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Facebook and the Frankenstein monster: It’s hard to control the lightning in hype (but best practices help)

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It’s alive!

After all the Facebook IPO hype, how could reality measure up?

As Dr. Frankenstein learned, tapping lightning to create life is full of peril. Creations can take on a life of their own.

Is buzz any different?

Creating life in the context of reality

From an investors point of view, how could a company at various times valued at 80 to 100 times earnings, valued in the stratosphere above companies with years of history and profits, not disappoint? The more sober reaction to the IPO, showed investors were paying attention to value.

While Facebook and engagement should prove valuable over time, investors were saying, hold on a minute, what’s your strategy for increasing earnings? The thing about Facebook is:

Right now, what is most valuable for brands on Facebook is free.

Why would investors speculate on the future of what Facebook might do? In the current climate, post-financial crisis, companies that pay dividends, handsome dividends of three to five per cent have a value that IPOs like Facebook just can’t match.

The modern Prometheus

Hype has a dangerous flipside.

Sure, there’s potential, but potential for what?

While most management teams want buzz for their brand, they might not necessarily want the Frankenstein monster version of it. Remember, the monster spent much of its “life” trying to kill its creator. In the aftermath of the Facebook IPO, lawsuits, finger-pointing, back-stabbing, technical failures, and other endless melodramas splayed across the media, it reminds of the classic Kubrick/Sellers line: “Gentlemen, you can’t fight in here! This is the War Room!”

How long before a satirical film’s made out of this story? Think Dr. Strangelove meets Frankenstein.

Dr. Strangebook or Frankenface

It’s obvious that Facebook, Morgan Stanley and the Nasdaq are all suffering reputational body blows. While some private investors made a lot of money on the IPO, does any management team, board, shareholder, or even casual user want to be associated with such a media horrorshow post-IPO? Monstrous hype only amplifies the “is that all there is?” feeling when it goes wrong.

The monster, stitched together and ashen, stumbled into the light of day.

When the hype machine overloads, marketers and public relations professionals have to remember that there’s no such thing as lightning in a bottle. Buzz, at its most extreme, has the potential to lash out in every direction.

When the hype machine creates a monster, it can become the destroyer of brands.

Social media seems like it’s been here forever but is still new. The buzz became a monster. Was there any longer the ability to manage the hype as the Facebook IPO drew near?

The blowback says no.

Fiascos have the potential to incubate revenge. Social media users will engage, but not in the way the brand wants them to. And like the Frankenstein monster, social media users who feel betrayed have a tendency toward revenge.

Brands are sure there’s a way to profit from engagement. It’s this belief that drives Facebook earnings. When GM came out and said that they’d lost faith in Facebook ads, despite criticism of GM’s social strategy, there was a revaluation of Facebook in the marketplace.

Doubtless, there are marketers and public relations professionals that do engagement very well. Social media, is, and will continue to be a tool of engagement where the permutations of dialogue are still being explored and improved.

But it should be part of a well thought out integrated marketing/public relations strategy.

Facebook had been grabbing headlines for a long time. Hype over Facebook crackled with the energy and unpredictability of lightning.

Now, Facebook’s grabbing headlines for all the wrong reasons. Yet again. How does this reflect on the Facebook management team? Marketers are going to re-evaluate the brand and social engagement through it.

It’s value, after a brief pop, has dropped 25 per cent since the IPO despite the underwriters’ propping the stock price up. Argue with that metric.

Facebook has emerged from the laboratory a case study.

One thing is sure: Silly season is over for now.

Luke … I am your father

A characteristic of hype is that it is a lense that distorts. Those who work at brand, engagement, reputation and other features of the marketing and public relations matrix try to tell the story of organizations for the benefit of stakeholders. But practitioners have to remember how many audiences there are these days.

Hype is a bit like Luke and his dad, Darth: There is a light side and a dark side.

Practitioners have to remember that less than best practices have a short shelf life and lead to case study after case study of failures.

