The art of managing corporate reputation
In today's world, corporate reputation management is one of the key business drivers for any organisation. No wonder managing reputation is taking the centre stage as one of the important strategic issues for the businesses. A study conducted in 2011 by US-based renowned research firm Ethics Resource Centre clearly shows that corporate reputation has a huge influence on consumers' buying decisions, investors' decisions to buy stocks, and regulators' consent in issuing operating licences and other permissions. It was also quite evident from the study that in order to attract the best talents, reputation plays a pivotal role.
According to Ernst and Young, investors believe that corporate reputation constitutes 30-50 percent of an organisation's market value. That's a mind-boggling number! A survey titled “The Company behind the Brand: In Reputation We Trust” was conducted in 2011 by Weber Shandwick and KRC Research in the US, the UK, Brazil and China to measure the rising interdependence of brand and corporate reputation. Consumers and senior business executives were the respondents of the survey. Among various other findings, it came out quite strongly that 60 percent of the market value is attributable to the company reputation. Some 96 percent of the CEOs surveyed were under the impression that a strong corporate brand is just as important as strong product brands.
Against the backdrop of extremely complex business environment we need to clearly define corporate reputation, which is essentially the perception based on the past actions and future prospects and describes the firm's overall appeal to all its key constituents while comparing with the rivals.
Charles Fombrun, a former professor at the Stern School of Business, New York University, defines corporate reputation as the overall estimation in which an organisation is held by its internal and external stakeholders based on its past actions and probability of its future behaviour. According to Prof Tom Watson, corporate reputation is the sum of predictable behaviours, relationships and two-way communication undertaken by an organisation, as judged by its stakeholders over time.
Experts in this field identified following key elements of corporate reputation:
Ethical practices: It is extremely important for the organisations to act ethically in conducting their businesses. Probably ethics is the single most critical element to build reputation. Organisations that behave ethically are highly admired and respected by the key stakeholders – customers, regulators, suppliers and society at large.
Quality of the products and services: Companies known for offering products and services of good quality enjoy competitive edge in terms of reputation.
Financial performance: Businesses need to demonstrate consistent financial results to boost the confidence of the shareholders, investors, employees and even customers and thus contribute to portray a better reputation.
Reliability and consistency: Organisations need to consistently offer quality products and services to keep its reputation intact. The margin for error is minimum.
Any deviation or fluctuation from the promised quality makes the customers nervous and shaky and consequently tarnishes the image of the company.
Leadership and management: Enterprises managed by a dedicated, dynamic and candid leadership are obviously admired by the business partners and enjoy better image.
Working environment: A conducive and employee-friendly working environment enhances corporate image in the minds of everyone associated with the business.
Customer focus: Companies that are extremely customer focus are likely to be ahead of their competitors as they are more committed to their customers which help them build loyalty and reputation as well.
Social responsibility: This area is close to the heart of everyone. The more an organisation engages itself into benevolent social responsibilities, the more it is likely to boost its reputation.
Emotional appeal: Organisations need to build their brands around a serious, deep purpose — an ultimate concern like fighting poverty, feeding the world, global warming, carbon emission, and empowerment, which would ultimately help them enrich reputation.
The consequence of reputation loss can be catastrophic. Loss of revenue, increased cost of capital due to market-value erosion, unwarranted cost for fixing the problems, potential fine or penalty imposed by the regulators, and loss of market share are some of the tangible outcomes of reputation loss. A few of the examples could be cited in this connection:
Volkswagen group ended up paying its fortune as a consequence of the diesel emissions scandals that broke in September 2015. Its revenue dropped by 5 percent in the first half of 2016 and share price nosedived by around 40 percent between May 2015 and October 2016. It lost market share drastically in Europe. Eventually, the company had to lay off 30,000 employees!
BP suffered terribly after the incident of oil spill in the Gulf of Mexico in 2010 which claimed the lives of 11. Its shares crashed by 53 percent. It was fined record $20.8 billion by the US government to cover damages caused by the disaster.
On the contrary, the benefits of corporate reputation are enormous: preferential treatment by the customers even in the situation when products or services of similar quality and price are available; ability to charge premium; greater support from the investors, regulators and other business partners at the time of crisis; better perceived value in the financial market place; and ability to attract and retain talents who are the main driving force of any organisations.
It is essential for the management and senior leaders of the organisations to be always alert and on their toes. Bad word-of-mouth, a lack of response to a crisis, and a lack of transparency can rapidly decimate the reputation of a company.
Warren Buffet eloquently articulated the importance of reputation: “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you will do things differently.”
The writer is chairman and managing director of BASF Bangladesh Ltd. The views expressed here are personal.