Toward the See-Through Corporation

Consumer outrage at daily reports of new financial scandals creates a dangerous environment for corporate reputations, but pharma companies can turn the public's low opinion-and questions about rising drug prices-to their advantage if they work systematically to build long-term trust.

There is no magic formula-just a combination of strategic and operational initiatives that maintain and reinforce a company's good standing. (See "Building Blocks,") This article identifies those components and suggests activities that foster the delicate alignment of strategy, communication, and leadership that drives positive reputation in both good times and bad.

Building Blocks

A recent study, "Securing Your Corporate Reputation," published by Cutting Edge Information, reveals that consistently profitable and reputable companies such as Johnson & Johnson, Pfizer, Coca-Cola, FedEx, and Southwest Airlines protect their corporate images by maintaining high standards of practice no matter what the circumstance. For those organizations and others like them, reputation management has paid off. It's no coincidence that Fortune's Most Admired companies realized double-digit annual returns between 1983 and 1997, while the "least admired" had negative returns.

Recent media accounts have focused on pharma companies' shrinking pipe-lines and unstable stock prices. But following the example of the best reputation managers can result in front-page coverage that pharmaceutical executives look forward to rather than dread.

The study reviewed 35 companies from 17 industries, with particular emphasis on pharmaceuticals and healthcare. The results reveal that the most admired companies use a combination of transparency, strong ethics, and a commitment to quality products and services to build and maintain their reputations.

Although nearly all companies give some lip service to those concepts, the scandals that have marked 2002 prove that many executives-and the companies they represent-are still making the cardinal mistake of paying more attention to short-term damage control than to long-term reputation. (See "Ready or Not?")

Ready or not?

Crisis management, of course, plays an important role in corporate reputations. Top companies provide crystal-clear roadmaps for handling crises-a stark contrast to the confusing reactions played out last summer. Those companies, which marry sound crisis planning with execution, make tough decisions quickly and calmly. Such organizations survive when short-term focus drives others to failure.

A "Caring Company"

After 20 years, J&J's recovery from the Tylenol poisonings in 1982, when seven people in the Chicago area died after taking cyanide-laced Tylenol capsules, is still widely regarded as one of the best corporate crisis responses in public relations history. Throughout the crisis, J&J clearly and publicly put public safety above all other concerns.

The corporate reputation study found that, although J&J executives knew it would take significant money and time to survive the crisis, they also realized that openness was the best strategy for maintaining corporate image and retaining the public's trust.

J&J warned consumers not to take any Tylenol product until they could determine the extent of the tampering. The company then recalled all Tylenol capsules-approximately 31 million bottles-from the market. The company sacrificed more than $100 million in product sales to warn and protect consumers. It even posted a $100,000 reward for the killer's arrest.

As a result of J&J's socially responsible behavior, the media published articles lauding the company for resisting the temptation to disclaim links to the deaths, pointing out that all the company's actions were in the best interest of public safety. J&J also benefited from another development: positive relations with the Chicago police, the FBI, and FDA. After an extensive public relations campaign, the company was able to put Tylenol back on the shelves within six weeks. Johnson & Johnson regained Tylenol's market share within half a year, and the brand remains strong today.

J&J also spent many years and millions of dollars creating an image as a "caring company" through astute management of its consumer products division, which makes Johnson & Johnson Baby Shampoo and Q-Tips, as well as over-the-counter (OTC) medicines. The company has leveraged the strong brand reputations of those products-which have daily impact on health and create lasting emotional bonds with consumers-to build a strong corporate identity. J&J has spread that reputation to its pharmaceutical subsidiaries while insulating the core brand from reputation challenges connected to the pharma industry.

Yet there is more to being a "caring company" than simple reputation. Imagine, a Canadian program that promotes partnerships between corporations and charitable organizations as well as standards for corporate citizenship and philanthropy, has set forth the following criteria for "caring company" status:

• Donate at least 1 percent of average, domestic, pre-tax profits to charitable organizations.

• Encourage and support employee giving and volunteering with financial and nonfinancial resources.

• Work with suppliers whose businesses are ethically and environmentally sound.

• Share one's business expertise with the community.

