ARTICLE

By Leslie Gaines-Ross

A Once-Simple Equation is Becoming Increasingly Complex

Written by Leslie Gaines-Ross

Fortune’s Most Admired list was once the gold standard for corporate reputation. The much-anticipated list came out once a year and, for the longest time, the top 10 best companies rarely changed. As a former Marketing and Communications Director at Fortune, I can say that when we talked about strong corporate reputation, we discussed such things as which companies ran successful corporate advertising campaigns, what products they made, what services they rendered and, of course, how high stock prices rose in a given year.

All of this was relevant, but still only the tip of the iceberg in understanding corporate reputation. Incredibly, we spent next to no time pondering who the rightful owners of an enduring company reputation were and who, therefore, was ultimately responsible for corporate success. That was then. This is now. Today, the study of reputation is much more than a popularity contest. Not only can we point out which companies have a good reputation, we can also set forth the drivers of that reputation.

Corporate reputation today is a complex subject. Even the ratings lists have become more complicated. There is still the Most Admired, but there are also the Most Respected, the Most Reputable, and the Most Valuable Companies. All of these help measure winners and losers, with each taking into account different aspects of what it means to have a good reputation.

Thanks to the pervasiveness of the Internet, the number of corporate stakeholders has multiplied. As the Arthur W Page Society said, “Some CEOs report measuring 30+ different brand attributes as experienced by as many as 15 discrete stakeholder groups.” The portfolio of corporate stakeholders now encompasses, among others, the media, investors, NGOs, policymakers and regulators, communities, employees, boards, customers, competitors, online networks and even, when corporate policy affects the public at large, presidents and prime ministers. Each of these stakeholders has full online access to a company’s moments of fame and shame. Each affects a company’s reputation in its own particular way.

Corporate reputation is also increasingly volatile and unstable, with declines in reputation often resulting in harsh consequences. Customers and employees can discredit reputation overnight online, and an unfavorable media story can mortally wound a company’s hard-earned reputation in a heartbeat. More companies lose reputation and lose it faster than ever before. According to Weber Shandwick, the dropout rate or stumble rate among the World’s Most Admired—that is, the percentage of companies that fall from their number one perch in their industry—can range between 25 and 50 percent each year.

Reputation is now fundamental to corporate success. Highly regarded companies are more likely than lesser-regarded ones to attract and retain talent, garner better partners, and recover faster from reputational harm. They earn the benefit of the doubt when crisis strikes because they are expected to do the right thing.

So much is at stake today when we talk of corporate reputation that the following questions beg asking: Who owns corporate reputation in all its complexity and with all of its consequences? The CEO? Customers? Employees? What about Chief Communications Officers (CCOs)? Given my decades of experience in reputation management, I would conclude that all four have important stakes in corporate reputation, with the CEO typically having a significantly weightier presence than the other three.

The CEO Ownership Stake. The CEO’s reputation is inextricably linked to the reputation of a company and its value. Our research demonstrates that CEO reputation is perceived to contribute nearly half (49 percent) of a company’s reputation which, in turn, is deemed to contribute to 60 percent of a company’s market value. Clearly, a CEO’s reputation has a major impact on the bottom line.

The character of the CEO, his or her ethical conduct, and the ability to pick a senior team and rally employees all play a critical role in a company’s reputation. By the decisions they make, the credibility they earn, the executives they choose, and the tone and values they set, CEOs determine more than any other player a company’s destiny. Thus, it should not be surprising that soon-to-be-released research by Weber Shandwick shows that a direct relationship exists between a CEO’s ethics and the company’s reputation. According to the study, global executives of companies with very strong reputations are three times more likely to say that their CEOs are honest and ethical than executives in companies with weak reputations.

Because the reputations of the CEO and company are so intertwined, when corporate reputation takes a plunge, the person who inevitably takes the heat is more often than not the CEO. As management guru Jim Collins of Good to Great fame has pointed out, “…the wrong leader vested with power can almost single-handedly bring a company down.” Approximately 60 percent of global executives blame the CEO for reputation damage when it occurs. Rightly so. There can be no doubt that when it comes to reputation, the buck stops with the CEO. If anyone can be said to “own” corporate reputation, it is the CEO. The CEO is the ultimate arbiter and has final responsibility.

