Good corporate reputation

A good corporate reputation is vital: Importance, components, and benefits

What exactly is a corporate reputation? How important is it? What is it worth? Isn’t it only an intangible, ‘feel-good’ concept? The answer: A good corporate reputation is a vital asset with significant impact on an organization’s bottom line.

Corporate reputation defined

After reviewing 5,885 articles on reputation, Veh, Gobel & Vogel (2018) note “there is no agreement on one definition” of corporate reputation. However, the most popular definition is “corporate reputation is the overall estimation in which an organization is held by its internal and external stakeholders based on its past actions and probability of its future behavior,” according to leading international expert Charles Fombrun, former research professor of management at New York University, and founder of the Reputation Institute, now known as The RepTrak Company.

Using a slightly different perspective, UK PR Professor Tom Watson emphasizes predictability of actions, and brings communication into his definition: “Corporate reputation is the sum of predictable behaviors, relationships and two-way communication undertaken by an organization, as judged…by its stakeholders over time.”

Reputation specialist firm, RepTrak defines reputation as “the emotional connection that stakeholders (consumers, investors, employees, regulators) have with a given company.”

Reputation indices and single scores

Reputation indices and single scores for an organization relate to an aggregate perception by all stakeholders, but as Kent Walker points out, different stakeholder groups may have different perceptions of a corporate reputation for different aspects of specific issues. This makes it extremely important for organizations dealing with specific issues to start by identifying which stakeholders are relevant for which issues, and then to analyze reputation data most applicable to each situation. An example is a company like Wal-Mart: shareholders and the financial markets are impressed by the company’s profit record, but other stakeholders may be highly critical of its treatment of employees or its diversity policy, etc.

Walker’s view is reflected in 2023 Ipsos research which found that a positive reputation can unlock value across broad types of stakeholders, as reflected in the image below:

Image: Unlocking the value of reputation, Ipsos, 2023.

Components of a corporate reputation

The two main sources of a corporate reputation are experience and information – a person’s past dealings with the organization (and potential future dealings) as well as the extent and nature of their direct and indirect communication with it. “A favorable reputation requires more than just an effective communication effort; it requires an admirable identity that can be molded through consistent performance, usually over many years,” as discussed in an article by Elliot S. Schreiber for the Institute for Public Relations.

In a similar way, risk management expert Peter Sandman believes reputation consists of two variables, not one: “How loved you are is virtually unrelated to how hated you are.” As in the above Wal-Mart example, many companies are both loved and hated at the same time (and prominent individuals as well, like Elon Musk – refer the HuffPost image below. Imagine the wild ride as a Tesla investor!). Therefore, reputation management should take both broad aspects into account.

Elon Musk Tweets And Tesla Stock Plummets

Tesla stock dropped as much as 12% after the billionaire tweeted that the stock price was “too high.”

Source: HuffPost, 2 May 2020

Fombrun’s view has stood the test of time since he wrote these comments in his book, Reputation: Realizing value from the corporate image, in the Harvard Business School Press:

…a reputation develops from a company’s uniqueness and from identity-shaping practices, maintained over time, that lead stakeholders to perceive the company as credible, reliable, responsible and trustworthy…Best regarded companies achieve their reputations by systematically practicing mundane management. They adhere rigorously to practices that consistently and reliably produce decisions that the rest of us approve of and respect. By increasing our faith and confidence in the company’s actions, credibility and reliability create economic value.

A real-life example

When I was corporate affairs manager of a power utility, a senior manager proposed that a KPI for my team should be based on the utility’s reputation score each year. However, I didn’t agree to this because my unit was only accountable for communication, and I had no control over the behavior of field employees in the call center or involved with power line installation, maintenance, repair and removal. How could my area be responsible for the actions of linesmen who may have been rude to customers in the field, or who may have taken long lunch times and coffee breaks while waiting for equipment to arrive, etc, or for other poor behavior apparent to all kinds of customers? Employee behavior towards customers is always a key element of corporate reputation, and therefore the corporate affairs unit couldn’t take full accountability for maintaining a good corporate reputation.

