Corporate Reputation

Managing Opportunities and Threats

Ronald J. Burke, Graeme Martin

• Éditeur: Routledge
• Année: 2016
• ISBN:
  9781317159452
• Édition: 1
• Sujet: Commerce
• Sous-sujet: Gouvernance d'entreprise

Increasing media scrutiny, global coverage and communication via the internet means corporate reputation can be damaged quickly, and failing to successfully address challenges to corporate reputation has consequences. Companies generally suffer almost ten times the financial loss from damaged reputations than from whatever fines may be imposed. According to Ernst & Young, the investment community believes up to 50 per cent of a company's value is intangible - based mostly on corporate reputation. So recognizing potential threats, or anticipating risks, emerges as a critical organizational competence. Organizations can regain lost reputations, but recovery takes a long time. Corporate Reputation contains both academic content along with practical contributions, developed by those serving as consultants or working in organizations in the area of corporate reputation and its management or recovery. It covers: why corporate reputation matters, the increase in reputation loss, threats to corporate reputation, monitoring reputation threats online and offline, the key role of leadership in reputation recovery, and making corporate reputation immune from threats. Any book that is going to do justice to a subject that is so complex and intangible needs imagination, depth and range, and this is exactly what the contributors bring with them.

PART I
Importance of Corporate Reputation

CHAPTER 1
Corporate Reputations: Development, Maintenance, Change and Repair1

RONALD J. BURKE

Corporate reputation has become a “hot” topic in the past few years given the evidence linking a favorable corporate reputation and various intangible and tangible benefits, the high profile corporate scandals that have come to dominate the media, and the generally low opinion the general public has of corporations and business (Backhaus and Tikoo, 2004; Balmer and Greyser, 2003; Davies and Miles, 1997; Davies et al., 2003; Dowling, 2001). Recent financial crises have juxtaposed “Wall Street” and “Main Street.” Entire industries have suffered reputation loss (e.g., automotive, financial services) and the misadventures of one firm has spilled over to affect the reputations of other firms, termed “reputation spill-over” (Schwartz and Gibb, 1999; Williams and Barrett, 2000).

According to Ernst and Young, the investment community believes that between 30 and 50 percent of a company’s value is intangible, based mostly on corporate reputation. Others have placed the value of such intangibles at 70 percent.

What is a corporate reputation? A corporate reputation is a function of the perceptions and attitudes toward it held by individual members of a particular stakeholder group. A corporate reputation rests on assessments made by individuals outside the organization (Highhouse et al., 2009; Schwaiger, 2004; Wartwick, 2002).

Fombrun (1996, p.37) defines corporate reputation as “the overall estimation in which a particular company is held by its various constituents”. Zyglidoupoulos (2001, p.418) defines it “as the set of knowledge and emotions held by various stakeholder groups concerning aspect of a firm and its activities.” Corporate reputations have many aspects (e.g., are multidimensional) and vary with different stakeholder groups (e.g., are stakeholder specific). Corporate identity results from assessments by insiders to an organization, though insiders can be aware of how outsiders perceive their organization and the attitudes outsiders hold towards it (Bartel et al., 2007; Bouchikhi and Kimberly,.2008; Deephouse and Carter, 2005). A corporate reputation is the composite or overall assessment by groups of individuals of an organization that goes beyond assessments of particular features or qualities (Shenkar and Yuchtman-Yaar, 1997). Corporate reputations also make it possible to compare organizations (Dowling, 2004). While very useful, assessments of corporate reputation and corporate identity are still imperfect.

Earle (2009) draws a distinction between trust in an organization and confidence in an organization. Trust is based on shared values such as morality, benevolence, integrity, inferred traits and intentions, fairness and caring. Trust is relational. Confidence is based on past performance and experience with an organization. Competence, ability, experience and standards.

Does corporate reputation matter? Studies of the Fortune 500 companies have shown that the most “admired” companies have much higher price:earnings ratios (about 12 percent higher) than do the less “admired” companies, a $5 billion increase in market capitalization for the typical Fortune 500 company. Thus company reputation is associated with a company’s financial performance (Dube, 2009;. Preston and O’Bannon, 1997; Fombrun, 2001; Roberts and Dowling, 1997, 2002; Schuler and Cording, 2006; Tadelis, 1999; Waddock and Graves, 1997). People also prefer to do business with companies they “like” (Bromiley, 2000; Dollinger et al., 1999; Carmeli et al., 2006; Pollock and Rindova, 2003; Shapiro, 1983; Yoon et al., 1993). Employees stay longer and work harder for companies that are liked. Individuals prefer to work in firms having good reputations (Greening and Turban, 2000; Lievens and Highhouse, 2003; Lievens et al., 2001; Martin, 2009a, 2009b; Turban and Greening, 1997). Seventy-three percent of MBA graduates indicated that a company’s reputation was “extremely import” or “very important” in their selection of potential employers. Corporate branding helps an organization attract qualified people in “the war for talent” and retain them (Backhaus et al., 2002; Martin and Hetrick, 2006; Martin et al., 2005) Corporate reputation has become one of a company’s most valuable assets.

