Companies from energy services behemoth Halliburton to pharmaceutical giant Merck have seen their high-flying reputations plummet in the span of a single news cycle. So have business people, from domestic doyenne Martha Stewart to GE’s ex-chairman Jack Welch and Home Depot’s former CEO Bob Nardelli. They all tarnished their good names, demeaning past accomplishments and crippling future prospects.
In marketing terms, they corrupted their “brands.”
A brand is more than a logo, celebrity, or reputation. Anyone with crayons can draw a logo. The tabloids create fifteen-minute celebrities everyday. And a reputation is simply what someone or something is known for. Brands operate at deeper levels in the realm of emotionally charged perception. They are the stuff of images and feelings, rather than ideas and reason.
There’s an idea at the core of every brand but a brand’s power derives from the emotion in which it’s wrapped. “Refreshment” is an idea, but when it comes in a contoured bottle of Coke, it’s imagery and feelings, strong enough to measure in a magnetic resonance scanner. By marrying emotion to knowledge, brands turn what would simply be a Trivial Pursuit answer into motivation. As brain scientist Donald Calne points out “reason leads to conclusions, emotion leads to action.” Brands are words packed with motivating emotion.
From the perspective of its owner, a brand is a promise. From the perspective of the brand recipient, it’s trust that the promise will be kept. Understanding this duality is key to managing brands and, when they are broken, to repairing them. But the two sides of a brand are not equal – even the most salient and compelling promise has to be accepted before it can acquire power. And at that point, power shifts to the recipient. Coke, for example, was disabused of the notion that it “owned” its brand in anything but a technically legal sense when it tried to change the soft drink’s formulation in 1985. Consumers rebelled. They might have preferred the new formula in blind taste tests, but their emotional attachment to the “classic” formula completely overwhelmed their taste buds. Within three months, the company was forced to back down. “New Coke” went the way of the Edsel, another innovation that was out of step with consumer expectations. Giving trust represents a bigger emotional investment than making promises.
Trust has two emotionally charged components: competence and sincerity. Incompetence evokes feelings of anger or derision; insincerity, suspicion and hatred. Incompetence leads to calls for correction, restitution or punishment. Insincerity invites retribution and revenge. Of the two, insincerity is the more dangerous because it violates people’s basic instincts of fair play and empathy.
Consider the sad case of Bob Nardelli, who went from Home Depot’s ostensible savior, worth whatever it took to steal him from General Electric, to Exhibit A of unbridled corporate greed. While Nardelli failed to move Home Depot’s stock price in his six years as CEO, and some questioned his long-term strategy, few considered him incompetent. He more than doubled the company’s sales and earnings. But when his extravagant compensation attracted criticism, he not only refused to apologize for it, he stifled discussion at the company’s annual meeting, convincing the directors to stay away, limiting shareholder questions to one minute, and gaveling the proceedings to a close after 30 minutes. Nardelli’s disingenuousness was a more serious blunder than incompetence would have been. Within months, the company’s directors had little choice but to show him to the checkout line.
On the other hand, when Jack Welch was criticized for the extravagance of his retirement package, he renounced many of the benefits and wrote an apologetic piece for the Wall Street Journal. Welch pulled himself out of a hole; Nardelli kept digging. One dealt with reality; the other thought he could manage perceptions. Perceptions can wreck reputations and move markets, but trying to manage them directly is like pretending to direct the wind. CEOs and boards go astray when they spend more time tending to perception than to the reality that underlies it. No one can win an argument with perceptions; it’s smarter to figure out where they come from, make a clean break and build new perceptions through concrete actions. In the end, that’s what the Home Depot board did.
Sometimes, repairing a brand means eating crow. In 2004, Japanese regulators kicked Citigroup’s private banking operations out of the country for lapses that allowed some customers to launder money and manipulate stock prices. It was a severe blow to the company’s new CEO, Chuck Prince, who was already dealing with regulatory problems in the U.S. But instead of fighting the decision, Prince presided at a Tokyo news conference where he personally apologized for the company’s lapses, bowing deeply from the waist, eyes fixed on the ground, in the Japanese way. He also put all the bank’s Japanese operations under one executive who he charged with improving internal controls. But Prince knew none of that had a chance of working unless he won back the trust of customers and regulators. His unusual apology demonstrated that he was in tune with both. By 2006, Citigroup had recovered sufficient brand capital to credibly expand its corporate finance and investment banking businesses in the country. By taking quick, personal action, Citigroup minimized questions about its sincerity and won the benefit of the doubt that it could restore its competency.
Making amends can also mean giving something back. When AT&T’s nationwide telephone network suddenly stopped working for nine hours in January of 1990, the company knew it not only meant people couldn’t make phone calls, but that they had lost something they thought they could count on. They felt betrayed, victims of technology they didn’t understand and couldn’t control. That’s why the company authorized its operators to help customers make calls on competitors’ networks until AT&T’s was restored. And that’s why when the network was fixed the company announced a special Valentine’s Day discount for all customers. Few customers defected, most credited the company with doing the right thing.
One of the biggest mistakes CEOs make is to ignore the emotional content that can arise from either component of trust. Martha Stewart went to jail for lying to a federal officer, but few of her fans connected that insincerity to her brand promise. Accusations of high-handed behavior towards her staff are a bigger problem for Stewart because they raise questions about the generosity of spirit supposedly at the core of her domestic competencies. Whatever the financial consequences, the Vioxx suits filed against Merck will have an even more devastating impact on the company if juries find it guilty of insincerity rather than incompetence. Halliburton’s brand suffered from the double-barreled charges of influence peddling and false billing (insincerity) as well as accusations that its work was shoddy (incompetence).
Repairing a brand must start with an honest assessment of damage to both components of trust. Then a brand owner can move on to acknowledgment, apology, amends and action. But brand repair is seldom linear. Perceptions always lag reality and backsliding is common. Once people feel wronged, it’s very difficult to win them back. But making a clean break with the past, focusing on what matters to them, and demonstrating through action that you get it can help restore their trust.