Facebook promised the opportunity of the century. It failed to deliver.

This is the chemistry for a backlash.

From a marketing and communications point of view, professionals will get more creative.  But they’ll also get more analytical.

Lurching out of the laboratory: The aftermath

The nightmare of creating a monster like the one that lurched out of the Facebook laboratory reinforces the idea that best practices have to align with business objectives — and they do have to be best practices.

If Facebook’s strategy was simply to make a ton of money for its private investors then it succeeded. But as far as the long-term viability of a brand, of its sustainability, Facebook leaves a lot to be desired at the moment. Is this the image companies want to leave ricocheting around on Twitter or elsewhere?

Facebook will have to spend substantial resources trying to restore its brand and reputation. Future growth depends on earnings, and future capital depends on investors. Reputation either feeds itself or devours itself.

Alienating marketers, investors and users and being held up as a flop by the media, aren’t the kind of brand associations any organization wants. Of course, this leads to many more challenging Facebook’s business strategy.

It’s safe to say that Facebook failed at engaging with its users in the short-term. Facebook has added to retail investors suspicion of markets and valuations. Investors and the general public have tired of creature features. In the U.S., 46 per cent of people surveyed said their trust in the financial services sector had decreased.

Since stakeholders already had many questions to ask of Facebook and user privacy, you’d think that someone involved with the IPO would have been more careful before tapping the lightning that created this latest beast.

The problem with the Facebook parade’s short-term thinking is that stakeholders have long-term memories when it comes to monsters (or buzz on crank). They don’t like the feeling of being had.

Remember, the Frankenstein monster hunted down its creator across continents until it found him dead.

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Brave new reputation: What CEOs need to know

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The new boss sings the stakeholder electric

Reputation is turning into a harder asset in the highly digitized corporate world we find ourselves in. This trend will only increase as technology rockets us forward.

Do you know where your reputation is?

Companies need to think of themselves through their stakeholders. Clients, customers, employees, the general public, shareholders, strategic alliances — just some of the important relationships in a world of informational digital milliseconds.

Just as corporations depend on consumers to buy their products, companies depend on customers to consume their brand.

After they’ve digested that brand, what do they feel, think and say?

In You’ve got to do something about your reputation: Why CEOs need to pay attention to reputation management, I looked at reputation.

Let’s dig deeper.

Fombrun, business leaders and reputation management

What are reputations worth?

Plenty.

Fombrun outlines three ways reputation adds value.

  • First, “reputation affects operating performance” resulting in increased profits
  • Second, “profitability affects market perceptions of the company’s future prospects – and so, increases demand for the company’s shares.”
  • Third, “the company’s operating activities … contribute to building ‘reputational capital’”

The shadow knows

In fact, the shadow consumes. In traditional and digital ways, it contains, or will contain, everything about an organization.

The perception of that information will depend, largely, on how a corporation prioritizes reputation, Corporate Social Responsibility (CSR), sustainability and related issues into its operational activities.

Fombrun says, “reputational capital” is a “shadow asset”, invisible but effective:

Intangible equity that humbly works behind the scenes in a company’s product brands or corporate brands — these days, often in zeroes and ones, expanding into the digital universe.

Bharawadj did a study of 125 manufacturing businesses. The study found “reputation and brand equity of the business … to be the best predictors of variation in business unit performance”.

Another study looked at a group of 435 companies rated in Fortune’s most admired companies. From 1984 to 1995, these organizations were better able “to sustain superior operating performance over time.” They were also better able “to improve operating performance over time.”

Bottom line? There are lessons to be learned from the financial crisis: Companies focused on sustainability outperformed peers by 15 per cent.

Fombrun provides substance for reputation building reputation. In effect, reputation gathers strength from itself.

So, the shadow is its own shadow asset.

Reputation. Stock price. Ownership.

In a study by Gregory on “brand power,” during extreme stock volatility from October 27-28, 1997, the research team discovered while all stocks fell on the 27th, the strongest brands regained almost all losses by the 28th.

