Reputation Matters

Jeff Resnick writes about the importance of active corporate reputation management in our latest guest blog. He is Global Managing Director at ORC International, the global market research firm that conducted the annual NYSE Euronext CEO Report.

Warren Buffett hit the nail on the head when he said “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”

Unfortunately, the case examples documenting the veracity of this statement are numerous. A company’s reputation is one of its most important assets and deserves to be protected with every ounce of fortitude a company can muster. Based on this year’s CEO Report, NYSE Euronext listed CEOs as well as entrepreneurial CEOs of privately held companies agree. Virtually all of these CEOs (97 and 96% respectively) consider managing their company’s reputation a part of their overall enterprise risk management strategy. Every CEO should be asking the question “Am I doing enough to protect the reputation of my company?”

Protecting your company’s reputation is critical in today’s environment where the public’s trust in large corporations has been damaged by the poor behavior of a number of high profile companies over the past decade- Enron, AIG, Bear Stearns just to name a few. It is because of these actions that today, 35% of NYSE Euronext CEOs and 56% of the entrepreneurial CEOs say the public’s trust in publicly traded companies is decreasing.

Additionally, while almost two-thirds of NYSE Euronext listed CEOs believe CEOs, in general, are taking as much action as they should to protect the reputation of their company, this falls to approximately four in ten among entrepreneurial CEOs and MBA students, our ‘Future CEOs’. This is a considerable gap that must be rectified before this “trust chasm” can be bridged. Additionally, when it comes to Corporate Social Responsibility, nearly 60% of MBA students also feel it should be mandated to help support reputation initiatives while less than half of Listed CEOs agree.

Reputation is as much about perception as it is about fact. It is about ethics, trust, relationships, confidence and integrity. It is built on the fundamental belief that management knows how to run its business and will win in the long-term.

It is also about leadership from the top. The adage “perception is reality” was never more true than it is in the world of reputation. The principle tenet of reputation is that it cannot be manufactured by an advertising agency or created by a PR firm. Reputation is built as a result of ongoing interactions between a company and its key stakeholder groups, where the experience of the later is consistent with the values the company claims to uphold, as well as its brand promise.  As stated by Professor Stephen A. Greyser of the Harvard Business School, “Actual corporate behavior far outweighs corporate communication about behavior – especially promised behavior.”

Since CEOs acknowledge that managing their reputation is an important part of enterprise risk management, the important question becomes what are the key steps that a CEO needs to take to effectively manage their company’s reputation?

According to extensive brand and reputation studies ORC International has conducted, the most important starting point is to fully understand where reputational risk lies. This includes risks about your firm specifically as well as industry risks that might have a negative impact on your firm. This is almost always a vigorous and enlightening process undertaken by the executive team. One primary reason why companies are often caught off-guard by a reputational event is they are often blind to the risk. Just as a company can identify sources of financial, technology or legal risk, so can the potential sources of reputational risk be identified. Once identified, it is then possible to:

  • Identify the reputational risks with the highest probability of occurring.
  • Assess which stakeholders (internal and external) might be impacted by a reputational event, if it occurred.
  • Establish measurement or audit protocols to determine whether the probability of a specific reputational event is increasing or decreasing
  • Create proactive strategies for dealing with reputational events, generally in concert with a company’s PR firm.

While the management of reputation is not as simplistic as this commentary might imply, starting the journey to better understanding your reputational risk is. There is no reason to be blindsided by a reputational event – something no CEO wants to experience.

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