latest dot-com,’ says Lou Capozzi, CEO of MS&L,
’their advice is to hire a PR firm.’
But it’s not only hype and potential that is educating the new
generation of CEOs. A recent study of the Fortune ’Most Admired
Companies’ rankings, conducted by the Council of Public Relations Firms,
finds a direct correlation with the amount of money and time and
attention spent on PR and IR. A Fortune Yankelovich survey of Fortune
subscribers in 1998 similarly found that companies with high corporate
equity (based on a weighted combination of awareness, impressions and
likelihood to engage in supportive behavior) had 12% higher P/E ratios
than those with low equity. For the average Fortune 100 company, that
translates into a market capitalization increase of over dollars 5
billion.
’Obviously, we still live in a world where
’earnings-per-share-per-second’ have a profound impact on company
valuations,’ says Gus Weill, chairman, US Corporate/Financial Practice,
Burson-Marsteller. ’But this survey clearly shows that CEOs understand
reputational issues - often far-removed from financial performance - are
an increasingly important component of stock price.
’Today, companies and their CEOs operate in a dizzying swirl of scrutiny
from more audiences, on more issues and through more channels than ever
before. It’s no wonder that PRWeek’s survey reveals such intensive
concern about reputational issues.’
Stakeholders
One of the key audiences to which Weill refers is the new investor
community. ’Among the several reasons for the growing importance of PR,’
explains Burson-Marsteller chairman Harold Burson, ’is the growing
interest of the average American in business because of greater stock
ownership by the workforce as a result of 401k plans, IRAs and the
like.’
At the same time, Burson perceives the media’s increased and more
intensive scrutiny of business, which has become not only front page
news but also a major component of television news.
’The demand for information about companies and the news hole available
to convey messages have both grown exponentially,’ adds Rubenstein
Associates chairman and CEO Howard Rubenstein. ’With this increased
scrutiny of business, the importance of image and appearance has
increased a great deal, and more attention is being paid to the
perceptions of various constituencies.’ For CEOs, this means that they
must have an enormous grasp of detail and the ability to get their
message across.
It is the function of PR counsel - both inside and outside the company -
to see that he or she has the relevant information and the means to
convey it succinctly and efficiently.
Media
Another key factor in the rise of PR in the corridors of power is the
fragmentation of the media. ’Public relations will become more important
because the media will become more complex as they proliferate,’ says
Burson. ’This will make it more difficult to disseminate messages that
can differentiate one entity from another. As this happens, public
relations will become less an art and more a science.’
Moreover, PR’s ’science’ will lead to the ’proliferation of media and
technologies to carry it,’ says Philip Webster, president of the Webster
Group. ’The globalization and instant nature of communications, (which
together) have resulted in a geometric expansion of communications
messages, and a far greater need for PR professionals to craft and
manage them.’
All of these factors are expected to have a growing influence on the
lives of CEOs. ’The trends that are increasing the importance of PR will
only accelerate in the next five years,’ says Rubenstein. ’The
globalization of business, the intensity of competition, the
proliferation of media outlets, the impact of instantaneous
communications and the ubiquity of the Internet will all continue. The
number of issues in every sphere - public policy, investor relations,
regulation, community affairs, sales and marketing - will increase and
diversify. All these converging demands will boost the need to reach out
and to respond.’
The Internet
But it’s the Internet, of all these factors, that potentially presents
the biggest PR challenge - and of course, provides the most work. As
Rubenstein says, ’The company web site is taking on tremendous
importance as the front-line medium through which current and potential
customers, investors, employees, suppliers, press and general public
gather basic information.
And other sites, such as Edgar, which is operated by the SEC, as well as
trade associations, news media, investment, industry and special
interest sites, routinely carry detailed information on companies.’
The upside is, of course, plain to see. ’The Internet has revolutionized
PR,’ says Richard Edelman, CEO of Edelman PR. ’It has given us a direct
pathway to the consumer, enabling us to circumvent the media as a filter
and to build relationships directly with consumers, while still allowing
us to work as intermediaries with the media.’
This gives CEOs and PR pros an invaluable opportunity to put a message
across without meddling and editing in the journalistic process.
Shareholders can now see the full text of a company’s quarterly earnings
announcement within minutes of its release, rather than rely on an
edited wire service version that appears in a newspaper the following
day. Increasingly, events like news conferences, analysts’ calls and
annual meetings are available on the Web, bringing the company and its
executives ever closer to the general public. And the ability to make
large amounts of information available to the world at the touch of a
mouse will ease the demands that general information requests put upon
corporate PR departments.