Key elements of a corporate reputation

Based on data from Bloomberg and Morningstar on 1,073 of the world’s largest companies in 15 ‘leading national indices,’ the three most valuable elements of reputation are driven by impressions of:

  1. A [public] company’s value as a long-term investment
  2. Its quality of management
  3. Its financial soundness.

The ‘top drivers’ of corporate reputation are generally stable, according to RetTrak:

  1. Products and services
  2. Innovation
  3. Workplace quality
  4. Conduct
  5. Citizenship
  6. Executive leadership
  7. Performance.

CEO reputation is key to good organizational reputation

A CEO’s reputation is vital to their organization. In addition to the importance of their own personal brand, the CEO’s reputation strongly influences their organization’s reputation and therefore its operational performance.

Image: Value of CEO reputation across the world, Weber Shandwick survey, 2016.

Effective CEOs consistently work to strengthen their own reputation as well as their organization’s. These CEOs:

  • Communicate a clear vision within the organization
  • Authentically motivate and inspire employees
  • Attract a quality management team
  • Show good honesty and ethics
  • Practice effective personal internal and external communications
  • Care about the wellbeing of employees
  • Preserve a buoyant company culture
  • Maintain a global business outlook
  • Foresee change affecting the organization
  • Manage crises/downturns effectively
  • Stay decisive with organizational policies
  • Keep focused on positive relationships with main stakeholder groups.

What’s more – the CEO especially, and other senior executives, can’t afford to be perceived as distant figures internally. The CEO needs to be seen as accessible to employees by using relevant face-to-face communication channels such as town halls, roadshows, informal ‘get-togethers,’ conference calls, knowledge-sharing, eg ‘lunch-and-learn’ and ‘brown bag’ sessions, employee forums, ‘management-by-walking-around.’ Plus emailed and printed newsletters and emails, text messaging, video segments, internal social media, intranet, internal blog, organizational website.

Benefits of a good corporate reputation

Many factors influence corporate reputation, and therefore organizations need to focus more widely on possible reputation disruptors, and to actively seek to address these in their strategic planning.

The main advantages to companies that do make a priority of strengthening their reputations are, according to Weber Shandwick:

  1. Customer or client loyalty, even when other companies’ products and services are available at a similar cost and quality
  2. Competitive advantage
  3. Better relationships with suppliers and partners
  4. Attraction of high-quality talent
  5. Employee retention
  6. New market opportunities
  7. Higher share price
  8. Crisis resilience and risk minimization
  9. Greater support from policymakers and regulators
  10. Ability to charge premium prices / tied with More favorable media coverage
  11. Less shareholder activism.
A good corporate reputation brings many advantages

Although reputation is an intangible concept, research universally shows a good reputation demonstrably increases corporate worth and provides sustained competitive advantage. A business can achieve its objectives more easily if it has a good reputation among its stakeholders, especially key stakeholders such as current and future employees, largest customers, opinion leaders in the business community, government regulators, suppliers, etc.

If your organization is well regarded by your main customers, they will prefer to deal with you ahead of others. And these people will influence other potential customers by word of mouth. Suppliers will be more inclined to trust in your organization’s ability to pay and to provide fair trading terms. If any problems occur in their trading relationship with you, your suppliers will be more inclined to give you the benefit of the doubt when you have a reputation for fair dealing.

Likewise, government regulators will trust you more if you have a good reputation, and they will be less inclined to punish you if you trip up along the way. And clearly, a potential employee will be more likely to join if you have a good reputation for your treatment of staff compared with an employer who may have a lesser reputation.

Also, corporations are being judged more on their net contributions to society now, with the expectation that they make a higher priority of their social impact in society. The proliferation of media technologies and social media channels has given individuals and organizations new tools they use to generate greater and faster scrutiny on companies’ social license to operate. Therefore, corporations need to allocate sufficient attention and resources to strengthening their reputation.

