reputation & sustainability matter: linking sustainability & reputation to financial and...
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Presented to the Cleveland Corporate Sustainability Network by Pamela Cohen, Ph.D., head of Dix & Eaton's Reputation Valuation practice in Cleveland and Chicago.TRANSCRIPT
© 2012, Dix & Eaton Incorporated
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Reputation & Sustainability Matter:Linking Sustainability & Reputation to Financial and Behavioral Performance
Pamela Cohen, Ph.D.
Chicago and Cleveland
Corporate Sustainability Network
February 24, 2012
2
What Is Behavioral Economics?
Traditional economics teaches that people act rationally in ways that
maximize their well-being.
Behavioral economics embraces the idea that people possess
“bounded rationality” (Simon, 1957) meaning that they make biased
decisions that sometimes run counter to their best interests.
Even most traditional economists acknowledge that some people are
not fully rational.
However, traditionalists and behaviorists disagree whether bounded
rationality significantly impacts the market.
Many decisions are made subconsciously and automatically on the
basis of information that our conscious, rational brains are rarely aware.
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What Is Behavioral Economics?
Behavioral economists, as stated succinctly by Dan Ariely, argue
that we are not as much in control of our decisions as we would like
to think.
There are many factors that subconsciously influence the
choices we make.
Behavioral economics draws from the knowledge and research of
many disciplines: economics, psychology, sociology, anthropology,
and other social sciences.
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Hot Intangibles
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1990s 2000 2005 2007 2011
Trust Image Intellectual Property Leadership
Social Responsibility Sustainability
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Regarding Attitudes, Behaviors and Sustainability….
We know from numerous long- and short-term studies in sociology
and psychology that attitudes do not correlate with or predict
behavior well.
Researchers have also found that pro-environmental attitudes are
poor predictors of pro-environmental behaviors.
There are a lot of reasons given for this lack of linkage. Some
barriers include the social context as well as cognitive factors such
as perceived behavioral control and efficacy.
However, environmental attitudes can serve as powerful predictors
of behaviors in certain situations.
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Regarding Attitudes, Behaviors and Sustainability….
While people generally express a strong inclination and motivation
to act in a manner that fosters sustainability, it is usually not a
predictor of actual behavior.
Sustainability is not yet considered the social norm, and people tend
to conform to social norms, while not readily embracing new norms.
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Corporations Are Often Reluctant to Discuss Sustainability Efforts
Corporations and institutions are often concerned about perceptions
of green washing or green blushing.
Some of this reluctance comes from increased transparency of
efforts on the Internet.
Difficulty in knowing what to highlight and what to leave alone.
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Press releasesPitching
reporters
Special events
Search engines
Buzz
Web 2.0
Citizen journalism
MySpace
Social Media
Promotions
Media relations
IR
Branding
Viral marketing
Social networking
Metaverses
Folksonomy
Content optimization
Online outreach
Syndication
Flickr
CSR
Consumer-generated contentPublic affairs
Third party outreach
Grassroots outreach
Advergaming
YouTube
Employeecommunications
RSSBlogs
Tagging
Podcasting Wireless
Wikipedia
Investor Relations
StakeholderRelationsSustainability
Efforts
Management
Finance
Recruitment, RetentionMessaging
Strategy Execution
Innovation
Complex Set of Relationships Exists in Current Society
Developed at CCW8© 2012, Dix & Eaton Incorporated
© 2012, Dix & Eaton Incorporated
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Valuing Reputation
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Linking Reputation and Performance
What the reputation model does:
Calculates the actual impact of reputation on financial and behavioral performance outcomes.
Identifies the key drivers that influence corporate/institutional reputation.
Measures the current impact of each driver on reputation, and on financial and behavioral performance outcomes.
Measures the potential impact of reputational improvement on aspects of performance.
Measures the potential risk, or cost of reputational damage, on aspects of performance.
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Many Interested Parties
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Methodology in Print
“…Few Wall Street analysts, for example, have tried to assess how much damage Wal-Mart's reputation for poor labor and environmental practices did to the stock price. But New York's Communications Consulting Worldwide (), which studies issues such as reputation, puts it in stark dollars and cents. calculates that if
Wal-Mart had a reputation like that of rival Target Corp. (TGT), its stock would be worth 8.4% more, adding $16 billion in market capitalization.”
