Why is Reputation Important?
Maintaining a hard-earned business reputation is one of the primary duties of the PR pro. That’s why listening to what your community is saying about you—to protect your brand—is as important as the messages you broadcast.
You may have heard about reputation as a child, or maybe it fell on deaf ears during those precarious teen years. It’s the age-old adage, “it doesn’t matter what other people think of you, but only what you think of yourself.” It’s the easiest advice to give, the hardest to take, and one of those life lessons that gets repeated in nearly every coming-of-age story. It’s also false.
Crafting a positive reputation is different than simply leaving it up to the opinions of others. For an individual, developing self-esteem is an essential milestone for sanity and survival. It’s self-esteem that protects you when a stranger treats you like you’re stupid because you have tattoos, or as a criminal because of your skin color or because your religion has a bad reputation in some circles. You can’t control the biases of other people, but you can nudge positive or negative sentiment to a greater or lesser degree.
Reputation stems from a person’s judgment then blossoms into a cloud of darkness as it poisons the collective judgment levied on an individual or business. This new “identity” (reputation) becomes overlaid on like a blanket, becoming all someone sees. Today, this identity, others perceive, exists both in real life and online. Everyone, from teenagers to entrepreneurs to entire corporations, has a reputation— whether that is good, bad, or somewhere in between.
It Does Matter, to an Extent, What Others Think
So despite what your guidance counselor said in high school, it does matter, to an extent, what others think, what they say, and what they promote online. Because of the importance of reputation, as a society, we wouldn’t survive without the opinions of our peers. As a social species, we are hardwired to care about the opinions of others.
The Reward of a Good Reputation
The fastest way to a good reputation, whether at home or in the workplace, is to behave in a way that benefits your social circle. According to a US News article, traits like kindness, generosity, and honesty help to foster a good reputation in the workplace. It seems that group-oriented behaviors, especially, pay dividends when it comes to bolstering your reputation. This is true for people and businesses as well.
In fact, research has demonstrated that your closest social circle may be the main thing holding you accountable to actions. Without the impending threat of losing your good reputation among friends, there’s little to hold you back from doing the “wrong” thing. The reason it works is simple: a bad reputation among peers often leads to exclusion from the group. We know what it feels like to be left out, but in our ancestors’ circumstances, group exclusion could equate to death.
7 Steps to A Strong Brand Reputation
1. Do what you say you’d do and do it when you said you would.
This is step one and should be top of the list. The easiest and simplest way to grow a good reputation and maintain it. At the end of the day, if you can’t or won’t do something then people will find someone else who can, and will. Take every moment as an opportunity to highlight your skills and your reliability.
2. Success and humility should go hand in hand
Never let ego get in your way. Nobody likes an overly puffed chest, it belittles you and people don’t like being made to feel less than they are. This doesn’t mean you can’t have passion and ambition and drive, just don’t be that person who thinks they are better than everyone else. Remember the quote that somebody at some point said – “If you think you’re the smartest person in the room, then you’re in the wrong room”.
3. Own your mistakes, don’t point the finger at someone else, then solve them.
Accountability shows that you are prepared to fix a problem and as a result ensure it doesn’t happen again. Nobody is perfect and admitting that you are not will ground you.
4. Eliminate misunderstandings through transparency.
If you are open, it means you have nothing to hide and if you have nothing to hide then people know exactly where they stand with you. This can be risky and there are many case studies where transparency has come back to bite many people and organisations. In the long run though, not being transparent can be even riskier.
5. Go out of your way to help/mentor/reduce the workload of/offer advice to others.
This develops relationships and highlights your integrity, not to mention the fact that you will feel good about yourself as you pass your knowledge onto someone else. Some of the most successful people in the world regularly speak about their mentors and mentees and how they have helped shape them to become who they are. If you don’t have time for this it means that your priorities aren’t right and it’s time to re-evaluate your schedule. So any excuse about not having time won’t fly here, make the time.
6. Help make others look good.
Not only will this give you’re a warm, fuzzy feeling, but it actually in turn makes you look good. Now this might sound like point five, but it’s not. I was once asked to describe what I do for a living(in the world of PR and Communications) and after some thought, my response was ‘I make people look good. If they have made a mistake, I help them look good again. I make sure people hear about it. If they haven’t done anything, I help them find opportunities to look good.’ This is all about allowing other people their time in the spotlight or supporting other causes. From an individual perspective, this could be as simple as volunteering for a charity or pointing out someone else’s success, and from a business perspective, it can be as simple a well-executed CSR plan or strong, honest internal culture.
