• by Joe Mandese  @mp_joemandese, February 23, 2007

In a development that could have big implications for the communications strategies of some of the nation's biggest marketers, free news media coverage of major U.S. corporations has suddenly turned negative as the print and electronic press begin focusing more on ethics-related corporate wrongdoing. The shift, the most pronounced since a record downturn in corporate reputations was sparked by corporate scandals at Enron, WorldCom and Adelphia early in this decade, follows a protracted period of relatively positive media coverage of U.S. corporations, says Matt Merlin, research director of the Delahaye Index of corporate reputation, a quarterly analysis of media coverage of the 100 largest corporations.

"Eight companies ended up in net negative territory this year, whereas in 2005, we had only four companies," he said.

While none of the wrongdoing stories were as severe as the kind that dragged corporate America down earlier in the decade, Merlin said coverage of corporate spying scandals, back-dating of stock options, the manipulation of corporate earnings, and allegations of post-Katrina insurance company fraud contributed to a 30% increase in stories labeled as either "illegal or unethical."

While it has been a few bad apples like Hewlett Packard, State Farm and The Allstate Corp., that drove much of the negative coverage, Delahaye President Mark Weiner explained that negative news among a few leading corporations can have a broader impact on the overall perceptions of corporate America. He says most companies typically fall in a "neutral" range, with a few outliers in positive and negative territory, but the uptick in negativity for 2006 is surprising and reverses a recent trend in which there were "three or four consecutive quarters where not one company was in negative territory."

Weiner said the impact of negativity varies by company, as does their strategy for dealing with it, and that in some cases advertising can be used to offset it. In other cases, he said, companies may be better off foregoing advertising until their corporate reputations are stabilized.

"The impact of a negative reputation is far reaching and adds to an company's overall burden for many areas. It's not just a marketing issue," he said. "Companies with good reputations are able to build brand trial more easily, so they don't have to invest as much in advertising. Their products are differentiated because the companies represent the values that people relate to."

As an extreme, Weiner cited big companies like Wal-Mart and Microsoft, which have "very sophisticated levels" of opposition.

"They have what I would call professional activists working against them, which as a great impact on their marketing effectiveness," he said. However, both Wal-Mart and Microsoft have managed to turn some of that negativity around. Microsoft did it by steering the focus of media coverage around founder Bill Gates philanthropic initiatives, and Wal-Mart by making its executives and corporate spokespeople more accessible to the press.

He said Wal-Mart's advertising department has also done a good job of offsetting negative images of its labor practices by running ads depicting Wal-Mart as a good place to work. "That is difficult news coverage for them to generate, so it was the only way for them to get that message out in a controlled way," he said.

That strategy may not work well for other marketers whose corporate reputations may be mired in irrefutable scandals. In those cases, Weiner said advertising may actually "exacerbate" a bad story" and that companies may simply need to "lay low" and ride it out.