This doesn’t mean, however, that the CEO has total control over a company’s reputation. Other players have input, too. The CEO must be attuned to these other players’ concerns and respond to them appropriately. Primary among them are a company’s customers and employees who can be, at least in part, independent actors with their own needs and demands. The CEO must manage these concerns to succeed. Finally, there is the CCO, whose role is critical in shaping reputation even if he or she is not usually held ultimately responsible.

The Customer Ownership Stake. The late Peter Drucker, management guru and the father of business consulting, said, “The purpose of a business is to create and keep a customer.” Nothing could be truer, nothing more basic. The customer must necessarily be the lifeblood of a company, a corporation’s reason for being. Without the customer, corporate reputation has no meaning. Unless customers favor corporate products or services, there is no corporate reputation. End of discussion.

The seeming simplicity of this truism belies its complexity when applied to a company’s relationship with its customers. Monumental changes caused by the Internet, globalization, NGOs/third parties, a more demanding general public, and increasing social activism have created a dynamic where consumers expect more and more from leading companies. Consumers have no trouble personally boycotting those that fail to live up to their standards. Customers are not just purchasing products or services by price and quality today; they are also shopping by company reputation—a company’s values, corporate responsibility, and how it behaves.

Global research from McCann reveals that two-thirds of British consumers and half of all Americans consider a company’s ethics before making a purchase. In many ways, a customer’s purchase is perceived by them as a form of investment in a company. When making a purchase, the consumer signals their support of the company, and if they don’t approve of a company’s ethics, politics or country of origin, they won’t buy.

The Employee Ownership Stake. Employees have multiple social platforms through which they can air likes and dislikes on almost any subject. Jobs, bosses and companies are no exception. With one easy click of a social “share” button, employees can destroy or uplift company reputations. At times, they may even reveal confidential or sensitive information. According to recent research from Weber Shandwick, no less than 50 percent of global employees regularly post messages, pictures or videos about their employer in social media. The ready accessibility of smartphones and our increasingly networked society have been catalysts for such activities.

The employee role in reputation formation is a particularly potent one. Research continues to show that people are more likely to trust the opinions of employees over those of their bosses. Fast-growing Glassdoor.com, the employee grievance site, now has over 22 million members and data on nearly 300,000 companies in 190 countries. Its anonymous employee posts about working conditions at both large and small companies steer talent away from less reputable companies to more reputable ones. The sheer intensity with which companies fight to be ranked high on Best Places to Work lists reflects how employees are an ever-increasing factor in corporate reputation-building, and how the CEO and direct reports ignore them at their own risk.

The Chief Communications Officer Ownership Stake. The devil is in the details, and the person in charge of the details of corporate reputation is more often than not the Chief Communications Officer or Public Relations Officer. These professionals are responsible for building and maintaining relationships with the most important constituencies of a company. CCOs must keep a finger on the pulses of constituencies, whether they are internal or external, online or offline, one or many. Any one of these micro- or macro-constituences can make or break a company’s reputation if ignored.

According to 65 percent of global CCOs in a study Weber Shandwick did with Spencer Stuart, managing corporate reputation is at the top of a CEO’s expectations for them. The CCO is stationed on the reputational frontlines. He or she is charged with bringing reputational issues to the attention of the CEO, being among the first to recognize the warning signs of emerging reputational threats, and being quick to rally internal first responders should a threat actually materialize. In addition, the CCO must prepare long-range plans for developing reputations and is, therefore, responsible for not just tactics but strategy as well—no small job in a world of free-falling reputations. While the buck still stops with the CCO’s boss, often the CEO, an effective CCO is highly advantageous for companies weathering the inevitable choppy seas, and essential if a company is to survive a crisis.

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Reputation is its own currency and its own form of wealth. It needs guardians to accumulate it and watch over it. The CEO, the consumer, the employee, and the CCO are the major players responsible for maintaining reputational equity. How they interact, how they play their roles, will determine if corporate reputation is kept safe and wisely invested.