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A company’s CEO, by extension the topmost leader in any organisation, has a direct impact on its reputation. In other words, there is a direct correlation between a CEO’s reputation (both professional and personal) and that of his or her company. The credibility of its top executive is substantial when it comes to making the company’s message credible. There are studies such as “Building CEO capital” performed by Leslie Gaine-Ross in 2003, which state that a CEO’s reputation may come to account for up to 50% of a company’s total reputation.

In any event, the CEO embodies the organisation itself, its stakeholders assume that he or she is the organisation and his or her words and acts are those of the organisation itself. They therefore have a like impact on the perceptions, attitudes and lastly decisions made by customers and employees,

but also by other senior executives and boards of directors, financial analysts, institutional investors, government officials and other stakeholder groups. CEOs’ reputations hence have an impact (positive or negative) on the final results, given that they are the last link in the chain after decisions.

Depending on how CEOs express themselves and behave (a company’s true values can be revealed in both aspects), stakeholders will assume and anticipate that the company will behave likewise, particularly in matters to do with ethics and good corporate governance. And especially in a crisis situation when public opinion places more weight on emotions and the human factor, amplified by the halo effect of the mass media (signalling theory already warns about the fact that everything leaders say or do is viewed positively, negatively or neutrally,

Ranging from an unplanned departure or succession, through the setting of a companies vision or other corporate statements, sending key messages to customers, employees and society in general, to satisfactorily overcoming a crisis situation, CEOs play an essential role when it comes to boosting and protecting their company’s reputation.

Strategy DocumentsI24/2012

The CEO’s role in reputation building and in recovery after a crisis situation

Reputation

Insights

This document has been prepared by Corporate Excellence – Centre for Reputation Leadership. It has cited, from among other sources, speeches by Henrik Stroier, international general manager of Reputation Institute, Patrizia Rutigliano, vice-president of Snam Communication and Public Affairs, and the researchers from the School of Communication at Sungkyunkwan University in Seoul (South Korea), Park Chanho, Kim Jwa-joong and the lecturer from the same centre Han Eun-kyoung, delivered at the 16th Global Conference “Going Global in the Reputation Economy”, organised by the Reputation Institute in Milan from 30 May to 1 June, 2012.

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depending on the sign of the signals or impressions they send out, particularly when the information existing on a company is incomplete).

Positive and charismatic leadershipSetting a company’s vision and mission, translating them into strategy and specific action plans, leading the company’s communications acting as spokesperson, embodying the culture, values and principles the company inherits and claims as its own, and even planning and successfully carrying out their own succession process: Such are the powers held, but also the responsibilities of a CEO within his or her company.

Hence, the leader has to be the visible face and, if possible, the friendly, human face of an organisation, because he or she represents, personifies and expresses it. We could say, on this question, that CEOs are their company’s first promoter and their most important advocate, their top fan and champion – this is perhaps why some experts talk about the CEO as the true and main corporate brand director.

We have good examples of this on the international scene with such charismatic top men as were in their time Jack Welch for General Electric, Ted Turner for Time Warner or Steve Jobs for Apple, or those currently holding such positions like Richard Branson for Virgin, Sir Martin Sorrell for WPP or Bill Gates for Microsoft.

In some of those cases we can even talk of CEO-centric companies, in which all or much of the weight passes through their chairperson’s hands, although this orientation can sometimes be or become dangerous, if the leader’s professional or personal life expires or comes to an end.

Difficulty in unplanned successionsWhen a CEO leaves a company, irrespective of the cause for leaving, a gap is opened, a vacuum in-

and outside the company, which, in the opinion of Kim Jwa-joong, a researcher at the School of Communication at Sungkyunkwan University in Seoul, if not planned beforehand, may harm the corporate reputation, which is subsequently passed on to the stock markets and leads to a significant decrease in its market value.

Both if the change occurs for internal reasons (the need for a changeover, restructuring or a change in the direction the company is to take decided by the board of directors) or if due to external reasons, the event will trigger a number of reactions among the company’s stakeholders that will have to be managed accordingly.

There are recent and pragmatic examples of this same process in companies belonging to the technology sector – the faster the changes in a sector, the shorter a CEO’s tenure; the slower the changes in an industry, the longer a CEO will remain in office and the older he or she will be, like in Yahoo or HP, where there have been three CEOs in less than two years.

