Shortly after John Morgan (JP, to his American friends) congratulated Andrew Carnegie on becoming the wealthiest man in the world, Carnegie's biographer queried the former steel magnate on his secret. "When I was younger," he replied, "I used to listen to what people say. Now I just watch what they do."

The Steel City Re reputational value metrics, as described in the book, Reputation, Stock Price, and You, comprise indexes of what people who watch people think they are going to do. Boeing's CEO, Jim McNerney, is staring at the same type of operational failure Rolls-Royce's CEO, John Rose, faced just over two years ago. The similarities end there.

At Rolls, there was no public communication until the company, on its own, identified within its supply chain the engineering problem that led to engine failure and a potentially catastrophic outcome. Eight weeks into the crisis, the first major announcement was the purchase by British Airways of 12 additional jumbo jets, all equipped with Rolls-Royce engines.

At Boeing, in the midst of unexplained glitches afflicting the 787 Dreamliner, Tom Downey, the planemaker’s senior vice president of communications, is providing play-by-play commentary on McNerney staff meetings. "Because of his knowledge of planes and electrical systems, 'he asks a lot of very specific questions,' Downey said", according to Bloomberg.

Huygens, ever the American pragmatist, makes no value judgement. Resolution of the problem quickly is the only outcome the markets - Boeing's customers, employees, vendors, investors, creditors, and regulators - really care about. Between now and then, the choice of no-communication or all-communication is a reflection of corporate culture.

What Huygens can share are the reputational metrics reflecting the expectations of stakeholders and the consequences of management's choices. Shown below are Boeing in the midst of an operational crisis that threatens to blossom into a reputational crisis, and Rolls-Royce, that resolved its operational crisis and avoided a reputational crisis.

Rolls' actions exceeded stakeholder expectations and investors rewarded the company (thereby rewarding earlier investors) with a respectable ROE >20% over the trailing twelve months. At this writing, for Boeing, stakeholder expectations are still sinking.

The company sure knows how to prioritize. Rolls Royce (LON:RR), which produces mission critical power systems, runs risk management like its nobody’s business. The company’s asset preservation policy reveals transparently the priority of the three greatest things it is protecting: reputation, viability and profitability.

Eight weeks out from the catastrophic failure of a Trent 900 engine keeping a Qantas A380 Supercarrier aloft, Rolls Royce is showing the reputational and economic profile of a company with significant reputation resilience. The media appears to have backed off, and the general public has lost interest. Much of the credit for this display of enterprise value preservation goes to the company’s reputation for engineering excellence and its outstanding intangible asset risk management program.

If there is one criticism that may be levied, it is that the company’s crisis communications efforts have left much to be desired. Many communications pundits have peppered the blogosphere with the central message that CEO Sir John Rose should have been much more visible and forthcoming.

In defence, one need only point to the notice today from British Airways CEO Willie Walsh. According to Bloomberg News, British Airways Plc , Europe’s third-biggest airline, agreed to buy Trent 900s for 12 A380s to be delivered starting 2013.

"I'm not surprised," explains Jonathan Salem Baskin, noted brand marketer and author of the recent Histories of Social Media. "Rolls Royce focused on analyzing and fixing the problem, and was likely having conversations with numerous stakeholder groups involved in that operational reality. The world wanted the business focused on business, some outlier bloggers notwithstanding, and Roll Royce's successes in its efforts were obviously recognized and valued."

Note added 6 February 2011

The Economist newspaper says as much in an article penned 3 February. Click here to link to the article.

Leaked information is rattling executives and politicians globally. But the literal elements of a leak stem from uncontainable fluids, and the adverse consequences can be more immediate. Rolls Royce (LON:RR) is facing just such a problem. Their Trent 900 engine, the power source for a number of airlines such as Quantas that fly the Airbus A380, appears to have a welding flaw in an oil pipe. The pipes are at risk of leaking, and the consequences of an oil leak include catastrophic engine failure. In reputation speak, this is a "safety" issue. In operations speak, this may be another example of a reputation risk arising from the supply chain. A quick word on Rolls Royce and their supply chain. As summarized by then chairman Sir Ralph Robins in 2000, "Seventy per cent of an engine's content is in the supply-chain and only 30% comes from in-house. We get all excited about cost-reduction in-house, but the supply chain is where it really counts."

According the the Financial Times, the current problem may cost the company up to $500m. According the to the Steel City Re Corporate Reputation Index metrics, the reputation cost is just beginning to manifest. The reputation index began the trailing twelve month period in the 63rd percentile and is currently in the 71st percentile relative to the 14 companies in the Aerospace and Defense peer group. However, the Index had been as of late in the low 80th percentile, and several dynamic metrics are providing indications of adverse value change: the exponentially weighted index moving average (EMWA) is up to 17%, and both the vector and velocity over the trailing twelve weeks are negative.

For the present, however, the equity returns over the trailing twelve months are equal to the median of the peer group, while the intangible asset fraction is below that of the peer group but equal to the mean of the S&P500 Index constituent members. Look to IAM magazine issue 46, due in March 2011,  for an extended examination of this Company from an intangible asset, risk, and reputation management perspective.