A benign shadow supports brand

Less strong brands continued to founder. These brands did not have mighty reputations to deliver them from stock price purgatory.

While accountants feel operational activities like public relations, corporate philanthropy and advertising are best treated as direct business costs, Fombrun makes a thought-provoking point:

… it’s certainly ironic that accountants have been so conservative in their treatment of all reputation-building activities yet so willing to facilitate the capitalization of unearned income that enabled Enron, WorldCom and Xerox to claim inflated returns for so long …

In a post-Enron world, wise public relations practitioners and business leaders might note that brand-building and reputation-building sound concrete compared to the manufacturing of imaginary returns.

There is a difference between the invisible and the imaginary.

The financial value of reputation

Hanging a shadow on a signpost (or shadow valuation)

What if you could hang your company’s name out on a signpost and lease it?

Interbrand did just that. In 2002, at sales of $20 billion, assuming a higher royalty rate of 14 per cent (a royalty rate of 8-14 per cent of projected sales is common), Coca-Cola could realize a potential (royalty) rate on their brand of $2.4 billion.

Over 20 years, the Interbrand research team estimated this value of the Coke brand to be worth $69.9 billion.

Today, Coke is digital, social, focused on sowing reputational seeds in a new world of information.

Deep within its brand is everything stakeholders perceive Coke to be. Coke’s shadow delivers reputational capital.

If $70 billion doesn’t catch a CEO’s attention, what will? The shadow is changing rapidly. Move with the shadow or be outcast.

The figure isn’t perfect, but it reveals reputation has financial value despite its unseen nature.

Catch RQ during bull: The Shadow Quotient

Maybe the most valuable jewel in the cache of information Fombrun reveals is the development of the Reputation Quotient (RQ).

RQ focus groups revealed why people have high regard for some companies. They felt emotional appeal, products and services, financial performance, vision and leadership, workplace environment and social responsibility were the most important qualities affecting RQ.

Fombrun points out:

“Being well regarded is closely associated with a company’s earnings, liquidity, cash flow and growth — it’s operating results. Consumer ratings are therefore tied to familiar indicators that a company is well-managed.”

But being well-regarded pays off more in bull markets when the company’s stock price is on the rise than it does in bear markets when the opposite is true.

Companies gain when their stock price increases.

Spend some time with Fame and Fortune. Extrapolate Fombrun’s ideas to this new, digital paradigm. Demystify the unknown, difficult to measure, world of corporate reputation.

Reputation is in the cyber-ether. It permeates corporate space and the expanding online universe of stakeholder perception.

Any CEO who does not understand how reputation affects the bottom line, will, after reading Fombrun.

Business leaders and their companies will also benefit when they understand how to make exceptional reputations a reality in this brave new digital world.

Keystrokes? Swipes? Maybe simply gestures. Your brand and your repuation’s out there.

What is it saying?

Reputation, the new transparency and exploding cigars

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News Corporation’s brand goes “boom”

People the world over recently got a look at the inner workings of News Corporation, its culture and levels of corruption. Some have labelled alleged criminal activity as that usually found on film screens and in novels. Elements of the story are truly stranger than fiction.

Murdoch’s media empire is definitely taking more than a couple of body blows. Fox News, the Wall Street Journal and the New York Post are just a few of the properties News Corporation holds.

With more than 10,000 hacks into people’s private lives, the News Corporation story created a climate of outrage. People, even on the periphery of concerns regarding privacy, reacted through social media. They want boycotts. Murdoch has been physically jostled on the street, and he seems to have lost some of his composure and his air of supreme confidence in the wake of the scandal.

With all the recent news regarding mobile phones, and Apple’s being branded as “Big Brother” by privacy advocates over location-based tracking issues, not to mention Facebookgate, the News Corporation story is registering high on the shock, dismay and outrage meter.