Trust Through Communication

Consumers respect companies they trust, and two-way communication builds customer confidence. To encourage interaction with healthcare professionals and patients, pharma companies develop listening posts through service centers, sales efforts, and web-based programs. Along with general media and internet buzz, those posts are touchstones for public perceptions. They show internal stakeholders-sales reps, marketing teams, product developers, senior executives, and others-what people think about their company.

Actively listening to customers enhances a corporation's reputation for accessibility and accountability. Employees at all levels are attuned to feedback and use the information to address problems and secure happy customers. When consumers realize that a company welcomes criticism, they vent their concerns through the corporation's channels rather than the media, chat rooms or, worse, the legal system-all avenues that can damage corporate reputations.

Active listening does not stop with acknowledgement of customer comments, however. Reputable companies use incoming data to shape strategy and identify improvement opportunities. Dendrite, a major vendor to the pharma sector, deployed an "eQuality" system to improve customer service. The program monitors service reps' phone calls and corresponding screen activities. In the short term, team leaders gain a better understanding of incoming queries as well as the steps taken to address them.

High Cost of Crises

The long-term benefits are even more valuable. Service channels share collected customer feedback in a company-wide effort to fine tune products and service offerings. Comments and criticisms from real customers drive decisions on strategy, processes, and product design.

Crisis Management

Of course, when disaster strikes-and no organization is immune-a company that has spent years carefully building a positive reputation can see it destroyed in a few short hours. (See "High Cost of Crises.") But the good news is that corporate reputation often depends more on a company's responses than on the nature of the problem itself. Full-blown catastrophes develop because executives ignore warning signs and respond to manageable problems half-heartedly, then freeze when the situation explodes. (See "A Steamroller Called Disaster.")

A Steamroller Called Disaster

Thus, it's important that companies accept the inevitability of corporate emergencies and work hard to develop strong crisis management strategies. Reputable organizations not only develop action plans, they test and retest them to find vulnerabilites and areas for improvement. Sound plans emphasize speed, compassion, and corporate transparency and accountability. Because the public is often very forgiving of companies that respond quickly without trying to hide anything, forthright crisis management may even boost a company's reputation-and bring significant economic gains. (See "Be Prepared.")

The September 11, 2001 attacks spurred Gentiva Health Services to set its crisis management plan in motion. Gentiva, which supplies infusion and injectable therapies to consumers throughout the United States, knew that its patients faced a significant health risk from supply interruptions.

Be prepared

After US commercial airlines suspended operations, Gentiva's national crisis management team went into action, contacting all customer pharmacies, primary referral sources, and insurer payers. Gentiva also contacted various federal departments and agencies and other specialty pharmaceutical distributors to discuss distribution solutions.

Nationwide, Gentiva's team used the telephone to accomplish those tasks. In the New York City area, where phone service was unavailable, the company relied on e-mail to communicate with customer groups. At the same time, Gentiva opened call centers on a 24/7 basis to handle questions from patients and physicians. Internal employees staffed the phone lines, and the team discussed bringing temporary employees on board if the crisis persisted.

Gentiva's rapid response ensured that current inventories could accommodate a brief suspension in supply schedules. Shortly after flights resumed in September, appreciative customers flooded the company with thanks for its compassion and emergency measures.

Beyond Stereotypes

Pharma companies have a particular need to overcome stereotypes that hinder positive reputation building. Energy companies struggle with environmental issues, discount retail warehouses face criticisms that they are destroying small-town character, and pharma companies must deal with public concerns about pricing.

Each of those stereotypes carries a negative image in its industry. (See "Dialectic of Distrust.") On the bright side, companies that distance themselves from stereotypes create their own positive reputations. And those reputations provide competitive advantage over companies mired in negative public perceptions.

Dialectic of distrust

Many executives see negative reactions as unavoidable costs of doing business, but the reputation study shows that the key to overcoming them is to identify and address them head on. McDonald's, for instance, has championed animal welfare to combat common images of the fast food industry, and British Petroleum and Georgia Pacific's conservation programs fight the energy industry's reputation for environmental irresponsibility.

Pharma companies receive a storm of criticism for high drug prices coupled with high profitability. Detractors paint them as greedy, insensitive organizations that profit from the misfortune of others. The criticism generated by the industry's perceived inaction in the African AIDS crisis is a case in point.

