study confirms link between CSR and better sales

Source: Hill and Knowlton, 19 September 2002

A tough economic climate and a wave of boardroom scandals have turned the spotlight on company reputation and that of the CEO. The overriding current concern of CEOs is sales, according to a survey of over 800 Chief Executive Officers and other executives in Europe and North America by global communications firm, Hill and Knowlton. They also strongly believe that better corporate reputation can directly increase sales and view customers as having the most important influence on reputation all other factors have declined in relative importance over the course of the year reflecting priorities in difficult market conditions.
Other key findings from Hill and Knowltons Corporate Reputation Watch 2002 survey, carried out for Hill and Knowlton by leading research company, Harris Interactive, include:
· Customers and employees are the top shapers of a companys reputation but the CEOs own reputation remains a powerful influence too
· There is a growing trend for the CEO to be measured and partially remunerated according to his or her ability to affect corporate reputation the ability to communicate is key to building reputation
· The vast majority of companies in Europe and the US now have measures in place to regularly assess their reputation, although attitudes are more laissez faire to internet monitoring
· Across all markets, corporate social responsibility has become a board-level concern, more so in Europe than the US
· Treatment of employees, corporate governance, financial transparency, ethical and environmental values are cited as the most important aspects of social responsibility
· Negative media coverage is the greatest threat to reputation although unethical corporate behaviour is a growing concern

Elaine Cruikshanks, CEO of Hill and Knowlton International Belgium, commented:
Times are tough for business leaders – there has been an erosion of trust in companies following the various recent corporate scandals, and there is widespread pressure on sales and profitability. But corporate reputation is becoming an ever more important tool in the CEOs armoury and its great news that they are acknowledging the simple equation: a good reputation equals sales. Its also reassuring to discover that monitoring of corporate reputation is now firmly in the boardroom and that there is an acceptance that the reputation of the CEO is closely linked to that of the company. It is inevitable that more of the CEOs compensation will be based on his or her ability to manage reputation in future.
Worryingly but unsurprisingly, CEOs in all countries appear to pay greater attention to influences on reputation with which they have most personal contact (customers, employees, print media) and are less concerned by those with which they generally have less personal contact (internet, broadcast media, NGOs). Andy Laurence continued:
CEOs spend less time watching TV or on the internet than virtually any other audience group, so its hardly surprising they take less notice of these communication channels. However, there is grave danger for them in underestimating the power of broadcast and interactive media. I am sure we will also see CEOs take more notice of NGOs in future. After all, ironically the same survey also shows that CEOs greatest fear is attack by the media or special interest groups.

There were two other findings which particularly surprised Hill and Knowlton corporate communications experts. Firstly, between 20% and 40% of CEOs were worried about unethical corporate behaviour impacting their companys reputation. We think this is high and shows a deep-seated unease about issues of corporate governance. We were also surprised by the very different levels of concern about a disaster disrupting operations in the US, only 36% were concerned (14% in Italy), while the figure reached 62% in the Netherlands and UK. We would have expected a more uniformly high figure, given the events of 11th September in New York.

Summary of the key findings

Increasing sales is the most important contribution of corporate reputation.

The majority of European and US CEOs believe that the most important effect of better corporate reputation is an increase in sales, with strongest positive responses from leaders in the Netherlands (66%), Belgium (65%), Italy (56%) and the UK (50%). German executives were the exception. For half of them (50%), reputation is most important in helping to promote transactions and strategic partnerships this was also a strong benefit reported in the US. European executives are more likely than their US counterparts to believe that enhancement of company stock price is an important benefit, whereas more US CEOs than international leaders cited the recruitment and retention of employees as the most important benefit of better corporate reputation.

Customers and employees the most important influencers of reputation

Customers are by far the biggest influence on a companys reputation with more than 90% of CEOs in each country (98% in the UK, remaining static compared with 2001) saying that they are extremely or very influential. Employees were still the second most important across most countries, although their importance has dropped in most countries versus 2001.

CEOs in the US feel that the Chief Executives reputation is a major influence on corporate reputation (80%), but significantly fewer international CEOs share this view the UK came in at 56% and Germany at 63%. The European average is just over 50%, a 9% drop since 2001.

Media criticism is considered the greatest threat to reputation

Media criticism is considered the greatest threat to corporate reputation according to many international and US executives, with CEOs in Belgium (71%) and the UK (66%) admitting to being most concerned about negative coverage. For executives from Germany (67%), Italy (56%) and the Netherlands (68%) top of the list of threats against corporate reputation were allegations by special interest groups or customers concerned about product safety. Surprisingly this presents little cause for concern to US CEOs (29%).