Beyond The Green Corporation
“….a more sophisticated understanding of the power of perception is starting to take hold among savvy corporations. More and more are finding that the way in which the outside world expects a company to behave and perform can be its most important asset.”
“And while the value of a reputation is vastly less tangible than property, revenue, or cash, more experts are arguing it is possible not only to quantify it but even predict how image changes in specific areas will harm or hurt the share price.”
Developed by Pam Cohen at CBI, Predictiv, and CCW© 2012, Dix & Eaton Incorporated
Developed by Pam Cohen at CCW 13© 2012, Dix & Eaton Incorporated
Process Flow Chart
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Identify critical
performance outcomes
Collect data (multiple
sources) for analysis
Analyze data to form groups
that define drivers of reputation
Assign labels to reputation drivers based on definition
Run model to assess causal relationships
between drivers, index and outcomes
Simultaneously control for industry specific
variables
Model produces awareness ratings and opportunities for each driver of performance
outcomes
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Sample Models with Scores and Impacts
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Sample Matrix Showing Messages Deserving FocusP
ote
nti
al I
mp
act
Current Score
MAINTAINOBSERVE
PROTECTFOCUSLow Score, High Impact
Low Score, Low Impact High Score, Low Impact
High Score, High Impact
Innovation
Product QualityPrestige
Sustainability
Pricing
Product Design
CEO
Customer Relations
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© 2012, Dix & Eaton Incorporated
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Case Study:
Major U.S. Beverage Company
*Opportunity = the change in market value in millions of dollars as a result of a 10-point positive or negative change in any score
Global Beverage Company Reputation Model – Market Value
Market Value$225.5bn
ImpactIndexTM
52.21
+$1.62bn
-$1.98bn
Human Resources 64.88
Innovation 76.05
Investment Potential 82.65
Overall Brand 79.02
Responsible Marketing 71.71
Environmental Responsibility 69.74
Local Community 72.66
Well-Being 62.73
$316M-$365M
$222M-$248M
$207M-$232.M
$554M-$620M
$240M-$280M
$1,236M-$1,377M
$483M-$662M
$576M-$645M
10-point change
Awareness Opportunity Performance Messages About: Message Awareness: Increase in Impact IndexTM Outcome
from 10-point change in Message Awareness:
18© 2012, Dix & Eaton Incorporated
Model Diagram Focusing on Water Drivers of Value
Market Value
Stock IndexCountry of
Origin
Sustainability Index
Institutional Data/
Actual Measures
Publicly Available Data
Media
Water Use
Water Source
Water Quality
Water Extraction
Water Volume
19© 2012, Dix & Eaton Incorporated
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Global Beverage Company Market Value – Backcast Model 2007 – 2010
1 40 79 1181571962352743133523914304695085475866256647037427818208598989379760.700000000000004
0.800000000000004
0.900000000000004
1
1.1
1.2
1.3
c/d.1
predicted
Number of Trading Days 2007 – 2010
Pe
rfo
rma
nc
e R
ela
tiv
e t
o D
ow
R2= .87
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© 2012, Dix & Eaton Incorporated
Case Study
National Real Estate Developer
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Project Scope
Assist real estate developer in achieving its stated goal of
understanding and enhancing the impact of sustainability on key
identified performance outcomes.
Determine primary sustainability drivers and whether these impact
bottom-line performance.
Determine rank ordering of sustainability drivers in terms of potential
impact on bottom-line performance.
Link Company’s sustainability efforts to an overall Reputation Index
and then to selected performance outcomes.
22© 2012, Dix & Eaton Incorporated
Project Methodology
Estimates and expected degrees of linkages were calculated using
both means and the differences in stated satisfaction levels in post-
occupancy evaluations (POE) of green versus non-green buildings
in available studies.
The model also drew from LEED’s rating system structure in
assessments. This consists of five categories: sustainable sites,
water efficiency, energy and atmosphere, materials and resources,
and indoor environmental quality (IEQ).
Comfort, air quality, lighting, acoustics, cleaning and maintenance,
overall satisfaction with building and overall satisfaction with
workspace were included in these assessments.
