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You’ve got to do something about your reputation: Why CEOs need to pay attention to reputation management

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Scandals. Scandals in extremely visible corporations fill the media. Enron, WorldCom, Tyco, SNC Lavalin,  Goldman Sachs, BP, News Corporation … The list goes on.

Business decisions, such as fee, pricing and user privacy missteps, have dogged Bank of America and Netflix. Simply put, there have been a lot of examples of how to damage a reputation.

Charles Fombrun says perception creates its own reality. If this is so, every business leader needs to think about the reality his company is portraying.

What does the company look like to assertive stakeholders?

Since a corporation’s reputation affects a lot of stakeholders, what is today’s savvy CEO to make of reputation issues?

Think about it. Before we make a purchase, the reputation of a company or product impacts on us.

What do people say about a product? What have influencers said about the new smartphone we want to buy? What are suppliers’ business practices? How does advertising influence our purchase?

When investing our money, a company’s reputation undoubtedly affects us. We turn to people, as Charles Fombrun, writer of Fame and Fortune says, who have knowledge “better than our own”.

“Clearly,” Fombrun says, corporate “reputations affect the judgments we make”. Consumers and their perceptions have a definite effect on blackening corporate reputations.

Eighteen industries covered in one recent study only improved their reputation scores slightly over last year.  Even worse:

  • 16 per cent of companies ranked “poor” on reputation, down 3 per cent from a year ago
  • None came in with a “leading” ranking, the top score, where 14 per cent did last year

Fombrun makes a strong case for effective reputation management and public relations. In the future, it will be all the more important. Fombrun says reputation “is a key source of distinctiveness”, and that “it differentiates [a company] from its rivals.”

Lars Thoger Christensen adds that transparency is crucial because “the investment policies of pension funds … are regularly scrutinized these days by investors.” Because of pressure groups, business analysts and “other inquisitive stakeholders,” many organizations “feel more vulnerable”.

Transparency, one of the foundations of a reputation, is now necessary. CEOs can’t ignore more assertive stakeholders. Christensen feels corporate communicators must “transform [transparency] from a market condition to a business strategy”.

The Economist writes public relations firms are becoming  “not just service providers, but also purveyors of strategic advice to senior management”. The best firms and practitioners are the ones already providing strategy.

In a world where, as William Briggs of San Jose State University says “79 per cent of Americans take corporate citizenship into account when making purchase decisions,” and 71 per cent consider it “when making investment decisions,” a corporate leader who ignores this fact does so at his or her peril.

Reputation affects the drive to recruit and retain employees. In a study cited by Fombrun, undergraduate students preferred to work for companies regularly in “the 100 best companies to work for.” Interviewed MBA graduates chose “high reputation firms in consulting, investment banking, and high technology”.

Sometimes what glitters is gold, at least for attracting talent.

Institutional investors focus on corporate reputations. Fombrun says these investors control “80 per cent of all U.S. trading activity.” To further bolster reputation, Fombrun says in recent years “a number of institutional investors have flexed their muscles on various corporate governance issues, questioning the reasoning behind executive pay packages,” and that vision and leadership are “at the heart of the crisis in confidence”.

In the wake of the financial crisis especially, investors are tired of corporate smoke and mirrors. In the U.S., 46 per cent of people surveyed said their trust in the financial services sector had decreased.

According to Fombrun, strategic positioning pushes reputation into prominence. Reputation “is a mirror.” When stakeholders like and support the company, “an upward spiral results that attracts more resources to the company.”

But, if people are unhappy with what they see, a downward spiral can lead to a “reputation-damaging criminal indictment”. Think Arthur Andersen, British Petroleum or News Corporation.

Every CEO should remember the above companies and their plunges into corporate limbo.

In a study featuring CEOs’ views on reputation management, CEOs said they didn’t expect or look for return on investment (ROI) alone with respect to public relations expenditures. CEOs use public relations regularly to enhance and protect reputation.

As advertising struggles, businesses now think of public relations and the management of reputation as mission critical. Social media innovators continue to make strides in reputation management.

Interested in exploring:

  • What reputation is worth?
  • How reputation affects a corporation’s stock price and ownership?

Find out more:

Brave new reputation: What CEOs need to know

Related articles:

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Reputation, the new transparency and exploding cigars

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News Corporation’s brand goes “boom”

People the world over recently got a look at the inner workings of News Corporation, its culture and levels of corruption. Some have labelled alleged criminal activity as that usually found on film screens and in novels. Elements of the story are truly stranger than fiction.

Murdoch’s media empire is definitely taking more than a couple of body blows. Fox News, the Wall Street Journal and the New York Post are just a few of the properties News Corporation holds.

With more than 10,000 hacks into people’s private lives, the News Corporation story created a climate of outrage. People, even on the periphery of concerns regarding privacy, reacted through social media. They want boycotts. Murdoch has been physically jostled on the street, and he seems to have lost some of his composure and his air of supreme confidence in the wake of the scandal.

With all the recent news regarding mobile phones, and Apple’s being branded as “Big Brother” by privacy advocates over location-based tracking issues, not to mention Facebookgate, the News Corporation story is registering high on the shock, dismay and outrage meter.

The Guardian’s relentless pursuit of information in the case revealed that “pinging” journalists at News of the World and The Sun may have incorporated elements of the police, private investigators and mobile phone companies to literally sniff out individuals through triangulation techniques. Sounds like a privacy advocate’s worst-case scenario regarding mobile technology.

How would Philip K. Dick have reacted to the bribing of employees in agencies that hold (and are supposed to protect) personal data? Truth approaches fiction. Money may have passed back and forth between journalists and the police in shades of cartel noir. The News Corporation story has withdrawn a veil of secrecy, and people were revolted by what they saw, read and heard. The public verdict of guilt is already a “done deal”.

Murdoch’s business, because of alleged strong-arm tactics and an attitude of “any political means necessary”, may suffer greatly. Advertisers, investment funds and shareholders don’t want to associate themselves with a brand that fills the public with loathing. Reputation has always been key to an organization’s ability to recover share price after a major market decline – just as reputational issues have often led companies’ shares into a downward spiral.

The scandal has generated some interesting questions:

• Will Britain impose reforms? Prison sentences?
• Will the public outcry for an investigation into elite politics and the media win the day?
• Has awareness of the scandal (worldwide) led to thoughts of the dangers of media abuses? Will awareness lead to substantial change?
• Are cloak and dagger meetings between governments, journalists and lobbyists (to name just a few participants) going to disappear?
• Will people continue to forgo security and rights to privacy so that they can download the latest app?

Lastly,

• Will companies understand that corporate reputation and transparency issues are here to stay and that best practices when it comes to respecting privacy rights and using new location-based technologies are important?

It’s been said before but the best kind of crisis management avoids crises in the first place.

Recent history has provided many corporate darlings who’ve become vilified. It will be interesting to see how the News Corporation scandal turns out and how it affects the company. Since incorporating best practices into strategy regarding privacy issues acts like preventative medicine, companies would be wise to position themselves as exceptional stewards of their customers’ information.

After all, exploding reputational cigars can go off with the power of an H-bomb.

Further reading:

How did they hack everyone’s phones?

How to avoid getting hacked

How reputation affects shareholder opinions: Bad news for (the younger) Murdoch

Reputation matters … Some of the ever-widening ramifications of the News Of The World scandal 

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