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    Concrete Steps to Restore a Company's Reputation

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    Imagine that you're the CEO of a large firm like the one described in the attached file. What concrete steps would you take to restore your company's reputation if it has been sullied?


    Starting in late 2003, Marsh & McLennan (MMC), with a reputation as one
    of the most staid and well-managed companies in the United States, became
    embroiled in a series of ethical scandals. The first involved Putnam Funds, a
    mutual fund company in Boston and traditionally the cash cow of MMC.
    Putnam first lost huge bets on technology and growth stocks when the stock
    market imploded in 2000. Then it was the first mutual fund company named
    in the market-timing scandal that involved mutual fund companies across
    the industry. (Market timing is shifting money in and out of mutual funds
    based on the performance of one or more market indicators. In the recent
    scandal, large investors were allowed to "time the market" by trading late—
    after the markets had closed—which provided a clear advantage for the big
    guys and a clear disadvantage for the little guys.) There is no doubt that of
    all the mutual fund companies, Putnam took the biggest hit for the scandal,
    and it continues to struggle to make its way back. Its assets under
    management—the major measure of stability and heft in the industry—
    fell from $370 billion in late 2000 to $194 billion during the first quarter of
    2005.25 But Putnam was only the beginning of trouble at MMC.
    In October 2004, New York State Attorney General Eliot Spitzer filed a
    civil complaint against MMC, the parent company of Marsh, Inc., the world's
    largest insurance broker. In the suit, Spitzer charged that Marsh betrayed
    clients by steering business to underwriters with whom it had cozy relationships
    in exchange for millions in backdoor payoffs. As one Marsh executive
    said, "We need to place our business in 2004 with those that have superior
    financials, broad coverage, and pay us the most." Spitzer's complaint uncovered
    a broad mosaic of industry-wide bid rigging for which Marsh served as
    the chief architect. Other companies such as AIG, Hartford, and ACE were
    involved, but Marsh was the big player in the arrangement.26 (At the time of
    Spitzer's suit, Jeffrey Greenberg was CEO of MMC; his brother, Evan
    Greenberg, was CEO of ACE; and the legendary Maurice "Hank" Greenberg,
    father of Jeffrey and Evan, was CEO of AIG and would later face enormous
    troubles of his own.)

    To stanch the bleeding at Putnam, MMC forced out Putnam's CEO, the
    imperious Lawrence Lasser, who took a $78 million severance payout and
    left the company that he had captained for years.27 MMC quickly hired
    squeaky-clean Charles "Ed" Haldeman as the new CEO to lead Putnam out
    of the swamp. In April 2004, Putnam settled with the SEC and agreed to
    accept new employee trading restrictions and to conduct and provide regular
    compliance reviews. The company also paid $110 million in various fines.
    (There were additional charges, settlements, and fines from a variety of
    sources, including the Commonwealth of Massachusetts.)28 Haldeman
    brought in a new management team and made other changes, but the
    company continues to struggle to regain its former position as a leader
    in the industry.
    Its parent, MMC, had a more difficult time with its woes. In a highly
    unusual move, Spitzer refused to negotiate with the company as long as its
    executive team was in place. Soon after, CEO Jeffrey Greenberg and the top
    company lawyer resigned and Michael Cherkasky took the helm. Cherkasky
    was Spitzer's former boss in Manhattan's district attorney's office and the
    CEO of Kroll, Inc., a leading risk consulting company acquired by MMC
    shortly before its legal woes began. Cherkasky's relationship with Spitzer
    proved very helpful forMMC—the company quickly agreed to a settlement of
    $850 million and also agreed to lead the insurance industry in reforming
    industry practices

    A note: Mercer HR Consulting, the other third of the MMC business, also
    had its own troubles. It disgorged more than $440,000 in fees from the New
    York Stock Exchange (NYSE) after admitting that it misled the NYSE board
    of directors regarding the $140 million pay package of Richard Grasso, then
    CEO of the NYSE


