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 / Winter 2010 / Issue 61(originally published by Booz & Company)


The Good, the Bad, and the Trustworthy

3. Benign competence. You set out to be an efficient and effective company with just enough emphasis on responsible management of your reputation. You comply with regulations and make adequate investments in building your capabilities for health, safety, and environmental management as well as investing in corporate communications. However, the fact is that these capabilities are “table stakes.” Like the finance and legal support functions in most companies, these capabilities have to be sufficiently developed to substantially reduce reputational risk, but they do not have to be world-class. Under this strategy, your reputation is not the center of your business, nor should it be, although you may invest in systems that monitor this risk. You are focused on delivering quality products and services and fulfilling your obligations to customers and shareholders. Perhaps 50 percent of the companies in the world fall into this category.

4. Trustworthiness as a competitive advantage. This strategy — adopted either by choice or because circumstances have left you no alternative — involves making reputation management a critical capability of your organization. This capability distinguishes you from the competition, attracts both employees and customers, and can earn you an enviable reputation among customers, investors, regulators, suppliers, and policymakers.

Being a reputation-driven company is a painstaking endeavor, in which you pay as much attention to maintaining transparency and living up to your public promises as to developing the next great product. For example, Walmart is making significant progress toward trustworthiness around environmental sustainability in particular, by walking the talk in its logistics, operations, and sales practices. The retailer is both changing consumers’ buying habits — by offering a wider array of green products — and transforming its core business operations with responsible sourcing and packaging, supply chain transparency, increased fuel efficiency in its vehicles, greater energy efficiency in its stores, and waste minimization due to increased recycling. As a result, Walmart is well on the way to achieving three sustainability objectives previously considered impossible: being supplied solely by renewable energy, creating zero waste, and selling environmentally sustainable products. At least 55 percent of the seafood in Walmart stores is certified as having been caught with sustainable fishing practices, all its large electronics equipment and personal computers are manufactured without hazardous materials, and it has sold more than 350 million energy-efficient compact fluorescent lightbulbs in the United States.

The Path to Trustworthiness

The pursuit of trustworthiness is not a purely altruistic practice. It is a choice that some companies make to establish themselves in an age when corporate reputation matters. This doesn’t mean that to be trustworthy a company must be flawless. But the company must at the very least admit mistakes and accept responsibility for them, gain the commitment of all employees to fix broken business practices that cause harm or that no longer reinforce the business strategy, and offer a realistic plan to deliver on its promises in the future.

A strategy of benign competence is an easier and more suitable path for many companies — and frequently, it’s not a bad choice. Trustworthiness is almost always harder to implement; companies choosing that course will probably need to change deeply embedded habits and instill new capabilities. However, if they make it work, they have the chance to create a sustainable strategy for growth that could beat the competition no matter how industry conditions change.

There are five strategic pillars for becoming a trustworthy, reputation-driven company:

1. Facilitate dynamic strategy development and execution. Trustworthy companies must become market-driven, by developing deep insight into the needs and perceptions of their stakeholders, and into the issues confronting customers, communities, employees, and shareholders, among others. Nimble systems should be developed to enable frontline employees to participate in dialogues with management about what is working and to fix problems before they escalate. In addition, strategic communications must be derived from the overall corporate strategy and become a central part of every senior executive’s responsibility. One example of a company succeeding at this is Avon Products, which has created a so-called 360-degree communications program. It is the public face of an ambitious grassroots turnaround strategy that has placed the cosmetics company closer to its customers in global communities, enabling it to better cater to the needs of women across specific age groups and social strata.

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