7. Present yourself appropriately
It’s the age-old axiom – ‘If you want to be professional, you need to look professional’. This refers back to my point regarding calling yourself a ‘Social Media Expert’ when your social media accounts tell a different story. I am a big believer in personal presentation whether that be the way you dress, the way you talk, the way you act in the lunch area, etc. It is all about presentation. Would you trust a real estate agent who was in a shabby suit and with unkempt hair? Would you trust your architects if they didn’t have a nicely presented office with models and drawings around the place?
There are many things in life and work that you can’t control, but your reputation is something you can absolutely be in control of. When all else fails it is worth remembering the wise words of Warren Buffet – “It takes 20 years to build a reputation and five minutes to ruin it. If you remember that, you’ll do things differently”.
Why is Reputation Important in Business?
Brand reputation isn’t very different from individual reputation in its importance. It’s been studied quite a bit in recent years, in light of the ease with which information is transmitted and falsehoods spread online, as well as the effect of reputation on commerce. At the beginning of 2017 everyone was talking about “fake news” because of its effect on political reputation. According to Davies and Miles in the 1998 Corporate Reputation Review, reputation in business terms involves three things:
- How others see the business
- Who the business is
- What the business communicates about itself
Managing a business reputation requires the alignment of these three elements. When even one of them is out of balance, the company’s entire reputation can come crashing down. Here’s a closer look at the factors that shape a corporation’s reputation.
- Visual cues. Name, logo, and all of the imagery related to your company or brand.
- Mission, vision, or philosophy. The guiding light of a company’s internal culture, these elements have a ripple effect when it comes to corporate reputation.
- Behavior of members within the organization. What people are saying or writing. Articles, word of mouth, news, social media, and online reviews.
- The success of the business. A spot on the Fortune 500 list will contribute to a positive reputation, for example.
Who Maintains Brand Reputation
Clearly, brand reputation is a complicated machine. So who is in charge of it? According to a 2005 study by Rosa Chun, senior lecturer at Manchester Business School, it’s unusual to find an internal reputation management department that’s directly responsible for managing corporate reputations. Instead, it’s often a shared effort, with marketing and communications handling the external perceptions, while human resources manage internal culture. Many companies even outsource their reputation management to firms that specialize in this field.
Creating, curating, and maintaining a positive reputation for a corporation is no easy task, but one of the most important facets regarding human psychology is to be consistent. Research by Roger Martin of the Rotman School of Management has shown that a customer’s loyalty to a company or brand relies more on familiarity than organic “trust.” Customers love to do what feels comfortable, so companies that are quick to change their identity in the face of a PR disaster may be more likely to lose customers in the long run. The better approach is often a slow and steady one, focused on rebuilding trust through multiple channels.
Why it Matters
As we’ve explored, a positive reputation can provide group inclusion, while a negative one can ostracize you in a social setting, or lead to job loss or employment problems in a professional environment. The business outcomes of reputation are even more far-reaching, impacting how all stakeholders, from customers to shareholders to executives, behave toward the organization.
Curating & Maintaining a Positive Reputation
The digital era has invited a whole new way of showing ourselves to the world, one that’s rife with complications for both individuals and businesses. When you’re doing business with someone on the other side of the globe, sometimes your reputation is all you have — so it’s in your best interest to make it the best it can be and to strive to curate a positive reputation.
Reputation and Its Risks
Executives know the importance of their companies’ reputations. Firms with strong positive reputations attract better people. They are perceived as providing more value, which often allows them to charge a premium. Their customers are more loyal and buy broader ranges of products and services. Because the market believes that such companies will deliver sustained earnings and future growth, they have higher price-earnings multiples and market values and lower costs of capital. Moreover, in an economy where 70% to 80% of market value comes from hard-to-assess intangible assets such as brand equity, intellectual capital, and goodwill, organizations are especially vulnerable to anything that damages their reputations.
Most companies, however, do an inadequate job of managing their reputations in general and the risks to their reputations in particular. They tend to focus their energies on handling the threats to their reputations that have already surfaced. This is not risk management; it is crisis management—a reactive approach whose purpose is to limit the damage. This article provides a framework for proactively managing reputational risks. It explains the factors that affect the level of such risks and then explores how a company can sufficiently quantify and control them. Such a process will help managers do a better job of assessing existing and potential threats to their companies’ reputations and deciding whether to accept a given risk or to take actions to avoid or mitigate it.