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Data Sources: External
Center for the Built Environment, University of California
Berkeley
U.S. General Services Administration
University of San Diego + CB Richard Ellis (CBRE)
U.S. Green Building Council
Journal of Sustainable Real Estate
LEED (criteria)
Urban Land Institute
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Aggregated Average Sustainability Ratings
Levels of Satisfaction, Green Building Means Versus
National Average*
*calculated using existing data from sources previously cited
Satisfaction Green (%) Non-Green (%)
Air Quality 68 46
Cleanliness 86 62
Thermal 47 39
Acoustic 47 38
Lighting 75 75
Productivity Benefits 87 71
Overall Building 94 53
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Proxies for Occupant Experience in Green Buildings
Market Cap $2.33 BImpactIndex
Average
Thermal Comfort (47%)
Air Quality (68%)
Productivity Benefits (87%)
Overall Building (94%)
Lighting (75%)
Acoustics (47%)
Cleanliness (86%)
63*
$221m*
*Based on average reported ROI from increased occupancy of 7.38% from studies included
Note that margin of error is wider due to lack of internal data; amount estimated to vary byup to +/-20% (e.g., effect of one-point increase in Impact Index by $177m - $265m)
$35m*
$90m*
$18m*
$20m*
$53m*
$49m*
$35m*
Drivers Satisfaction Level Impact of Impact Performance Outcome
1 percentage IndexTM
point increase
26© 2012, Dix & Eaton Incorporated
Proxies for Occupant Experience in Green Buildings
Rank Ordering Opportunity* Score Impact
Air Quality Medium High
Overall Building High High
Cleanliness High High
Productivity Benefits High High
Lighting High High
Acoustic Low Low
Thermal Low Low
*Determined as a function of score and impact, where lower score and higher impact are considered to yield the greatest ROI with the least effort invested. Such scores tend to be easier to move than high scores that have reached a point where it is hard to gain more satisfaction.
27© 2012, Dix & Eaton Incorporated
© 2012, Dix & Eaton Incorporated
Case Study
Major University
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Reputation and Sustainability
Showing that Sustainability Matters…
Background and genesis of this work:
… there is a need to show clear linkages to desired outcomes in order to persuade people that any effort should matter to them. The same holds true for universities and colleges…
This is especially true in organizations when there is a necessity to show linkages to bottom-line performance in addition to building stakeholder value.
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Benefits of a Measurement ModelSupporting the Mission: Connect sustainability initiatives to broader University
outcomes.
Demonstrating returns helps key stakeholders within the University – leadership, alumni, faculty, staff, students – understand both the need and the positive impact of the undertaking.
Creates an informed awareness of how best to allocate budget toward sustainability efforts.
Helps justify the budget toward increased sustainability. Allows for cross-time measurement and management of efforts.
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Inclusion of Social Media Data in Addition to Traditional Metrics Is Critical
just started her senior year at Central York High School. She has been stressed out by so many A.P. classes and is looking forward to go to college to continue her education. She has been studying Science and Industry for the past three years, and has a particular interest in Information Systems and other related technology. She is also on the varsity field hockey team and wants to continue playing throughout college. enjoys playing piano, painting, and attending football games. She especially enjoys watching the Penn State football games with her parents. Being a Penn State football fan, is also extremely interested in participating in the student section during games.has been thinking about applying for colleges soon, and Penn State is one of the top choices on her list. She really hopes that Penn State can provide many activities for her to become involved with. She did some research using the “Choosing a College” domain and found out that Penn State has a unique Information Systems and Technology Program which involves project-based learning rather than the traditional textbook-and-exam style learning. She also learned that Penn State offers such a broad variety of programs and activities that she would not have any problem doing everything that she wants. also discovered that most students have access to Penn State football games for a discounted price. All of this information was easily accessible through the “Choosing a College” domain.Bob and Susan, parents, noticed that she had been researching about Penn State as a potential and likely college. is their first and only child to attend college, so they both don’t really know what to expect of the costs, financial aid, housing, and services. Feeling lost, they decided to use the “Choosing a College” domain, which had recommended to find more information about Penn State. Bob and Susan went to their computer and searched in the “Choosing a College” domain for pricing information. They had an idea of how much they wanted to spend per year, which was under 25 thousand. Through the “Choosing a College” domain, they were able to compare prices with other similar universities. They found