Rising price of corporate reputation

Most recognise the perception that some companies in certain sectors (particularly financial services) have violated their social contract with consumers, shareholders, regulators, and taxpayers.
They also know that this perception seems to have spilled over to business more broadly. In a March 2009 McKinsey Quarterly survey of senior executives around the world, 85% said that public trust in business had deteriorated and 72% that commitment to free markets had deteriorated.
According to the 2009 Edelman Trust Barometer, those executives are reading the public mind correctly: 62% of respondents, across 20 countries, say that they “trust corporations less now than they did a year ago”.
Meanwhile, a survey of 25,000 US consumers found a record number (88%) said that the reputation of corporate America was either “not good” or “terrible”.
Bailouts, bonuses and bad behaviour have all combined to erode confidence. The finance industry now shares the lowest ranking with the tobacco industry with just 11% of the public giving positive rankings. The automotive industry reported the greatest decline.

The breadth and depth of today’s reputational challenge is a consequence not just of the speed, severity, and unexpectedness of recent economic events but also of underlying shifts in the environment that have been under way for some time.
Those changes include the growing importance of web-based participatory media, the increasing significance of non-governmental organisations (NGOs) and other third parties, and declining trust in advertising.

Some of the most vigorous wreckers of reputations have been NGOs. Greenpeace and Friends of the Earth routinely picket and boycott firms whose practices they disapprove. In New Zealand, Save Animals from Exploitation broke in, filmed severely distressed pigs on a Levin farm and in concert with celebrity condemnation took the moral high ground.
Companies that do business in low-wage economies are liable to find themselves charged with running sweatshops.
Together, these forces are promoting wider, faster scrutiny of companies and rendering traditional public-relations tools less effective in addressing reputational challenges. Now more than ever, it will be action, not spin, that builds strong reputations.

Many companies still look at traditional media such as newspapers to tell them when they face a problem. But in the US, blog sites such as the Huffington Post and the Drudge Report are replacing traditional media. Businesses can no longer wait to see how a crisis plays out in the traditional media. Organisations need to enhance their listening skills so that they are sufficiently aware of emerging issues; to reinvigorate their understanding of, and relationships with, critical stakeholders; and, according to the McKinsey Report, to go beyond traditional PR by activating a network of supporters who can influence key constituencies.

In the wake of the recent British MPs’ expenses scandal, Conservative MPs were told to “talk normally” in interviews as part of another image relaunch to present the party as a caring defender of the vulnerable. MPs were advised to "recruit third parties and build cross-party coalitions". A Tory insider said the aim was to force all MPs to "live the new brand". Not so long ago the task of looking after a company’s reputation was left mostly to its advertising and marketing departments. But the number and severity of threats, especially of the ethical and legal variety, has increased so much that now it often falls to the chief executive. It should also form a fundamental part of a board’s risk management.

In tough economic times when many businesses look to cut operating expenses and ease back on growth initiatives, it is easy to view investment in reputation as a luxury that can be reinstated when conditions improve.
But reputation is a crucial component in combating business challenges, since corporate reputation shapes the actions of stakeholder such as customers, employees and regulators. And these, in turn, can significantly influence the bottom line, long-term growth and valuation.
Whoever moves first in a crisis tends to determine who plays hero and villain. Action is key, for as Henry Ford said, “You can’t build a reputation on what you are going to do”.