Time for execs to add an 11th commandment

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Hours after M. Douglas Ivester announced his resignation as chairman-CEO of Coca-Cola Co. last month, a cacophony of speculation ensued.

What's different in his exit? It's this: An 11th commandment seems to have firmly taken hold as the pace of the new economy quickens -- "Thou shalt not lose reputation."

Among Coca-Cola watchers, Mr. Ivester's early list of misdeeds appears heavily weighted towards his handling of the contaminated-Coke scare in Belgium and of the circumstances that led to a lawsuit by current and former employees alleging racial discrimination. There was also his approval of an unpopular price increase for the Coke concentrate sold to Coke bottlers, Coca-Cola Co.'s slumping share price and Mr. Ivester's reluctance to select a No. 2 executive to serve as his deputy.

CEOS FACING CHALLENGES

However, several other high-profile CEOs face comparably threatening challenges and, so far, they remain securely in office.

Consider Michael Eisner of Walt Disney Co., or Vance Coffman of Lockheed Martin Corp. Mr. Eisner is frequently criticized for too many flat quarters, undisciplined cost control, lackluster performance from his ABC TV unit, an inability to select an heir and an embarrassing and bitter legal battle with a former top Disney executive, Jeffrey Katzenberg.

As for Lockheed's Mr. Coffman, his first two years at the helm of the aerospace company have been disappointing. In the early part of his tenure, he oversaw Lockheed's ill-fated planned merger with Northrop Grumman Corp., which he eventually dropped because he misread the Pentagon's position on defense industry mergers. To make matters worse, Lockheed's share price has plunged more than 50% since spring 1999, and Mr. Coffman was recently forced to cut in half his previous forecast of 2000 earnings, further frustrating Wall Street.

Warren Buffet, a well known investor and Coca-Cola Co. board member, said it best in 1991 when he was brought in to restore credibility at Salomon: "If you lose money for the firm, I will be understanding. If you lose reputation, I will be ruthless."

As persuasive as the other "crimes" by Mr. Ivester might be, none is as heinous in today's world as tarnishing the reputation of the company -- particularly one so heavily endowed with and dependent on image.

Managing the softer side of business -- its intangible assets such as brand equity, employee capital, CEO vision, customer pleasure -- is fast becoming the strategic leverage point for companies looking to increase their market valuation and, in Mr. Ivester's case, to become the beverage of choice. The CEO is the guardian of the company's intangibles. Unlike tangible assets, they are not negotiable.

CORPORATE REPUTATION

CEOs and their companies are increasingly focused on corporate reputation as one of the most valuable and enduring assets of their businesses. Companies such as Royal Dutch Shell, BP Amoco, Ford Motor Co., Hewlett-Packard Co. and Amazon.com are hard at work trying to better understand and monitor how they are perceived among their many shareholders.

No longer must companies worry only about how their customers or Wall Street sees them. They need to keep listening for any rumblings from government regulators, activists, environmentalists, the media, MBAs or potential recruits and the online digerati. In The Wall Street Journal alone, just the mention of "reputation" increased 28% over the past five years.

In fact, reputation ratings are now all the rage. Even the longstanding Fortune "most admired companies" ranking has competition: The Financial Times' "world's most respected companies," the Reputation Institute's "best regarded companies," Management Today's "most admired companies" and Far Eastern Economic Review's "Asia's leading companies."

Even Australia's Business Review Weekly has jumped into the game with an "Australia's most admired companies" ranking.

NOVEMBER EXEC EXODUS

Mr. Ivester may have stepped down for a variety of reasons. According to executive recruiter Challenger, Gray & Christmas, about three CEOs left their companies each business day in November, a rate considerably higher than just one month earlier.

Some will say these resignations, whether voluntary or "pushes," are because the CEO did not abide by the usual well-known commandments of corporate leadership: They did not execute well, did not fix people problems, hit a patch of bad earnings news, lost touch with the marketplace, did not cultivate the board or failed to communicate the direction of the company inside and out.

The newly understood prohibition against causing harm to a company's reputation must be added to that list.

As elusive as reputation loss is to prove and measure, Mr. Ivester may have foreseen his name being newly etched as a violator of this new 11th commandment -- and sensibly exited before the ink was dry.

Ms. Gaines-Ross is chief knowledge officer, Burson-Marsteller, New York, and specializes in CEO and corporate reputation.

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