that Penn State is less than what they were willing to pay per year. They also found that financial aid is available based on academics and financial need. Bob and Susan were also interested in the housing that is available and different services which are provided to help the student adjust to university life. They found that on-campus housing is required for first-year students, but is not guaranteed after the first year. However, off-campus housing is available close to campus. The “Choosing a College” domain provided Bob and Susan with all the information that they were looking for.Since is just starting out her senior year in high school, she is confused about the application process and requirements for Penn State University. The next day, she went to see Jessica, her guidance counselor. brought up issues regarding minimum GPA requirements, SAT score requirements, as well as A.P. credit transfers. Jessica got on her computer and went straight to the “Choosing a College” domain to look for more information. She clicked on the parents/advisors link and easily navigated to her areas of interest. She found that the average high school GPA of the accepted is 3.5 and that the average SAT score is 1175. She also found out that most of A.P. credits will be easily transferred if she scores above the requirements. Jessica saw that exceeds the requirements on every level and is a possible candidate for the Schreyer Honors College. She found a brief summary describing the Schreyer Honors College and printed it for is intrigued and decides to apply to Penn State, as well as the Schreyer Honors College. completed her application and submitted it for review with the help of information found on the “Choosing a College” domain.Gertrude is an admissions officer at Penn State. Three weeks after Sally submitted her application, Gertrude finds it on her desk waiting for review. She decides to finish her Cheetos before opening the envelope. After eating her fourth pack of Cheetos, she licks her fingers clean and opens the envelope. Gertrude’s way of determining acceptance into Penn State is to compare the raw numbers. She wipes her greasy hands on her jeans and gets on the “Choosing a College” domain. Using this domain, she acquired the average GPA and SAT score of the accepted students at Penn State. Sally’s scores blew them out of the water and Gertrude immediately stamped ACCEPTED on her application. She then proceeded to open another bag of Cheetos. The application process was streamlined by the use of the “Choosing a College” domain. Jessica is Sally’s high school counselor. She has been a counselor for 30 years and has been assisting students in finding suitable colleges for most of her life. Jessica graduated from Penn State in 1976 and she still remembers how much fun she had there. Jessica is helping Sally in her college application process. She needs to check requirements and recommendations for applying for Penn State and then relay the information to Sally. She knows that Sally is a bright girl, and possibly may be a candidate for the Schreyer Honors College, but she needs to find out more details about that program. Gertrude is a college admissions officer at Penn State University. Her job requires for her to review applications and determine whether a student is qualified enough to attend Penn State University. She is the one who will be reviewing application. Gertrude’s particular areas of interest are mean SAT scores and GPA of undergraduate acceptants
www.studentsreview.com/college_rankings.
Dynamic University & College Rankings
OFFICIAL Rankings
The Top 50 The Top IVY Top Creative
Biggest Reputation ALL RANKINGS
New! Perceptual Rankings -- You Vote on
the Best! [beta]
Just Added Comment:“I came here based upon the advice of a
friend, he said that it is a fairly good school with a huge chance to get
involved in social activities. come t...”
RateMyProfessor.com,
PassCollege.com,
ProfessorPerformance.com,
RatingsOnline.com, Reviewum.com
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Data Tracking + Analysis
32© 2012, Dix & Eaton Incorporated
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Primary Components of Reputation
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Primary Components of SustainabilitySTRENGTH OF CURRENT MESSAGING
MESSAGES ABOUT:
POTENTIALIMPACTS
REPUTATION IMPACT INDEX
PERFORMANCE OUTCOMES
65
73
65
78
61
57
80
82
75
80
2.00
0.62
0.12
1.20
1.80
1.00
1.20
1.24
0.85
0.85
Leadership
Mitigating CampusEffects
Governance Over System
Climate Planning
Cost to Implement
Advancing Knowledge
Social Responsibility
Building Constituencies
Campus Visibility
Communication
.035
.086
.012
.170
.056
70
67
72
70
70
Revenue
Mitigating CampusEffects
Yield
Extramural Funding
Alumni Support
Predicted Performance
Impacts of 1 pt Impact Index
Change
75
34© 2012, Dix & Eaton Incorporated
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Contact
Pamela Cohen
Behavioral Economist
Dix & Eaton, Cleveland
University of Chicago Graham School, Sustainability Program
phone: 734-276-1237
email: [email protected]
© 2012, Dix & Eaton Incorporated
© 2012, Dix & Eaton Incorporated
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Reputation & Sustainability Matter:Linking Sustainability & Reputation to Financial and Behavioral Performance
Pamela Cohen, Ph.D., Behavioral Economist
Chicago and Cleveland
Corporate Sustainability Network
February 24, 2012