Economists used to treat reputation like confidence or momentum. They acknowledge it is important despite it being inherently difficult to quantify, value and manage. This view has changed in the last decade. Reputation is no longer tangential to the profit and loss of a business. Leaders now accept that a great reputation creates economic value, and a poor reputation incurs costs.
What has changed?
We define reputation as the outcome of how your critical stakeholders think and feel about your organisation. It is earnt from good performance and progressive behaviour.
As investors’ interest in non-financial indicators grow, reputation offers a barometer for a sustainable business. Twenty years ago, investors talked of the goodwill value of enduring companies. Today, that idea lives on in the value of reputation.
We have seen directly how reputation has become an important concern for our clients. Deloitte’s global risk survey states that 87 per cent of executives cite reputation risk as their number one strategic risk.
What is new is the increasing number of organisational leaders that tell us they instinctively want to grow their corporate reputation to create the conditions for long-term growth. Earning permission from society is becoming an essential business driver.
End of control and the rise of transparency
So the question becomes not why, but how to think about managing corporate reputation.
To answer this question, we first need to understand today’s volatile external environment and five trends shaping it:
End of control.Corporations are losing control – control of information, influence and decision-making. The outside is ever more intrusive. Social change, the internet and citizen journalists, globalisation and the consequential rise of populism have collided as forces to devastate the old paradigm.
Unrestrained transparency.Reputation acts like a glass window into which society and customers look and make judgements on what they see. Organisations are under intense scrutiny. Adopting a firewall approach to the outside world – particularly stakeholders and media – does not work. It is counter-intuitive as it erodes belief. Tomorrow’s organisations will have to give up control, to get back trust.
Multiplicity and velocity of change.Disruption is everywhere. Hackers act, activists protest and campaigners challenge. Creating a culture of constant change. This makes it harder for a business to stay in step with society and ‘go with’ change it is not ready for. The bar of what we believe to be good performance is higher and our tolerance of poor behaviour lower.
Make better things or make things better.Society is looking for change. The why not the what. Consumers shop for brands with purpose. Investors seek sustainable growth. Employees want their leaders to champion social change. An organisation’s ability to walk the line between purpose and growth, society and business, planet and profit will seem a daunting task but is a critical skill set for leadership. How do we help those leaders step up?
Taking the voice of the stakeholder seriously.This year UK PLC Boards have to comply with new UK Corporate Governance Code revisions as well as section 172. Organisations should not dismiss this as bureaucracy but an invitation for PLCs to give a stronger voice to those outside of the boardroom leading to better long-term decisions, stronger relationships and greater trust in business.
How to strengthen your organisation’s reputation management
It is a wake-up call that we now make judgements, opinions and purchase decisions based on how organisations and brands behave, not just what they sell.
Here are three recommendations to strengthen reputation management at your organisation:
Organise behind reputation management.Typically, responsibility for managing reputation has resided in the communications team. This is now no longer sustainable or advisable. We advocate organisations moving to an enterprise wide approach where senior executives own and lead on reputation management, corporate affairs stewards it, employees are its ambassadors and Boards guard it with oversight.
Get closer to reputation risk.Business is changing at a slower rate than society. That tension or gap gives rise to issues that may cause reputational risk. Put in place the capability to proactively sense, assess and mitigate reputation risk.
Grow reputation through actions and behavior.We see reputation through the lens of performance, behaviour and communications. Ultimately, what will break or build your reputation is your behaviour and performance and how well you anticipate and respond to scrutiny and change. Communications helps to tell stories but what moves the dial is trust-building actions and progressive behavior
Our team of advisers bring extensive experience in corporate communication, strategic business issues, challenging risks and crises, to work with your communications teams and senior executives to create and protect reputational value.
Contact Mark Hutcheon to discuss the issues raised in this blog post or to chat more generally about reputation management.