Image: Chart from Weber Shandwick global online survey report 2019, “The State of Corporate Reputation in 2020.” (The survey was actually conducted in 2019.)

Unfortunately, ‘bad is stronger than good’

“‘Bad is stronger than good’ as a general principle across a broad range of psychological phenomena,'” is the reasoning in a ground-breaking academic paper by Baumeister et al. in 2001. Among other things, the paper has been the basis of articles in the Harvard Business Review and the New York Times. Why is this relevant to reputation analysis? Because, from the article by Baumeister et al.:

The greater power of bad events over good ones is found in everyday events, major life events (e.g., trauma), close relationship outcomes, social network patterns, interpersonal interactions, and learning processes. Bad impressions and bad stereotypes are quicker to form and are more resistant to contradiction than good ones. Hardly any exceptions (indicating greater power of good) can be found (p. 323)…there are likely to be few principles that are even more broad and general. (p. 325)

Among journalists and communication scientists, it is considered common knowledge that bad events are more newsworthy and attract more reader attention. Periodic calls for the news to focus more on positive, uplifting stories get nowhere, not because journalists are sadists or misanthropes, but because bad news sells more papers. (p. 343)

bad reputations are easy to acquire but difficult to lose, whereas good reputations are difficult to acquire but easy to lose. (p. 344)

No wonder we find people take more notice of bad-news stories and negative commentary in the media, of criticisms in social media by influencers and members of Facebook groups, unpleasant X (formerly Twitter) comments, irresponsible corporate social responsibility actions, adverse views by financial analysts and politicians etc.

From his experience on behalf of clients, risk management expert Peter Sandman believes that acting to increase your positive reputation in a controversy usually means increasing your support – which helps you win battles. At the same time, he says “Diminishing your negative reputation usually means diminishing your opposition – which helps you end battles. It’s almost always better to end battles than to win them.”

Hazards of corporate reputation in public companies

The value of corporate reputation can be measured, especially when a good reputation turns bad for a public company – because the impact can be seen in the plunge in share price and therefore easily measured in market value.

Great examples include:

  • The Boeing Company is the world’s largest aerospace company, but its reputation has plunged. Its share price dropped almost 40% in 2020 due to the damage to its global reputation, as well as its commercial business and financial rating after two crashes of its Boeing 737 MAX aircraft in 2018 and 2019. Boeing’s share price plunged again – from US$430 in 2019 to $172 in May 2024, as discussed in this NPR article: “Boeing’s reputation plunged further in 2024,” That’s an ongoing story.
  • The Wells Fargo bank share price dropped by 20% from 2014 to 2016 when the bank was caught up in a prolonged scandal after admitting to creating several million fake customer accounts that led to employees receiving unearned incentive commissions, and 5,300 hourly (casual) employees losing their jobs.
  • Volkswagen group’s overall revenue dropped 5% in the first half of 2016, the group’s share price tumbled around 40% from May 2015 to October 2016, its share of the European auto market fell, and it laid off 30,000 employees in the wake of its diesel emissions scandal, which continued to hit the group after the scandal started in September 2015.
  • A bad reputation also affects staff recruitment, which is a major cost to every business. The headline relating to research reported in the Harvard Business Review in 2016 said it all: “A bad reputation costs a company at least 10% more per hire.”

Above image: Axios, 25 May 2023: “Brands bounce back after scandal.”

Brands recover after scandal

Above major brands have recovered from scandals (except for Disney and Tesla in this case) – over the 5-year period 2019-2023. as shown in the above Axios chart. These large firms have the budgets to invest in reputation recovery actions, if they wish. 

Reputation recovery actions

Following negative corporate reputation shocks, firms invest to repair their reputations – and share prices, according to a Harvard Law School article in 2024, based on updated research. This research shows that companies logically “target their responses to repair reputations to prioritize particularly important stakeholders or events.” Typical actions they nominate from their research include the following:

  • increased budgeting for IT security after a data breach, with the increased funding usually recorded in their annual report to gain positive stakeholder support.
  • increased charitable contributions, especially by ‘consumer-facing firms’
  • increased political contributions, especially by firms with major government contracts, and after events classified as ‘violations’ of government policies and regulations.
  • increased employee wages after a data breach affects employee records.