Speaking specifically about Yahoo, the way the process has been managed, together with market doubts as to the viability of its business model to compete with Google and Facebook, has caused serious damage to the company’s reputation and on the stock markets.

In any event, the life cycle of a CEO’s span includes a series of phases which, according to Park Chanho, also a researcher at the School of Communication at Sungkyunkwan University in Seoul, can be summarised into five consecutive stages, described by Hambrick and Fukutomi in 1991:

Response to mandate: 1-2 years to legitimate self.1. Experimentation: To try out new things.2. Selection of an enduring theme: 3-5 years, 3. positioning in comfort zone.

“A company’s CEO, by

extension the topmost

leader in any organisation,

has a direct impact on its reputation.”

Graph 1: Consequences of CEO Successioin

Source: Adapted from Finkelstein, Hambrick and Cannella 2009.

Precipitating Context

Successor Characteristics

Effects of Succession

OrganizationalPerformance

Environment

Inside vs. Outside Organizational Change

OrganizationalPerformance

Stakeholder Reactions

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Convergence: Over 5 years, incremental 4. change.Dysfunctional: Few actions and decisions.5.

Lastly, in relation to CEO succession processes and organisations’ reputations, the need to show public opinion that the company has a good list of replacements on the bench, willing to take over in the same or better conditions than the current top person, proves essential for creating a safety net that will act as a parapet in the event of a not-previously agreed departure or an unexpected event arising during the process.

The importance of the CEO’s messagesIt is in times of crisis when the reputational strength of a company and that of its CEO is undoubtedly put to the test in the opinion of the general public and of its different stakeholders. Messages, the signals we discussed previously and also the decisions made take on an important role in the company’s communication, but also in its reputation.

The company and CEO’s prior reputations also contribute to awarding those same messages that are issued in turbulent environments a sense of credibility and effectiveness. Because apologies in a situation are more successful, more effective, to the extent to which the opinion the public holds about a company and its CEO in the past has been more positive. Reputation achieved in the past acts

like a shield when the present reputation is put to the test.

There are five types of apologies CEOs can use when an unexpected event, such as a crisis, occurs, all of which are equally effective:

Acquittals1. Demands2. Explanations3. Justifications4. Simple apologies5.

The important thing when a reputation is floundering is not so much what the organisation or the CEO want to say, want to put across to public opinion, but rather what the public, consumers but also employees and the markets actually want to hear, the type of messages and the announcement of decisions they want to receive.

The apology strategy is often much more effective when a potential risk is activated than other strategies typical in crisis situations, such as that of responsibilities (search for apportionment of blame) or justification (presentation of different causes), also for the reputation of the CEO himself.

To conclude, the CEO’s level of notoriety also contributes positively to the consideration of a company’s reputation and that of its CEO: The more visible a leader is, the more favourable will be the attitude initially shown towards them.

“The more active a

sector is, the shorter the

CEO’s tenure will be; the more stable an industry

is, the longer a CEO will

remain in office and the

older he or she will be.”

Graph 2

Source: Adapted from Hambrick and Fukutomi (1991, p. 729).

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1. Response to mandate

2. Experimentation – commitment to paradigm may be strong or weak in

season 2

3. Enduring theme selection

4. Convergence 5. Dysfunction

Seasons

Commitment to paradigm Task interest

Task knowledge Power

Information diversity

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Conclusion: The leader, a guarantee of reputationA good CEO can undoubtedly be considered a guarantee for the future of any company and hence his or her reputation form part of the expectations about future attitudes, decisions and results that the company will have. Improving a CEO’s reputation, paying more attention to succession processes

(showing a sound list of subs on the bench with which to replace the current CEO at any time), taking care of the different phases in the evolution of a leader’s mandate and placing particular emphasis on messages put across in crisis situations, on the signals sent out to public opinion in times of crisis are fundamental key issues for contributing to improving the reputation of a CEO and hence that of his or her company.

Leading by reputation

©2012 Corporate Excellence – Centre for Reputation LeadershipBusiness foundation created by large companies to professionalize the management of intangible assets and contribute to the development of strong brands, with good reputation and able to compete in the global market. Its mission is to be the driver which leads and consolidates the professional management of reputation as a strategic resource that guides and creates value for companies throughout the world.

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