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The economy emergency of corporate reputation


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Article Corporate Excellence

Current economic environment forces companies to move towards coherent and rigorous management of the corporate reputation. A new role titled the Chief Reputation Officer has emerged, with the responsibility to develop strong and durable relations with the stakeholders.

During the last decade, we have been observing a change in the paradigm of power in the corporate world. We have entered an era that can be labelled “the economy of reputation”. This new paradigm is characterised by the understanding that power belongs to stakeholders and that the importance of their recommendations is increasing.

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The economy emergency of corporate reputation

  1. 1. ArticlesStrategy DocumentsA01 / 2011ReputationThe economyemergency of corporatereputation The word emergency, according to the diccionario de la Real Academia Española, comes from the Latin emergens, emergentis and has two meanings: 1) action and effect of surface and 2) event, accident that happens unexpectedly. In these notes we will see how the two meanings of emergency can be applied to the reputation and particularly to the broader concept of economy of the reputation. The reputation economy the specific context and short-term crises. The as emerging trend reputation economy basis arise from the reaction This year has coined a new concept, economy of some of the major Spanish companies associated of reputation1, an idea which aspires to offer an informally constituting the first group of this alternative to business leaders to redesign the nature in the world. Their goal was to understand, market economy system that has led us to the to measure and to manage corporate reputation. current crisis. Against this alternative would be These companies have continued to move forward only the option to see how Governments and together and now set up a laboratory of ideas called regulators take on themselves this task2. Corporate Excellence, Centre for Reputation Leadership 3. The reputation economy is born when reputation emerges in the business world slightly over ten In 2005 conducted extensive qualitative and years ago, from the reputation crises which quantitative research in Spain and the eight Latin carried the disappearance of large enterprises and America major countries in collaboration with companies leading positions in their respective Professor Fombrun4 and his team of Reputation rankings (Tyco, Worldcom, Enron, Arthur Institute of Spain and New York, in order to better Andersen, Ahold, Parmalat, etc.). understand the reputation and its link with the consumer behavior. Their purpose was to create a However the concept of reputation economy new measurement method, called RepTrak, which only begins to emerge when understood beyond1. This term has been presented at the fifteenth Conference International Conference on Corporate Reputation, brand, identity and competitiveness in Rio de Janeiro in May 2011.2. Barton, D. Capitalism for the Long Term, Harvard Business Review, March 2011.3. Corporate Excellence, Centre for Reputation Leadership is a laboratory of ideas to promote the management of intangible assets such as strategic value to business excellence. It is the result of the merger of the Forum of corporate reputation (fRC) and the Instituto de Análisis de los Intangibles (IAI). http://www.corporateexcellence.org4. Charles Fombrun Emeritus Professor at the NYU Stern and Chairman of Reputation Institute created, along with Naomi Gardberg and Joy Sever, in November 1999 the Reputation Quotient RQ method, the first instrument of measure of reputation. Charles Fombrun published in 1996 a book which became “best seller” analyzing the relationship between corporate reputation and the value of the companies: Reputation: Realizing Value from the Corporate Image (Harvard Business School Press). Artículos 1
  2. 2. The economy is being consolidated in the world, from the public (alliances and licenses to operate) and allowsemergency of presentation in 20065. to align the interests and wishes of the entirecorporate reputation organization to achieve business goals9 (employees What has been learned in these ten years commitment, leadership management, rupture of demonstrates clearly the relevance of the economy departmental silos, etc.). of the reputation for the future and for companies and institutions sustainability, for both to protect The good reputation generates opinion leaders the enterprises value in reputational crises for and reduces the number and intensity of the to increase it steadily over time. Reputation, detractors10. This positive behavior has today understood in this way, is a competitive advantage, become a determining factor for the future of is a lasting differentiation6 and relevant, is a shield companies and institutions in the information age, against crises and is a value creation lever of short- connectivity, and social networks 11. term and long-term. The reputation and therefore confidence, We are entering a new economy cycle, where the admiration and esteem is not a black box. Can be reputation is the territory for which enterprises decomposed into a series of dimensions that can be institutions and countries compete and will managed both to protect their value as to be used as compete, The evidences so guarantee it, come from levers of sustainable growth: the supply of products both academia and business practice. and services, financial results, innovation, work environment, integrity, quality of management and ‘Reputation is competitive social commitment12. advantage, is lasting and This management allows also destroy relevant differentiation, is interdepartmental silos that paralyze organizations13 for work all together and in aligned manner to a shield against crises and achieve the business and reputation goals. is a value creation lever of The reputation economy as an emergency short-term and long-term’ Today the need to move forward and implement widespread the reputation economy, in the business The starting point was to understand that the reputation and institutional fabric, is a real emergency14. is a positive feeling that integrates three enormously relevant vectors: reputation is admiration, is high esteem If the good reputation is admiration, high esteem and is confidence7 that people feel towards another and confidence, today companies, institutions, and person, company, institution, country, etc. in general the market economy as a whole need to urgently recover and strengthen its reputation15 As expected, that positive feeling it results in and start working under the criteria and indicators positive behaviors8 by the major stakeholders of value creation for long-term reputation economy. of companies and institutions. Thus, we now know that reputation attracts consumers, capital, Explanations about the origins and causes of this talent, facilitates internationalization and growth crisis16 which is casting doubt on the market5. Companies that were part of the Corporate Reputation Forum in 2005 were an adaptation