The Harvard Law paper notes that “our paper is among the first to present direct evidence of tangible corporate investments in intangible capital following negative corporate reputation shocks.” The shock here, in my view, is how naive the research is. Each of the above responses, is stated merely as a sole, stand-alone activity. There is no mention anywhere of the vital importance of an overall reputation strategy to address major reputation strife. Such a strategy would comprise, for example, communication and public relations initiatives, including issue/crisis management plans, stakeholder relations plans, and media relations plans.

Varied reputations in other types of organizations

What about the reputations of NGOs, charities and other smaller organizations? The case of international aid charity Oxfam is a good example. Oxfam had developed an impressive reputation over many years and good deeds, but in 2018 a scandal erupted in which some Oxfam staff in Haiti were accused of sexual misconduct, bullying and harassment. For a non-profit organization depending on donations backed by goodwill, the bad press hit hard. A poll at the time found that more than 60% of people were less likely to donate to Oxfam, who also experienced a 4% drop in subscriptions from regular, long-term donors canceling subscriptions. Oxfam also lost volunteers – in its shops, on the streets and in the disaster zones where it operates. This was an unpaid workforce vital to its mission. The fact that individuals’ demonstrated such a lack of desire to associate themselves with the charity will have ongoing reputational repercussions.

Small businesses can suffer significant financial downfalls from negative social media and online commentary. According to research by Apex Global Learning, every additional star in an internet review leads to a 5-9% increase in revenue; there is an 18% difference in revenue between three-star reviewed businesses and those rated five-star. Happy customers count.

As noted above, many organizations consider their greatest asset to be their good name or reputation. This is especially true in knowledge-based organizations such as professional services firms in the consulting, legal, medical, and financial sectors and in universities. They work actively to build their good reputation, to build the ‘bank of goodwill’ towards them.

The importance and relevance of reputation are even more vital in this era of technological advances. People form their views from many different sources now, especially from social media and the web.The proliferation of media technologies and social media outlets has given individuals and organizations new tools they use to subject companies to greater and faster scrutiny.

Who should be responsible for reputation?

A reputation can’t literally be managed – because reputation depends entirely on the attitudes of internal and external stakeholders towards it, whose opinions can’t be controlled or managed by the organization. However, an organization can take steps known to increase favorable stakeholder attitudes.

Ultimately, the organization’s board of directors, or equivalent, is responsible for the good reputation of the organization as part of its role in overseeing the development, implementation and assessment of risk reduction strategies relating to a range of broad risks, in addition to monitoring and assessing changes to specific risks.

Responsibility delegated

The board usually delegates the responsibility for reputation management to the CEO, who lays down the broad parameters of the desired reputation. To initially develop a corporate reputation strategy, the CEO should supervise a workshop run by the Chief Communications Officer, with executives and other management and staff, to decide the desired reputation policy and framework, which are essential to integrate into the organizational vision, mission, values, and culture. Then the head of each business unit should be responsible for developing a risk and reputation management strategy for their functional area.

Internal and external communication plays a vital role in an organization’s reputation strategy and risk reduction, and so your head of corporate affairs (Chief Communications Officer (CCO), or equivalent, is central to these aspects. The CCO needs to plan and implement communication activities to support the strategic plan, the code of conduct, assorted campaigns, or diversity and inclusion initiatives in many formats for internal and external audiences. And in time of crisis, the CCO will also play a central role before, during and after the event.

Higher reputation risk now

Experts note that we are now functioning in an ‘era of elevated reputation risk,’ involving global trade tensions, environmental concerns, changes in human values and desires for enhanced connectivity as contributing factors. Plus, more recently, applications of artificial intelligence (AI), web-based issues such as cyber risks, and social media issues. In this age of stakeholder and shareholder activism, many people visit an organization’s website to assess its approach to corporate and social responsibility (CSR) and environmental, social and governance (ESG), and relationships in the public environment such as news and social media. Online reputation needs to be monitored and managed through keeping aware of search engine results, online customer service and customer reviews.

