North American Utility Industry Needs Reputation Makeover

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by John Patterson, Reputation Institute

Despite investing billions in smart meters, renewable energy and customer service improvements, utilities still have an average reputation with consumers, a global study shows.

Each January since 2006, Reputation Institute (RI) conducts a study across 34 countries asking the public to rate more than 1,800 companies on the trust, admiration, good feeling and esteem they have for the largest companies in each market.

This Global Reputation Pulse score between zero and 100 is a perception and an emotional response to a company's ability to deliver on seven reputation dimensions: products and services, innovation, workplace, governance, leadership, citizenship and financial performance.

Unlike other intangible assets that companies can control, corporate reputation resides in the hearts and minds of stakeholders: employees, customers, suppliers, regulators, investors, activists and media. Reputation must be earned.

What Drives Global Utility Industry Corporate Reputation?

The global industry mean for Reputation Pulse was 64.2, but the 33 utilities measured in the 2010 study came in at 63.58. That's behind 14 industries, including energy at 64.96, and in front of seven industries, including the world's least reputable industry, tobacco, at 51.24.

Two utilities in the world scored above a 70, the threshold for a "strong" reputation, compared with an "excellent" reputation above 80 and an "average" reputation above 60: Southern Co. at 72.95 and India's NTPC at 71.21.

If consumers in 34 countries find most utilities in the middle when it comes to reputation, which reputation dimensions are most important to them? From a company perspective, knowing which dimensions matter more can indicate which areas of improvement would move the needle most to improve reputation.

The top three reputation drivers for the utility industry are governance, products and services, and citizenship, composing 48 percent of a utility's reputation (see Figure 1).

Utility reputations are influenced equally by how they are run and what they give back to their communities, pushing governance and citizenship into dual prominence as reputation drivers.

The utility industry is one of only four industries of the 25 Reputation Institute studied in 2010 where products and services was not the No. 1 driver for consumers. Governance tied products and services as most important largely because of a lingering Enron effect. Consumers place energy and utility company ethics and transparency on a higher level than industries not tainted by recent scandal.

Each dimension accounts for more than 11 percent of reputation, and the difference between the leading driver–governance at 16.8 percent–and the lowest-rated one–financial performance at 11.5 percent–in 2010 is just more than five percentage points. Compare today's picture with the utility reputation dimension weights in 2007 when TXU was involved in the largest leveraged buyout in history and utilities on both sides of the 49th parallel were operating in a macro environment of strong economic growth and a bullish stock market. Then, citizenship (20.5 percent), products and services (19 percent) and innovation (14 percent) were the top three drivers, followed by governance, workplace, leadership and financial performance.

Building a Strong Utility Reputation via Influence Channels

Corporate reputations are formed when stakeholders experience the company through three possible influence channels:

  1. Direct experience: products, investments, employment, customer service,
  2. What the company says and does: branding, marketing, public relations, social responsibility, and
  3. What others say: media (traditional and social), topic experts, leaders, friends and family.

When one or more of the three influence channels enhances or weakens corporate reputations, a stakeholder changes his or her level of supportive behavior toward the company. RI measures three components of supportive behavior: willingness to recommend the company, to say something positive about the company and to give the company the benefit of the doubt in a crisis.

 

The four U.S. utilities in the study see interplay between their Reputation Pulse scores and supportive behavior. While Southern Co. at 72.95 had a stronger reputation than Constellation Energy Group Inc. at 66.2, Florida Power & Light Co. (FPL) at 64.73 and Exelon Corp. at 61.05, it had a lower recommendation score at 43.2 percent than Constellation Energy at 46.8 percent and FPL at 47 percent. Despite having the third overall reputation in the group, FPL enjoyed the highest benefit of the doubt score at 46.5 percent.

In Canada, Manitoba Hydro at 67.19 and BC Hydro at 66.7 had the strongest reputations with consumers. Hydro Québec at 63.06 and Hydro One at 58.14 trail behind with moderate to weak overall reputations. Manitoba Hydro and BC Hydro's recommend scores, however, were five points behind that of category leader Hydro Québec at 50.6 percent. As for the benefit of the doubt consumers give Canadian utilities, BC Hydro is the top vote getter with 39.6 percent, followed closely by Manitoba Hydro at 37.1 percent and Hydro Québec at 36.5 percent.

At the individual reputation-dimension level, the following North American utilities were rated highest in 2010 by consumers in their respective home countries: Products and services, Southern Co. (73.81) and Hydro Québec (71.77); innovation, Southern Co. (70.63) and Manitoba Hydro (68.44); workplace, tie among Southern Co. (72.88), Constellation Energy (72.86) and Hydro Québec (75.66); governance, Southern Co. (75.32) and Manitoba Hydro (69.12); citizenship, Southern Co. (70.83) and Manitoba Hydro (67.27); leadership, Southern Co. (73.35) and Manitoba Hydro (69.70); and financial performance, Southern Co. (74.81) and Hydro Québec (78.86).

Who's Hot, Who's Not in World Utility Reputation

Outside North America, the 25 largest utilities run the reputation gamut from NTPC's 72.51 in India to E.ON's 52.24 in Germany (see Figure 2). The top 10 global utilities in Reputation Pulse scores are: Southern Co. (U.S., 72.95); NTPC (India, 71.21); Enel (Italy, 69.45); Electrobrás (Brazil, 69.17); Chuba Electric Power (Japan, 68.3); A2A (Italy, 67.6); KEPCO (South Korea, 67.49); Manitoba Hydro (Canada, 67.19); National Grid (U.K., 66.99); and EDF (France, 66.93). The biggest utility reputation gainers between 2009 and 2010 were: RWE (Germany, +7.77); Southern Co. (U.S., +6.62); National Grid (U.K., +6.52); CFE (Mexico, +6.5); Centrica (U.K. +6.33); and E.ON (Germany, +6.24).

The five utilities whose reputations declined in their home countries compared with 2009 were: EDF (France, -7.90); KOGAS (South Korea, -3.86); Scottish and Southern Energy (U.K., -3.28); Cemig (Brazil, -1.89); and Veolia Environnement (France, -1.42).

Only one company–Southern Co. at No. 132–cracks the top 150 in RI's Reputation Pulse Global 600, and only 10 others placed in the top half: No. 175, NTPC; No. 216, Enel; No. 227, Electrobrás; No. 240, Chubu Electric Power; No. 262, A2A; No. 278, Manitoba Hydro; No. 280, National Grid; No. 281, EDF; No. 284, Tokyo Electric Power Co.; No. 299, BC Hydro; and No. 300, GDF Suez.

Conclusion

Morton Albaek of the Danish wind energy company Vestas summed up the gestalt of the new decade best.

"Today, we serve two and only two masters: revenue and reputation," he said. "The trick is to position your brand and build your reputation in the sweet spot between capitalism and humanism."

RI research shows that for every five points a company's reputation improves, supportive behavior increases 6.5 percent. If every North American utility set this as a 2011 key performance indicator and employed a more systematic, integrated approach to dealing with multiple stakeholders, the resulting bottom line and top line performance improvements would drive the business case and prove that a utility's reputation strategy is a sound business strategy.


Author

 

John Patterson is a New York-based senior advisor at Reputation Institute, an advisory and research firm specializing in corporate reputation management that consults companies worldwide. Patterson has worked with clients and written about the global utility industry for the past 15 years at Burson-Marsteller, Ernst & Young, Capgemini and Ketchum. He is an honors graduate of Harvard College. Reach him at jpatterson@reputationinstitute.com.

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