Above all, it’s instant. ’The Internet allows a company to act quickly
in seizing marketplace opportunities and in presenting its case
unimpeded in times of crisis and confusion, says Jack Bergen, prexy at
the Council of PR Firms. ’While it won’t replace the reputation factors
in the traditional media, the speed and confidence with which the
company deals with the Internet will itself affect the overall
reputation.’ By the same token that one can instantly respond in a
crisis, so the speed of decision-making and the bar of accountability is
raised.
’The Internet makes it harder to manage the company’s reputation,’ says
Bergen. ’It demands a speed of communicating that challenges the pace of
decision-making in most organizations. It also give a potent outlet for
critics of the company. These factors raise the importance of PR to the
organization, strengthening its case for resources and internal
influence.’
’In today’s dynamic marketplace,’ adds Edelman, ’the public has
virtually instant and universal access to information. This has led to a
demand for transparency and immediacy of response from companies. In
effect, companies are now subject to the same demands for information
from individuals as they are from Wall Street analysts. This is no
longer a closed game - everybody’s in the game and they all want a level
playing field.’
As well as being instant, the web is constant. ’The Internet is always
’on,’’ says Larry Weber, chairman and CEO of Weber PR. ’It is 24/7, and
a company has to act immediately. And its free-form, democratic,
anyone-can-participate nature means you cannot hide anything. Think of
Intel and the chip disaster, or more recently, Ford. It’s right there -
warts and all - for all to see.’
’If the essence of corporate reputation is what people say about your
company, then the Internet puts word of mouth on steroids,’ adds Harris
Diamond, CEO of BSMG Worldwide. ’Several recent studies have found that
people profess to express themselves more aggressively and more
truthfully on the Internet. Of course, this can work to the advantage or
detriment of a company. True, you can obtain important insights, which
can help you build a stronger, more responsive company.
’On the other hand, if service stinks, if performance lags, if your
employees hate you, not only will you hear about it, so will everybody
else - including other customers, shareholders and your rivals,’ Diamond
adds.
And it’s not just in crisis, of course, that the Internet provides new
headaches. It’s also a freewheeling forum of gossip, half-truths and
downright lies. ’The downside of the Internet,’ says Burson, ’is that it
provides a low or no-cost forum to cranks and critics alike. No
verification is required and legal recourse for the most outrageous
libel is doubtful.
The challenge for all institutions - and public persona - will be to
develop real-time response mechanisms.’
’The notion that we can ’control’ a message in the Internet Age is
ludicrous,’ concludes Don Spetner, VP of corporate communications and
advertising at SunAmerica. ’This is a frightening proposition for many
corporate executives.’ The survey asked CEOs to assess the impact of the
Internet in managing company reputation. What it found was that 62.2%
believe it is playing an ’important’ role, 31.6% think it is playing a
minor role and only 6.2% think it plays no role at all (see table
7).
In larger companies (with revenues of dollars 1 to dollars 5 billion),
more CEOs consider the impact of the Internet more minor (40%), but none
believe it to play no role at all. In the largest companies (with
revenues in excess of dollars 5 billion), the impact is downplayed still
further, with only 54.5% thinking it will play an important role, and
9.1% arguing that it will play no role at all.
Multiple tools
It’s hard to assess these last findings altogether. Could it be that
larger companies have several key constituencies who are likely to be
influenced without the intervention or involvement of the Web, like
government officials and stock-market analysts? More likely it is the
fact that in companies of this size and complexity, no one tool can be
said to have an overriding influence; that the CEO and PR team have
several tools with which to manage the reputation of the company.
Or could it be that a large number of CEOs at Fortune 500 companies
simply do not understand the role of the Internet in managing their
reputation?
It seems unlikely. Asked how the advent of the Web affects a company’s
ability to manage its reputation, it turns out that CEOs at the largest
companies are most likely to recognize the reputation issues that the
Internet raises (see table 8).
Only 27.4% of CEOs thought the Web made it harder while 49.4% thought it
made it easier and 23.2% believe it has no effect. Among the largest
firms, however, it is seen as a potentially damaging agent, with an
above average 45.5% rightly suspecting it’s harder, and a below average
36.4% feeling that it’s easier.
Proactive
As all these factors converge, the evidence of the PRWeek/Burson-
Marsteller CEO Survey suggests that CEOs are taking an increasingly
proactive PR approach. A few years ago, the role of the PR officer was
little understood.
Often left out of the loop, they were regarded as a triviality, and they
were appointed and discarded with casual ease.