The Guardian’s relentless pursuit of information in the case revealed that “pinging” journalists at News of the World and The Sun may have incorporated elements of the police, private investigators and mobile phone companies to literally sniff out individuals through triangulation techniques. Sounds like a privacy advocate’s worst-case scenario regarding mobile technology.

How would Philip K. Dick have reacted to the bribing of employees in agencies that hold (and are supposed to protect) personal data? Truth approaches fiction. Money may have passed back and forth between journalists and the police in shades of cartel noir. The News Corporation story has withdrawn a veil of secrecy, and people were revolted by what they saw, read and heard. The public verdict of guilt is already a “done deal”.

Murdoch’s business, because of alleged strong-arm tactics and an attitude of “any political means necessary”, may suffer greatly. Advertisers, investment funds and shareholders don’t want to associate themselves with a brand that fills the public with loathing. Reputation has always been key to an organization’s ability to recover share price after a major market decline – just as reputational issues have often led companies’ shares into a downward spiral.

The scandal has generated some interesting questions:

• Will Britain impose reforms? Prison sentences?
• Will the public outcry for an investigation into elite politics and the media win the day?
• Has awareness of the scandal (worldwide) led to thoughts of the dangers of media abuses? Will awareness lead to substantial change?
• Are cloak and dagger meetings between governments, journalists and lobbyists (to name just a few participants) going to disappear?
• Will people continue to forgo security and rights to privacy so that they can download the latest app?

Lastly,

• Will companies understand that corporate reputation and transparency issues are here to stay and that best practices when it comes to respecting privacy rights and using new location-based technologies are important?

It’s been said before but the best kind of crisis management avoids crises in the first place.

Recent history has provided many corporate darlings who’ve become vilified. It will be interesting to see how the News Corporation scandal turns out and how it affects the company. Since incorporating best practices into strategy regarding privacy issues acts like preventative medicine, companies would be wise to position themselves as exceptional stewards of their customers’ information.

After all, exploding reputational cigars can go off with the power of an H-bomb.

Further reading:

How did they hack everyone’s phones?

How to avoid getting hacked

How reputation affects shareholder opinions: Bad news for (the younger) Murdoch

Reputation matters … Some of the ever-widening ramifications of the News Of The World scandal 

When reality becomes perception

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Reputation and brand: Facebook strikes a blow — against itself

I blogged about social media and a potential backlash to use of private information in “Three digital considerations for the year(s) to come”.  In an interesting twist, “Facebookgate” is a signpost of what not to do on the road to establishing great reputational capital for companies. Not only is use of private information important but immoral tactics employed to “go negative” against competitors reveal the emperor as naked and scared.

Facebook was trying to expose Google for privacy issues through public relations firm Burson-Marsteller. Considering Facebook’s own past issues regarding users’ privacy concerns, the hypocrisy of this tactic is thick and hard to digest. Equally hard to digest is Burson-Marsteller’s use of tactics that have been described as “shadowy”. Burson-Marsteller’s former UK chairman says executives involved in the escapade acted like “backstreet spin merchants”.

Terence Fane-Saunders, ex of Burson-Marsteller UK, soundly criticised his old employer on his company blog, aptly titled:  “What on earth has happened to Burson-Marsteller?”

Obviously, grubby tactics  like those displayed in the Facebookgate case have done a lot of damage to the public relations industry in the past. Such tactics as those employed by Burson-Marsteller have led to the portrayal of public relations practitioners as hacks.

Amazing that such tactics still see the light of day. Facebook is now left with its brand highlighted in the media beside such less-than-brand-enhancing labels as “furtive”, “smear campaign” and “creepy” to list but a few. Not exactly words that most companies would revel in being associated with.

And, of course, every mention of Facebook adds mention of Burson-Marsteller’s involvement and bad public relations practices.

Companies would do well to pay attention to the fallout from such tactics. Perception may be more important than reality, but, in the case of Facebookgate, reality has had an enormous impact on perception. The problem is, in the Facebook case, reality was far worse than almost anybody perceived.

Video:

Blogger Soghoian speaks about Facebookgate

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