CEO reputations are already in the tank. According to the Edelman Trust Barometer, used car salesmen have more cred than CEOs and official corporae spokespersons. Those same CEOs should be looking beyond the current economic crisis. A rehabilitated image will be important once the sting of the recession has faded.

Writing on ReputationXchange.com, Dr. Leslie Gaines-Ross pointed out that a CEO’s internal communications stand to have a bigger impact on how a CEO is perceived by external audiences than external marketing or PR efforts. Gaines-Ross, chief reputation strategist for Weber Shandwick, said, “as companies continue to announce layoffs, reputations will be built and destroyed on how well job losses are communicated and how fairly the process is handled.”

Gaines-Ross’ perspective is consistent with the findings of a 2006 study conducted by Fleishman Hillard and the National Consumers League. When asked what how they assess a company’s corporate social responsibility (CSR), most people said it hinged on how well the company treated its employees.

From what we’ve been hearing, the future does not bode well for a lot of CEOs who have taken a slash-and-burn approach to reducing the workforce.

Paul Levy, on the other hand, is one CEO who shouldn’t worry.

Levy, CEO of Beth Israel Deaconess Medical Center (BIDMC) in Massachusetts, has been using his Running a Hospital blog to keep internal and external constituents up to date on his efforts to control expenses while a combination of factors conspire against the hospital’s goal of meeting budget.

Paul reported on a series of quickly-assembled town hall meetings convened to explain the financial situation to employees. An even bigger goal of the meetings, though, was to solicit ideas from employees about how to address the budget gap. The meetings were convened following the distribution of a memo to employees. In a demonstration of what it means to be transparent these days, Paul posted the memo to his blog, a much more above-board approach to sharing internal matters with the public than deliberately leaking a supposedly internal-only document, the approach Citigroup took to get the word out that it had performed well during the first two months of 2009.

Overtly disclosing information will build much greater trust than pretending that an internal memo found its way outside of the company.

The memo included these candid and sobering remarks:

For BIDMC, our hoped-for 2% FY09 operating margin (about $18 million) has disapeared. The state has reduced Medicaid payments by over $7 million, our major insurerer is paying us less than we had hoped, and reseach funding has also fallen short by several million dollars. In addition, patient volumes are substantially lower than budgeted as people in the community defer or forgo medical visits and treatments.

Right now, at best, we can break even for the year if patient volumes return to budgeted levels. However, if they stay at current levels, we will face an operating loss of up to $20 million.

Now, sadly, we have to crank p expense reduction…Part of the solution to this problem will be to lay off people. I’m not sure how many yet, and I am hoping you can help me figure out how to minimize the number by using more creative and less disruptive ways to solve the problem.

Levy encouraged employees to write him with their ideas, use an electronic chat room he was setting up, or talk to him in person at the town hall meetings. He suggested elimination of pay raises, reduction of future earned time accruals, forfeiture of one or two days of past accruals, voluntary pay cuts, and unpaid leaves of absences.

Then he threw in the zinger:

The senior managers of the hospital have recognized their personal responsibility to help with this problem. The senior vice presidents, vice presidents, and chief operating officer have been asked to take voluntary 5% pay reductions, and I have eliminated all of their bonuses for 2009, a total potential pay reduction of 15% to 25%. I am personally taking a 10% salary reduction and will forgo my bonus opportunity for this year, a total potential pay reduction of 30%.

If it wasn’t already clear, Paul articulated the rationale for the measures imposed on senior staff and requested of the rank and file while face-to-face with employees at the town hall meetings: “to protect (BIDMC’s) lower wage earners (e.g., transporters, housekeepers, food service people) from measures we take, even if it means that the other people have to give up more of their salary and benefits.” After all, he explained, it would be harder for these people to find new jobs and the impact of being unemployed would be harsher for them. “A lot of these people work really hard, and I don’t want to put an additional burden on them,” Levy told his employees.

Here’s another surprise: Kevin Cullen, a Boston Globe reporter, was in the room. That’s right; rather than try to keep word of the meetings from leaking, Levy invited the press to attend. Here’s what Cullen wrote: “He had barely gotten the words out of his mouth when Sherman Auditorium erupted in applause. Thunderous, heartfelt, sustained applause. Paul Levy stood there and felt the sheer power of it all rush over him, like a wave. His eyes welled and his throat tightened so much that he didn’t think he could go on.”

On a follow-up post, Paul shared some of the emails he received from employees after the meetings, like one from a nurse who wrote, “I would be more than happy to forego a pay raise and reduce my earned time if that would mean another person in the hospital could keep their job. I think this is a great idea and I hope my colleagues feel the same.”

Levy plans to keep reporting on his thinking and inform employees of final decisions by April 1. Those decisions will also, no doubt, appear on his blog for the world to see. In fact, just today he provided an update to employees, posted (of course) to his blog. Among his messages:

Your participation in this process and your advice to me has succeeded in accomplishing two very important things: First, we have reduced the number of necessary layoffs dramatically, from over 600 to about 150. This is a major victory and will mean a lot to more than 450 families who would otherwise lose their income from BIDMC. Second, we will do this at the same time we provide earnings protection to our 900 lowest wage workers. As you will see, this does come at a higher cost to the rest of us, but you have all made clear to me that this is consistent with our community’s values and expectations. Thank you in advance for your generosity of spirit.

The entire post is well worth reading, especially for the detailed explanation of how those to be laid off will be selected.

My friend Albert Maruggi, who also blogged this story, sums it up well:

Much of America has a very long way to go to eliminate the culture of ???gotcha,??? of confrontation, a culture of ???keep the info, keep the power.??? All these insecurities and tactics of greed will hinder the benefits of what social media can bring to an organization and our society. With each blog post, each honest answer to a criticism, each good idea raised and implemented, the organization becomes stronger.

Somehow, I don’t see AIG’s CEO Ed Liddy meeting face-to-face with employees to seek their input on how to turn things around. Even if he did, I don’t see him sharing the experience on a blog or inviting the press to attend the meetings. Instead, I hear the protests, “We’re a financial institution, not a hospital.”

More’s the pity. Liddy’s reputation is most likely beyond redemption, but Levy will long be remembered as a beacon of responsibility, transparency, and engagement.

Hat tips to Ron Shewchuk and Albert Maruggi for some source material for this post.