Those criticisms are especially harmful because healthcare companies seek to build strong emotional bonds with their customers. As in the Johnson & Johnson example, healthcare products generate strong sentiments and loyalty among customers. On the other hand, customers who stake their wellbeing on a therapy are easily disturbed by a pharma company's perceived lack of compassion.

To combat the industry's negative stereotypes, Pfizer launched several initiatives. The company has poured resources into relief for AIDS victims in Africa. (See "Pfizer in Africa.") Its biggest effort lies in funding the construction of Africa's first large-scale AIDS clinic. By training medical personnel from across the continent in the latest treatment options, the clinic aims to bring patients the highest standard of care available.

Pfizer in Africa

Pfizer also supports a new initiative to recruit, train, and equip medical volunteers in South Africa. The volunteers will be given 18-month assignments to care for HIV-infected patients and teach others how to prevent infections.

Pfizer's efforts run counter to stereotypes about the industry's response to the spread of third-world AIDS. The company fights that perception through its free distribution of Diflucan (fluconazole), a treatment for fungal infections common among AIDS patients, in 50 developing countries.

Reputation-Focused Culture

Beyond countering negative opinions, companies must build strong positive ones through a network of interlaced activities. First, reputations thrive on cultures that value product and service quality, attract top talent, adhere to ethics codes, and ultimately deliver shareholder value. Along the way, those companies identify and overcome "reputation killers" that plague industry segments.

A positive reputation-so difficult to quantify and measure-leads to strong tangible results. A Pennsylvania State University study shows that reputable companies consistently gained financially: Between 1983 and 1997, Fortune's Most Admired companies increased annual returns, on average, by 22 percent. During that same period, the S&P 500 posted 16 percent returns, and companies on the other end of the spectrum-those ranking lowest in annual reputation urveys-faced average negative annual returns of 1.7 percent.

Building top-flight corporate reputations is a multi-tiered process that companies must integrate in each of their functions. (See "Staircase to Success.") Such reputations do not grow quickly or accidentally; rather, they come about by having each department

• deliver on product and service pro-mises in core competency areas

• attract top talent to build corporate culture

• fight stereotypes that would otherwise cloud corporate reputation

• manage reputation-damaging corporate crises

• establish good corporate citizenship through environmental and social responsibility.

Responsibility Ethic

Most companies give lip service to social and environmental responsibility, but many fail to act on it. That failure will have an increasing effect on corporate reputation, because today's consumers and investors want to associate themselves with good stewards of the public trust.

Baxter Healthcare's stance on environmental conservation is a model of how to do it right. Based on a code of ethics that dictates its facilities operate in a socially responsible manner, the company's environmental, health, and safety (EHS) initiatives contribute to sustainable development by preventing workplace injuries and illnesses, reducing waste, and properly managing risks. The company also believes that the environmentally beneficial initiatives it undertook in the last seven years contributed significantly to its economic success.

Staircase to Success

Baxter's 71 environmental management employees spearheaded the following campaigns, with measurable results:

• to meet the company's 2005 air toxics reduction goal (reached in 2001)

• to achieve ISO 14001 certification for all manufacturing, research and development, and other major operations by the end of 2002

• to save costs. Between 1993 and 2001, environmental initiatives saved the company a total of $75 million, $12 million in 2000 alone.

• to reach out to the community.

Baxter facilities participated in almost 150 EHS-related community events in 2000:

• 29 educational projects for area elementary, middle, and high schools in 2001

• 20 conservation programs

• 18 clean-up events

• 63 projects with government agencies, organizations, and special-interest groups.

Those examples show that reputation-savvy companies have long understood the importance of integrity and ethical conduct. That understanding has led them to

• cultivate trust through customer interaction

• build a people-friendly reputation through community outreach programs and environmental measures

• develop a corporate culture that counteracts industry stereotypes

• establish systems to manage inevitable crises.

That kind of systematic approach to reputation management gives pharma companies the ability to overcome tough times and maximize gains during good times. A positive reputation creates shareholder value, attracts and retains high-quality employees, and minimizes the impact of crises on company operations.