Why Your Corporate Reputation Matters  

This month I’m speaking to an organization about corporate reputation and trust.  The CEO has designated trust as one of their key priorities and they’ve asked me to help their top leaders understand why corporate reputation matters and what role they play in building it.  Given how frequently corporate crises arise these days, I can imagine you might grapple with your corporate reputation too, so I thought I’d share some of my points here and in my next post.

What Is Corporate Reputation

Let’s start with some clarification:  Corporate reputation, as the dictionary defines it, is the collective assessments of a corporation’s past actions and the ability of the company to deliver future results.

Reputation Institute, a leading research and advisory firm for reputation, does a survey every year that measures companies’ reputations on 7 dimensions:

1. Products & Services
2. Innovation
3. Workplace
4. Governance
5. Citizenship
6. Leadership
7. Performance

They survey 170,000 respondents around the world on their agreement with statements including

• I believe the organization’s products are high in quality, value and service and meet the customers’ needs.
• I believe the organization maintains good workplaces, treating and rewarding employees fairly.
• I believe the organization’s leaders are excellent and visionary managers, and strong endorsers of their companies.

From these responses, they produce a reputation score for each company and publish a ranking.

They have identified what they call “supportive behaviors” that a company’s stakeholders will engage in if it has a positive reputation, such as customers will buy their products, investors will invest in them, and employees will want to work for them.

Ronald Alsop, in his book The 18 Immutable Laws of Corporate Reputation: Creating, Protecting, and Repairing Your Most Valuable Asset, examines these behaviors as well.  Based on these two resources and several others, I’ve compiled the following list of benefits of having a strong corporate reputation among different stakeholder groups.

Corporate Reputation Impact on Stakeholders

• Investors and financial analysts. An excellent reputation generates higher valuations and stock prices.  Alsop reports on a study of 216 companies where higher stock values were found among companies with a strong reputation and another study of 10 investment portfolios which showed they garnered higher prices if investors were confident they represented less risk — in other words if they trusted the companies more.  And according to PR firm Weber Shandwick, 60% of a company’s market value is derived from its reputation, so the better your reputation, the higher your valuation.
• With reviews so prevalent and easily accessible, what other people say about you and your products is critical.  Weber Shandwick also found that your advertising and website influence consumer opinion about you far less than online reviews and what people say (56% and 74% vs. 83% and 89%.)
• When a company has an excellent reputation, its employees have better morale and better productivity. They’re also less likely to leave the company, which can save your organization huge turnover costs.  And they’re more likely to act as brand ambassadors, proudly communicating about and representing your brand to friends and neighbors in their communities, the business partners they interact with, and even prospective employees.  And speaking of potential recruits, reputation also impacts your company’s ability to compete in the war for talent among prospective employees.  You can attract top talent employees with less cost.
• Regulatory bodies and government agencies pay attention to the public sentiment of companies and their products.  Apple has definitely benefitted from this, not only in getting a more favorable outcome from a Senate hearing on its tax practices, as reported by The New York Times, but also in getting permits for its new corporate office in Cupertino.
• Undergirding all stakeholders is the goodwill of the public.  During crucible moments, your reputation determines whether the public gets behind you or demonizes you.   Consider what happened earlier this year when Kraft’s attempt to take over Unilever was squashed.  Kraft had lost public trust after the way it handled its takeover of Cadbury.  It had reversed the promises it made when it initiated the hostile takeover, closing factories, laying off thousands of workers, taking cost out of Cadbury product recipes which changed the taste of its beloved chocolate, and eventually spinning off the snack businesses which signaled that it didn’t value the Cadbury brand which is so beloved by so many. So when Kraft made a bid to acquire Unilever, it quickly found out it didn’t have the support it needed from regulators, from the industry, and most importantly from the public.

Bottom line, the better your reputation, the more you reduce operating costs and risk and increase valuation, revenue, and growth potential. That’s why your corporate reputation matters.

In my next post, I’ll discuss how to improve your corporate reputation and what you as a leader must do specifically to build a strong reputation.  Please subscribe to my feed so you get notified when it gets published.

P.S.  My colleague Dennis Tafoya has a new book out on a related topic, Managing Organizational Crisis and Brand Trauma.  I haven’t had a chance to read it yet, but I’m sure it will be as instructive as his first one (see below Organizations in the Face of Crisis).

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