But as the survey confirms, the function is no longer left to chance:
85.2% of CEOs like to personally choose the person who runs their head
of corporate communication. And for companies with dollars 5 billion or
more in revenue, that figure rises still further, to 90.9%, with only
9.1% prepared to inherit their predecessor’s appointee.
This suggests a clear belief in the counsel of PR pros. And further
evidence is provided by the question of reputation management (see table
5). Asked who they would turn to if they had a reputation problem, more
than half (56.9%) said they would consult a PR professional.
The survey finds a direct correlation between the size of the company
(and thus the potential damage in dollars and cents) and the credibility
and importance of PR counselors.
In smaller companies, only half the CEOs polled (50.4%) would seek out a
PR pro. Other popular options would be marketing experts (17.7%),
management consultants (15%), ad gurus (10.6%), lawyers/general counsel
(4.4%) and human resource experts are bit players.
As the size of the company goes up, however, the picture changes. At
companies with revenues of dollars 1 to dollars 5 billion, PR counsel
starts to rise in stock (up to 61%), as do marketing (19%) and general
counsel (9%).
Management consultants (11%), on the other hand, diminish in importance
as reputation fixers. Advertising, in companies of this size, is seen as
irrelevant, and so is HR.
When you examine the situation for the very largest firms (with revenues
of dollars 5 billion or more), the value placed in PR counselors becomes
most pronounced: while marketing experts continue to be valued at the
average of 18.2%, 72.7% now turn to PR. In the meantime, management
consultants (9.1%), the much-feared Big Brother figures of public
relations paranoia, have almost completely disappeared off the radar
screen as a source of reputation advice; and the opinion of lawyers and
general counsel is now ignored altogether.
CEO as figurehead
And what of the CEOs themselves? How important is their own public image
to the overall company reputation? It is clearly a major factor, with
62.6% believing it to ’greatly’ contribute to the overall company
reputation, and 23.5% acknowledging that it ’somewhat’ plays a part. In
other words, 86.1% think it greatly or somewhat affects company
reputation, and only 6% overall dismiss it completely as an influence
(see table 1).
The self-perceived importance of the CEO is most pronounced in smaller
companies, with 89.4% considering it greatly or somewhat influential.
But interestingly, it’s once again CEOs at the largest companies (with
revenues in excess of dollars 5 billion) who are most ambivalent: only
45.5% believe it to ’greatly’ influence overall company reputation;
while 36.4% say it influences the company’s reputation somewhat (making
a total of 81.9%) and 18.2% say it matters not a jot.
Perhaps that’s because the larger a company, the more people there are
to shape and influence the reputation, and the more people there are to
be influenced.
But either way, PR has the means to unite these factors. ’It’s the
knowledge age in the new economy,’ says Matthew Gonring, worldwide
managing partner, communications and integrated marketing at Arthur
Andersen. ’Value is in intangible assets - people. People have basic
needs from their employer - they want a leader and plan to follow, they
want to be able to make a difference and grow and to learn. The appetite
for all of these characteristics can be fulfilled from a responsible
organization and a fundamentally strong PR program.’
The PRWeek/Burson-Marsteller CEO Report was conducted in October 1999
by Impulse Research, Los Angeles. It was sent out to 10,000 CEOs, and
from the responses, 269 CEOs were selected for analysis. They
represented companies with revenues of less than dollars 1 billion (164
respondents); dollars 1 billion to dollars 5 billion (48); and in excess
of dollars 5 billion (57). For further information, contact Adam
Leyland, editor-in-chief, at (212) 251-2600.
THE BEST: Which CEO has managed the reputation of his/her company most
skillfully in the last 12 months?
1. Bill Gates Chairman and CEO, Microsoft Corporation
2. Steve Jobs Interim Chief Executive Officer and co-founder, Apple
Computer; Chairman and CEO, Pixar
3. Jack Welch Chairman and Chief Executive Officer, General Electric
4. Carly Fiorina President and Chief Executive Officer,
Hewlett-Packard
5. Jeff Bezos Founder and CEO, Amazon.com
THE WORST: Which CEO has managed the reputation of his/her company least
skillfully in the last 12 months?
1. Bill Gates Chairman and CEO, Microsoft Corporation
2. M. Douglas Ivester Chairman, Board of Directors, and Chief Executive
Officer, Coca-Cola
3. Donald Trump Chairman of the Board, Trump Hotels & Casino Resorts
4. C. Michael Armstrong Chairman of the Board and Chief Executive
Officer, AT&T
5. Michael Eisner Chairman and CEO, Disney.