With the exception of Italy (14%), and very surprisingly given the events of September 11th, international firms are also more likely than those in the U.S. (36%) to be concerned about the threat of a disaster that could disrupt operations.

European CEOs are somewhat less likely than those in the US to view unethical corporate behaviour as a threat to corporate reputation. Two in five CEOs in the US (42%) view ethical lapses as a threat, compared to international sentiment that ranges from 39% in Belgium to 24% in the United Kingdom.
Initial fear of the Internet rejected

62% of UK companies and 43% of US firms claim they do not monitor communications about their company on the Internet at all, the Corporate Reputation Watch revealed. Many international firms do check what is being said at least periodically. However, the 2002 survey has shown a very worrying increase in the number of UK companies in particular that completely disregard the internet (a rise of 13% since 2001, from 49% to 62%). Other countries appear gradually to be improving their monitoring online.

Social Responsibility can no longer be ignored

Corporate Social Responsibility will become increasingly important in future, say the vast majority of executives across Europe, with the UK and Italy leading the way at 88%. International executives agree that Social Responsibility initiatives contribute a significant amount to their companys overall reputation, particularly in Italy (52%), the UK (32%), and the US (23%).

Employee relations is set to be a key aspect of social responsibility in the future in all countries (83% Germany, 82% UK), with corporate governance (94% Germany, 74% the Netherlands) and ethical values ( 73% Belgium) also high up the list of initiatives considered extremely or very important.

Corporate Social Responsibility initiatives are seen above all to increase sales, according to international companies including the UK (40%), whereas American CEOs rank the recruitment and retention of employees as the most important business objective furthered by social responsibility initiatives (38%).

Monitoring corporate reputation now considered a necessity

At least three in four international firms now have a corporate reputation metric system in place, representing a significant improvement on the low level of measurement revealed in Hill and Knowltons 2001 survey. The exception to this trend is the Netherlands, where 42% of companies still do not measure corporate reputation at all.

Reputation monitoring is gradually also coming to the boardroom – the Boards of companies in several countries, including Belgium (69%), the UK (62%) and the Netherlands (54%), are likely to monitor the effectiveness of corporate reputation management efforts. More surprising is that only a minority of companies in the US (38%), Germany (35%) and Italy (38%) consider the monitoring of these efforts to be a Board level concern. Two thirds of companies in Belgium (63%), the Netherlands (60%) and the United Kingdom (60%) report that monitoring social responsibility initiatives specifically has become a board-level function, though surprisingly this is only the case for 44% of their US counterparts.

One in three international companies assess their reputation through a mix of both formal and informal measures. Word of mouth remains the most popular informal method of evaluation, featuring highly in companies in the UK (78%) and US (73%). Formal custom research is still preferred by 50% of international companies, but no longer represents the most popular method of measurement in 2002.

Ability to communicate, innovation and human values voted the top drivers of reputation

The ability to communicate is the most influential factor in building and protecting a companys corporate reputation. CEOs in the Netherlands (90%), Germany (87%), Belgium (82%) and the UK (78%) rank the ability to communicate as the top influence in building and protecting their companies corporate reputation.

The ability to innovate was also ranked by the majority of international CEOs as a significant influence on Corporate Reputation management issues, while 70% of CEOs in the UK felt that the treatment of staff played a major role in building and protecting reputation. Human values was also considered a very important driver by high numbers of executives in each country (Germany 77%, Belgium 75%, UK 66%, Netherlands 64%, Italy 62%).

When questioned about the proportion of corporate reputation based on the CEOs individual reputation, the 2002 results show little change from last year. Chief executives in the UK estimated that 39% of a companys reputation was attributable to its CEO, while those in the US rated it slightly higher at 46%. However, the European average showed no change from 2001, remaining at 44%.

Corporate reputation and CEO compensation

Similar to those in the US, a minority of international companies report that their Board of Directors use corporate reputation management as a factor in evaluating and compensating CEO performance. The Boards of Italian companies (44%) are most likely to consider corporate reputation management during their review of CEO performance (other countries – Netherlands 34%, US 29%, Belgium 27%, UK 26%, Germany 13%).

The extent to which CEO compensation is based on corporate reputation management performance differs widely. Among companies who consider such performance during executive review (as above), Canadian companies base an average of 51% of their CEOs total compensation on their reputation management performance, while Belgian companies base an average of only 12% on this performance.

Succession criteria

The emphasis placed on a future CEO candidates ability effectively to manage corporate reputation varies internationally. Half of Italian companies (50%) place a great deal of weight on this ability, while similar weight ranges from 40% in Germany to 26% in the Netherlands.