    In 2004, MMC's stock price fell from a 52-week high of $47.35 to a low of
    $22.75—an incredible fall fromgrace for a company that had performed so well
    and so predictably for decades.31 In a mere four days of trading, the company
    lost $11.5 billion in market value.32 That plunge hurt MMC employees more
    than most investors because, until shortly before these problems,MMCemployees
    could invest theirMMCretirement savings only inMMCstock. The thinking
    among MMC senior executives was that people would be more motivated to
    produce excellent results if their entire retirement savings were tied up inMMC
    stock. In a real ethical lapse, senior executives had other investment options—it
    was only rank-and-file employees who were restricted to MMC stock. MMC's
    strategy was particularly unfathomable when you consider thatMMC's Mercer
    HR Consulting employed numerous retirement experts who routinely advised
    their clients about the importance of providing employees with diversified
    options for retirement investments. After years of listening to employees plead
    to be allowed to diversify and afterwatching Enron's employees lose their shirts
    when their company's stock plunged, MMC executives finally allowed for
    limited diversification. Beginning in 2003, MMC employees could diversify
    part of their retirement investments into a few Putnam funds—nowhere near the
    number or range of options provided by other large corporations to their
    employees. Many MMC employees who did not move quickly enough to
    diversify lost much of their retirement investments after MMC stock plummeted.
    Note to students—diversify your investments, and never put all your
    investments in company stock! (Also, in the interest of full disclosure, please
    note that one of this book's authors, Katherine Nelson, was employed as a
    principal at Mercer HR Consulting from 1998 to 2001 and was an "employee
    investor" of MMC.)
    In addition to the substantial settlements, the financial losses, the pessimism
    of financial analysts, and the enormous hit taken by MMC investors and
    employees, 5,000 jobs were lost and the company's reputation remained
    damaged for a number of years.


    One of the wisest comments about the crisis at MMC comes from the former
    CEO of Putnam Funds, Charles Haldeman, who said, "What our parents told
    The results of these very public conflicts of interest will be felt for years. Various
    regulators and attorneys general from a number of states are still investigating the
    banks and their business practices. As a result of the various debacles in the banking
    industry, Citigroup has been fined more than $5.5 billion since 2003, and JPMorgan
    Chase has been fined more than $4 billion.38 Other financial institutions have also been
    fined sums totaling in the billions, and numerous corporate brands have been muddied.
    However, all of that "justice" has not yet restored the faith of the public in the markets,
    nor will it help the hundreds of thousands of individual investors who have lost their
    shirts because of these shenanigans. In a 2002 Business Week poll of its readers,
    93 percent said they had "only some" or "hardly any" trust in the executives who run
    big companies, and 95 percent felt that way about big auditing companies.39 More
    recently, a 2010 survey indicated that 70 percent of the public believes that businesses
    and financial companies will go back to "business as usual" after the 2008-09
    recession.40 In the same survey, only 29 percent of respondents in the United States
    thought that they could trust banks "to do the right thing." That's down from 68 percent
    in 2007.41 In a 2012 survey, Wall Street and Congress were in a dead heat as the least
    trusted institutions in the U.S., and public confidence in them could be measured in
    single digits.42 It is a sad commentary.
    us about protecting our reputation is true. If you lose it, it's hard to win it back
    again." Haldeman also talked about the isolation that existed in Putnam before
    his arrival. Apparently, Putnam had a history of not cultivating relationships
    with the press or the government, and when the scandal broke, it had no friends
    to turn to. Haldeman also vowed to change that. "At the time of our problems,"
    he said, "We didn't have those relationships and it was difficult for us. At a
    time of need we didn't have too many friends or supporters. We don't want to
    be in that position again."34 Haldeman served as CEO of Putnamfrom the time
    the crisis broke in 2004 until 2008, when MMC sold Putnam to Power
    Corporation and replaced Haldeman.35
    The scandal that rocked MMC was an example of how former New York
    State Attorney General Eliot Spitzer liked to turn an industry upside down.
    Writer Peter Elkind wrote of Spitzer's strategy in Fortune magazine: "The
    strategy has been remarkably consistent. Step one: Wade broadly into a gray
    area of odorous but long-accepted industry practices. Step two: Seize on
    evidence of black-and-white outrageous conduct—typically in email form—
    and use it to marshal public outrage. Step three: In the resulting tsunami of
    scandal, swiftly exact reform of the whole industry, including gray-area
    behavior." Within two weeks of filing charges, Marsh and its largest competitors
    had agreed to stop bid rigging. Similarly, industry-wide mutual fund
    abuses stopped within weeks of Spitzer filing charges against Putnam.36
    Please note that Eliot Spitzer has had his own ethical lapses. A little over a year
    after being elected governor of New York State, he was caught up in a federal
    wiretap of a prostitution ring (he was found to be a client) and resigned in
    disgrace in early 2008.

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    Solution Preview

    As with any company, including the company in the attached document, solid steps definitely should be taken without hesitation, when a reputation is ruined. The key factor is acting on an immediate basis but being careful that the steps taken are correct, given the situation. Many times when corporations react, it is not a thought-out process and that can end up damaging reputations even more.

    Press releases and maintaining contact with the public should always be ...

    Solution Summary

    This solution briefly explains the steps that are necessary to rebuild a company's reputation after it has been tarnished.