In applying expertise to support organizational cybersecurity, your head of IT and their staff can have a positive impact on reputation management.

Your employees have the potential to be among your strongest supporters, and so HR practices play an important role in reputation management through all stages of the employee experience – from orientation and onboarding, policy development and enforcement, to retention.

A significant financial improvement from increasing a reputation score

Thoughtful and effective communication about a company’s positive efforts reinforces a positive reputation and drives financial performance. In fact, past data has shown that a one-point increase in reputation score yields a 2.6% increase in market capitalization. For a large corporation, that can translate into $1 billion per reputation point. [Market capitalization is the number of company shares multiplied by the share price, which gives an indication of what a company is worth on the open market, as well as the market’s perception of its future prospects, because it reflects what investors are willing to pay for those shares.]

Role of the Chief Communication Officer/Chief Reputation Officer

Additionally, a strong organizational reputation differentiates your organization from the competition, supports talent acquisition and retention, and boosts crisis management and post-crisis recovery. Accordingly, the CCO often is the one leading the measurement of reputation, harnessing the data, and championing action that will affect key reputation drivers.

The corporate affairs or public relations role (CCO) closely monitors and often represents the view of stakeholders. At meetings of the executive committee or with other managers the CCO brings to the role the benefits of focusing on broad societal issues and relevant internal and external stakeholder relationships.

The ability to manage reputation is therefore critical to the communications professional since perceptions gained by stakeholders of the organization through a variety of relationships and exchanges, or from emotions that stakeholders feel toward the firm, or from collective beliefs that exist in the organizational field about a firm’s ‘identity and prominence’ (Schreiber/IPR).

Why don’t some organizations pay serious attention to measuring their corporate reputation?

A segment of the global executives surveyed by Weber Shandwick in 2019 reported that their company experiences a very positive financial result from strong reputation. One-third of global executives (33%) overall reported that more than three-quarters of their organization’s market value – 76% or more – is attributed to their company’s reputation. This group represents the companies that are leveraging reputations for maximum financial returns. If corporate reputation can be leveraged so well, why don’t more organizations make a priority of measuring and strengthening their reputation? Possible reasons include:

  • Reputation is an intangible and complex concept, which takes time to change.
  • The dollar value of improvements to a growing reputation is difficult to quantify.
  • Senior managers are obliged to deal with more immediate and demanding operational priorities – reputation is a long-term concept.
  • Good corporate reputation is a ‘soft’ concept. Many organizations put the importance of a good reputation to the back of their minds while they attend to more hard-edged, day-to-day urgencies.
  • Reputation ranges over such a broad area of the organization’s activities that it is difficult to allocate specific responsibility for work on enhancing the corporate reputation to individual functional areas.

One thing is certain, there is a high cost to pay for losing a good corporate reputation – your good standing with stakeholders. A badly handled crisis can strip big chunks off a company’s share price, and therefore its market value. And a smaller organization could be devastated by loss of reputation. Conversely, the skillful handling of a major issue or crisis can maintain a good reputation and cushion the organization’s share price against a drop in market share.

Further reading

You can read further information on corporate reputation in my article,How your corporate reputation may be your biggest financial asset.”

Article updated in 2024.

Kim Harrison

Kim J. Harrison has authored, edited, coordinated, produced and published the material in the articles and ebooks on this website. He brings his experience in professional communication and business management to provide helpful insights to readers around the world. As he has progressed through his wide-ranging career, his roles have included corporate affairs management; PR consulting; authoring many articles, books and ebooks; running a university PR course; and business management. Kim has received several international media relations awards and a website award. He has been quoted in The New York Times and various other news media, and has held elected positions with his State and National PR Institutes.

Content Authenticity Statement. AI is not knowingly used in the writing or editing of any content, including images, in these newsletters, articles or ebooks. If AI-produced content is contained in any published form in future, this will be reported to readers.

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