The Current State of Affairs
Regulators, industry groups, consultants, and individual companies have developed elaborate guidelines over the years for assessing and managing risks in a wide range of areas, from commodity prices to control systems to supply chains to political instability to natural disasters. However, in the absence of agreement on how to define and measure reputational risk, it has been ignored.
“It takes many good deeds to build a good reputation, and only one bad one to lose it.”—Benjamin Franklin
Consider the 135-page framework for enterprise risk management (ERM) proposed in 2004 by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), a group of professional associations of U.S accountants and financial executives that issues guidelines for internal controls. Although the framework mentions virtually every other imaginable risk, it does not contain a single reference to reputational risk.
Nor does the Basel II international accord for regulating capital requirements for large international banks. In defining operational risk as “the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events,” the Basel II framework, issued in 2004 and updated in 2005, specifically excludes strategic and reputational risks. That’s mainly because of the difficulty of factoring them into capital-adequacy requirements, most banking-risk professionals would say.
Given this lack of common standards, even sophisticated companies have only a fuzzy idea of how to manage reputational risk. A large U.S. pharmaceutical company reflects the current state of practice among well-run organizations. It has an ERM system for managing operational and financial risks, as well as hazards from external events such as natural disasters, that is loosely based on the COSO framework. The firm’s vice president of risk management oversees the system. However, the company manages reputational risks only informally—and unevenly—at the local and product levels. Its leaders consider reputational risk only when they make major decisions such as those involving acquisitions. (The company’s due-diligence process includes the evaluation of problems that could affect reputation, including pending lawsuits, weak product-testing procedures, product-liability concerns, and poor control systems for detecting management fraud.) The risk management VP says that reputational risk is not included in the long list of risks for which he is responsible. Then who is responsible? The CEO, the vice president surmises, since that is who oversees the firm’s elaborate crisis-response system and is ultimately responsible for dealing with any events that could damage the company’s reputation. This pharmaceutical firm is not alone. Contingency plans for crisis management are as close as most large and midsize companies come to reputational-risk management. While such plans are important, it is a mistake to confuse them with a capability for managing reputational risk. Knowing first aid is not the same as protecting your health.
Determinants of Reputational Risk
Three things determine the extent to which a company is exposed to reputational risk. The first is whether its reputation exceeds its true character. The second is how much external beliefs and expectations change, which can widen or (less likely) narrow this gap. The third is the quality of internal coordination, which also can affect the gap.
Effectively managing reputational risk begins with recognizing that reputation is a matter of perception. A company’s overall reputation is a function of its reputation among its various stakeholders (investors, customers, suppliers, employees, regulators, politicians, nongovernmental organizations, the communities in which the firm operates) in specific categories (product quality, corporate governance, employee relations, customer service, intellectual capital, financial performance, handling of environmental and social issues). A strong positive reputation among stakeholders across multiple categories will result in a strong positive reputation for the company overall.
Reputation is distinct from the actual character or behavior of the company and may be better or worse. When the reputation of a company is more positive than its underlying reality, this gap poses a substantial risk. Eventually, the failure of a firm to live up to its billing will be revealed, and its reputation will decline until it more closely matches the reality. BP appears to be learning this the hard way. The energy giant has striven to portray itself as a responsible corporation that cares about the environment. Its efforts have included its extensive “Beyond Petroleum” advertising campaign and a multibillion-dollar initiative to expand its alternative-energy business. But several major events in the past two years are now causing the public to question whether BP is truly so exceptional. (See the exhibit “BP’s Sinking Image.”) One was the explosion and fire at its Texas City refinery in March 2005 that killed 15 people and injured scores of others. Another was the leak in a corroded pipeline at its Prudhoe Bay oil field in Alaska that occurred a year later and forced the company to slash production in August 2006. BP has blamed the refinery disaster on lax operating practices, but federal investigators have alleged that cost cutting contributed as well. Employee allegations and company reports suggest that the root cause of the Prudhoe Bay problem may have been inadequate maintenance and inspection practices and management’s failure to heed warnings of potential corrosion problems. As media coverage reflects, these events and others have damaged BP’s reputation.