Corporate reputation may also be a critical factor in responding to a crisis (Schnietz and Epstein, 2005).

A survey of senior managers in the US by the Economist Intelligence Unit on how they choose professional services firms found that the firm’s reputation was the most important factor followed by personal contact with firms’ representatives. Financial advisors and high net-worth investors allocate ore market value to reputation than to board quality.

Hill and Knowlton (2006) reported a study of the role of corporate reputation in the decisions of financial analysts when assessing a firm’s performance. Quality of management (a strong leadership team, keeping promises, a sound corporate strategy) emerged as the most significant factor in corporate reputation, when financial performance was excluded. CEO reputation was the next most important factor in their decision to recommend a firm for investment. The analysts strongly believed that a CEO should be terminated if his/her behavior negatively influenced the firm’s reputation. Financial analysts also saw clear firm communication with all stakeholders as an important factor in their financial assessment of a firm.

Hall (1992, 1993) surveyed 847 CEOs in the UK from a number of different industries and found that they estimated it would take them, on average, almost 11 years to rebuild their firm’s reputation if they had to start from the beginning. A 2004 Burson-Marsteller survey of 685 business leaders from Fortune 1000 firms found that they believed it would take more than four years to recover from a crisis that damaged an organization’s reputation and three years for a crisis to fade from the memory of most stakeholders. But 90 percent believed that a company could restore a tarnished reputation

A 2005 Burson-Marsteller survey of business leaders from around the world reported that 81 percent reported more threats to corporate reputation today than two years ago. The top five early warning signs indicating that corporate reputation is falling were: low employee morale, internal politics were more important than doing the job well, the departure of top executives, CEO celebrity displaced CEO credibility, and employees spoke of customers and clients as nuisances.

McKinsey, using an index of Topple Rate, a measure of market leading companies that lose status during the next five years, found that the Topple Rate in the period 1997–2002 was 14 percent as opposed to only 8 percent in the 1970s. It has been estimated that a firm can lose 30 percent of its share value as a result of a highly publicized crisis.

More than 82 percent of major companies are making a substantial effort to manage reputation risk, and 81 percent have increased their efforts over the past three years, according to a survey of 148 risk management executives at US and European corporations reported by the Conference Board. Though social media are gaining influence among customers and investors evaluating companies, only 34 percent of the executives surveyed said they regularly monitor social networking sites for information about their companies, and only 10 percent participate in them.

A study recently conducted by the New York Stock Exchange (NYSE) of 205 CEOs whose firms were listed on the NYSE reported that almost 100 percent said their jobs have more personal legal risk than three years earlier, 75 percent reported tracking their firm’s reputations through surveys, 44 percent indicated that their firm reputation was more important now than three years ago, and 84 percent though they were taking adequate actions to protect their firm’s reputations, typically through informal discussions with stakeholders. Over 80 percent undertook informal discussions with relevant stakeholders, about 70 percent undertook discussions with or surveys of employees, and about 65 percent reviewed published rankings within their industries.

There are two broad outcomes of a favorable corporate reputation: employer benefits-employees and customers love the company and spread the word (Kumar, Peterson and Leone, 2007), and reputational capital – the firm differentiates itself from others and develops legitimacy. Both of these benefits contribute to short and long term performance.

A good corporate reputation is enhanced by the tangible things that it does—not by advertising (e.g., by delivering better products and services, being seen as a good place to work, and the building of trust with internal and external stakeholders). This leads to a distinction between well-known celebrity firms and firms having a solid corporate reputation (Rindova, Pollock et al., 2006; Rindova, Williamson et al., 2005) A corporate reputation is an investment. Although different stakeholders have different perceptions of a company’s reputation, customer and employee perceptions are the key.

A favorable corporate reputation rests on competing successfully in the market place, achieving a familiar and positive image, building an ethical and high performance work culture, and communicating widely with various stakeholders (Deephouse, 2000; Fombrun and Van Riel, 2004). And more companies are seeing the value of company reputation in an increasingly competitive global business environment.

A positive organization reputation will increasingly influence purchase decisions when there is little difference in price, quality design and product. There is even more competition, lack of differentiation, and pricing concerns in the service sector. Thus building a highly regarded corporate reputation or corporate brand had become even more important.

Interestingly, most people have a low opinion of corporations in general. So being admired offers an even more substantial benefit. In addition, there are more threats to a company’s reputation today than previously.

Corporate reputation has two components: sympathy—emotional identification and liking—and competence—the quality of services and products delivered (MacMillan et al., 2005). Corporate reputation has the following building blocks: emotional appeal, vision, leadership and integrity, social responsibility, and a workplace environment supporting performance. Reputation comes from direct experiences with an organization, word of mouth, advertising and media coverage. It takes considerable time to develop an outstanding reputation; yet reputations can be damaged in an instant.

