“Hard to build, easy to loose” recently said Paul Polman, CEO of consumer giant Unilever, in a tweet about the work that his company must carry out and the challenges it faces on a daily basis: in effect, corporate reputation is more than ever a very important asset for companies to build and preserve. Frequently defined as the complex set of perceptions and beliefs different stakeholders have with respect to an organization and that has been shaped through experiences and expectations to which all these actors have been or are exposed, various academic studies show that corporate reputation – this asset of an intangible and fluid nature – can account for approximately 20 to 30 percent of the market value of publicly traded companies.
In this respect, corporate reputation must be regarded as going beyond the classic (and short-sighted) approach of reputation as a brand: beyond the intrinsic quality of the products and services they provide, nowadays companies are increasingly assessed and judged by how they behave and carry out their operations. In other words, in which ways they handle and are able to build and maintain trusting relationships with their vast array of stakeholders – from their own employees to value chains actors, consumers, clients, civil society organizations, and regulators -, especially with respect to non-financial aspects, i.e., the environmental, social and governance (ESG) dimensions.
In a global 24/7 digital communications ecosystem, those diverse stakeholders have at their disposal a wide set of tools that allow them to detect almost in real time whether what a company “does” (how it does behave both as an organization as a whole as well as through the actions of their leaders and employees) is aligned with what it “says” it does (the values and mission it claims to pursue). The larger the gap between the “talk” and the “walk”, the greater the inherent reputational risk a company faces.
Corporate reputation must then be regarded in a strategic way: Boards must supervise and monitor the reputational risk of each strategic decision that is made and CEOs must be in charge of managing it, together with a cross-functional team that includes not only the usual PR or communications units, but also key functions such as Risk Management and Compliance. In this way, the management of reputation will not be limited to actions of a reactive nature during the occurrence of a specific crisis or scandal, but it will involve a continuous mapping and monitoring of the potential risks that can give rise to a reputational problem. In this regard, when elaborating a map of potential reputational risks, it is of utmost importance to incorporate an external or “outside-in” perspective in order to account for the ever-changing and fluctuating expectations and perceptions different stakeholders have on the organization. Aspects that had in the past gone unnoticed or had not been registered as problematic, can mutate or transform drastically from one day to the next: what was accepted yesterday, may no longer be accepted today. One can think about the recent cases of discrimination and sexual harassment that were brought up to the light in the U.S. in the media, entertainment and other industries or the recent public social media “activism” millennials undertook in the aftermath of the recent Florida school shooting last January against companies that support the sales of guns or pro-guns organizations).
A good reputation results in many benefits for companies: from greater confidence on the part of current and potential investors to better access to regulators and public officials, better relations with business partners, and the attraction and retention of the best talent. And, in situations of crisis, a good reputation can stand for a useful company “insurance” since the organization will have enough reputational capital (credibility, trustworthiness) available to spend and take firm actions in order to mitigate and remedy a situation. On the contrary, a poor reputation can lead to the loss of clients and investors, high recovery costs due to fines or sanctions, loss of business opportunities and competitiveness, delays in business plans and unexpected changes in leadership positions (as it is increasingly becoming the norm in severe reputational crisis that have taken place in recent years, the CEO almost always has to leave his position and his departure is decided in a matter of weeks, if not days).
In the end, “how” a company behaves is directly related to the corporate culture of integrity that an organization possesses and that has been able to build and maintain over time. The most significant cases of reputational crises in recent years attest to this fact: from the Volkswagen case (approval of deceptive software to avoid emissions controls) to the Uber (a culture of discrimination, harassment and retaliation) and Wells Fargo fallouts (creation of fraudulent customers’ accounts based on pernicious incentive programs), all those companies had in common serious flaws in their corporate integrity cultures. During the current year, many additional cases will surely come under public scrutiny and their outcomes will accelerate and spread further as social communication technologies increase their pace. A good, solid culture of integrity within a solid corporate governance framework will then be a fundamental and indispensable driver companies will have at their disposal in order to ensure a good reputation and the corresponding effective management of its risks.
Gabriel Cecchini, Director, Integrity & Reputation, Governance Latam