Corporate reputation can be damaged quickly given increasing media scrutiny and global coverage and communication via the internet. The evidence indicates significant financial costs to organizations from damaged reputations resulting from misconduct or faulty products. For example, companies guilty of “cooking the books” generally suffer almost ten times the financial loss from damaged reputations than from whatever fines may be imposed.

Reputation Stickiness

Reputations, positive or negative, become embedded in the minds of stakeholders (Rao, 1994). I bought my first Japanese-made automobile about 25 years ago when the Big Three automakers started getting a bad rap about the lower quality of their vehicles in consumer reports. The advertisements now talk about the quality of the Big Three being equal to or superior to Japanese-made cars but I am skeptical about these ads.

Reputation Spillover

The reputation of an organization can spill over to affect other organizations in the same industry or sector or even the industry or sector as a whole (Yu and Lester, 2008). For example, a few banks in various countries (e.g., RBS and HBCS in the UK, and Bank of America and Lehman Brothers in the US) have suffered damage to their reputations which has then spread to all/many other banks or financial institutions in these countries. Banks and financial institutions that were functioning fine were affected by the negative comments by the media, which then reflected badly on all managers in that sector or industry.

Few companies have the expertise and resources to manage a threat to reputation or a crisis effectively. As a result they commonly rely on external consultants for such assistance. Threats include rumors, innuendos, lies, lawsuits, disgruntled employees or ex-employees, theft of data, cyberattacks, errors and accidents, defective products, product recalls, and misbehavior of key corporate officers (drunkenness, sexual harassment, a messy divorce).

Organizations experiencing such crises have a high “stumble rate” (Gaines-Ross, 2008). Most have not done well in addressing such “failures” or crises. In fact, 79 percent of organizations experiencing damaged corporate reputations in the past decade have “fallen” in reputation indicators. Failing to successfully address challenges to corporate reputation has consequences (e.g., witness Enron, Arthur Andersen, Société Generale).

But organizations can regain lost reputations through appropriate actions (e.g., the Tylenol case involving Johnson & Johnson, the introduction of New Coke in 1985). But recovery also takes a long time, estimated by executives at three to four years. So recognizing potential threats or anticipating potential risks emerges as a critical organizational competence. In Canada, in the summer of 2008, a plant of McCain Foods in Toronto was found to be the source of listeria, a bacteria on tainted meat products that caused 22 deaths. The firm recalled much of its product and lost sales for months but is now slowly bounding back. The CEO, Michael McCain, is credited with responding to this crisis in ways that minimized the damage to their “brand”. It will take another year at least for McCain Foods to fully recover.

What constitutes an effective strategy to proactively develop and sustain a favorable corporate reputation at such trying times? Effective dealing with such crises requires taking full responsibility for it, offering a sincere apology, quickly disclosing details of the crisis, making progress or recovery visible, and analyzing what went wrong so it will not happen again.

Caring or Good PR?

A good deed, corporate givebacks, or more PR? Companies in a few countries have made recent efforts to help individuals who have lost their jobs and their savings in the recent economic downturn. Americans who have lost their jobs, savings and health care coverage have been offered free drugs and medications for up to one year (e.g., Viagra) by Pfizer upon proof that they had been already purchasing these Pfizer products. General Motors (GM) has indicated that individuals who bought their products and then lost their jobs could have a grace period of up to nine months in paying for their vehicles. GM has also indicated that if you bought their products and then concluded that you did not like the vehicle, you could return in within a specified time period. Jet-Blue Airways will refund air fares for people losing their jobs after purchasing a ticket. Hyundai allows individuals to return leased vehicles with no fee. Clothier Jos. A. Bank will refund the money but let anyone who had lost their job keep their suit. Some restaurants allow patrons to pay what they can for what they have eaten. Caring or good PR?

This collection deals with the development of corporate reputation, managing corporate reputation, risks or threats to corporate reputation, changing a corporate reputation, and recovering from a damaged corporate reputation. A corporate reputation is harder to build than to destroy.

This introductory chapter has two objectives. The first is to highlight the importance of corporate reputation, identify some of its antecedents, illustrate the benefits of developing a favorable corporate reputation, indicate some of the challenges to building and maintaining a favorable reputation and some of the threats to doing so which then requires rebuilding of a damaged reputation (Alsop, 2004; Bernstein, 2009). This content serves as an introduction to the topic and the chapters that follow. Material on the development, maintenance and rebuilding of individual reputations will be included where relevant. This collection covers why corporate reputation m...

Table des matières

• Cover Page
• Half Title page
• Series Page
• Title Page
• Copyright Page
• Contents
• List of Figures
• List of Tables
• List of Contributors
• Part I Importance of Corporate Reputation
• Part II Developing a Corporate Reputation
• Part III Managing a Corporate Reputation
• Part IV Reputation Recovery
• Index