of Reputation Quotient to better understand the concept of reputation from the point of view of the stakeholders and to identify the 7 dimensions underpinning the reputation and measured their relative importance. RepTrakes, name of the research tool developed by the Reputation Insitute and the corporate reputation Forum. Charles Fombrun launched in May 2006 in New York at the opening session of the Tenth International Conference on Corporate Reputation, brand, identity and competitiveness.6. People are only willing to recommend to their nearest environment products and services of the companies perceived as different as and therefore better than the others. In a world of products and services more homogeneous, which are copied and marketed at a lower price by emerging economies, the differentiation acquires strategic value. Differentiation is not supported in the product or service but the reputation of the company that protects them. Citizens want to know who is behind a product or service. Various studies show how products perceptions influence less (40%) in the overall assessment that make companies consumers, what most counts in perception about corporate branding, i.e. on the company itself (60% of weight).7. Fombrun, Ch, Ponzi, L;Gardberg, N. Reptrak Pulse: Conceptualizing and Validating a Short-Form Measure of Corporate Reputation. Corpo¬rate Reputation Review, Volume 14 Number 1, 2011.8. Credibility and confidence that people place in these opinion leaders or detractors are infinitely greater than which it granted to companies and politicians. In the rankings of confidence scientists, physicians, educators, NGOs and the friends and relatives occupy the top in confidence-building.9. Some data: improving reputation in 5 points (at a rate of 0 to 100 points) it is an increase of 7.3% consumer recommendation. Companies with the best reputation make 72.3% of customers recommend their products and services to friends and family compared to 9.4% of the companies who occupy the last places in the ranking of reputation. The most companies reputable just they have detractors, less than 3% (people who speak badly of them environment) compared to 40% of the detractors, who speak badly of companies with worse reputation.10. Technological changes that increased the information volume and connectivity have led to the consumer and the citizen transformation; they have become opinion leaders and detractors with an influence power on attitudes and behaviors of growing masses of connected population before standing trial on other people, companies and institutions.11. Luis Abril Pérez, President of Corporate Excellence, in the interview: El Precio de la Fama, Actualidad Económica 01092011.12. Fombrun, Ch 1996. Villafañe, (2003).13. David Aaker, Spanning Silos, Harvard Business Press, 2008.14. The enterprise without reputation has no credibility: 57% of people will believe negative information after hearing it 1 or 2 times and only 15% will believe positive information on this company (after hear it 1 or 2 times). For a company with solid reputation, 51% will believe positive information and only 25% will believe negative information about the firm (Edelman Trust Barometer 2011). Artículos 2
  3. 3. The economy economy survival, are diverse and complex. If we important are: index of reputation, of corporateemergency of were to simplify and put the focus only on a factor, branding, of customers satisfaction, of commitmentcorporate reputation this would be the excess of short-term in the and of Organization’s alignment, of tendency to management of business, finance and politics17. recommend our company/product18. ‘To navigate successfully Financial indicators tell us about how much money we have earned in the past, these non-financial in the new reputation indicators allow us to quantify how much wealth economy companies and we will generate in the future institutions need leaders Conclusion capable of understanding To navigate successfully in the new reputation this new environment. economy companies and institutions need leaders capable of understanding this new environment, this new function might be deep connoisseurs of the expectations of all called the Chief stakeholders19, these leaders recognize that who holds power nowadays are the stakeholders20. Reputation Officer’ They are leaders who have the vision and the The reputation economy is the way for economic courage sufficient to transform their organizations recovery; lower marked risk premiums, increased to implement them at the service of the value of the company shares. Creation of long-term stakeholders. Success should be measured as the value, it is to assume a new enterprise role at ability to respond better than competitors to their the service of the stakeholders, where only the demands and it is about establishing companies creation of shared and balanced value will enable and institutions that are leaders for the good a sustainable growth and capable of generating reputation that they hold and maintain. social cohesion. It is the task to organizations board of directors that The reputation economy provides the non- needs a new figure in their steering committees, financial indicators that all organizations with technical know-how and the right profile should take in its strategic balance scorecard as to help him/her to manage professionally and complement to the current financial indicators. specialized the corporate reputation; this new function might be called the Chief Reputation Non-financial indicators are signs that measure Officer21, a strategic importance role22 to navigate the health status of the assets and intangible successfully in the new reputation economy. assets resources which are key, some of the most15. Nowadays, barely 10% of consumers in United States confident in what the companies say, compared to 80% who did it 10 years ago, the latest release of the Barómetro Continuo de Confianza en España that measures the confidence of the Spanish ranking places in last posts to large companies, entrepreneurs and banks and savings banks (only surpassed in mistrust by the political class that occupies the last place).16. Four years ago, the same excessive short-term, lack of leadership, errors in the weighting appropriate risks, corporate governance and policy deficiencies, lack of integrity and bad practices of some economic operators have generated the United States financial system and the European Union crisis and the recession consequences, unemployment and social disputes that we are suffering.17. Some data illustrate the short-term trend, in the 1970s the average time of maintenance of an investment position in the United States was 7 years, now it is 7 months; This growing market volatility is multiplied by the speculators investments who hold positions in some cases only for a few seconds (this type of investor represents nowadays in United States nearly 70% of the volume of transactions). On the other hand, managers who fail to deliver the return expected by the market in the short-term are dismissed from companies, so since 1995 the average time that a CEO has maintained his/her position in United States has fallen from 10 years until 6 years currently.18. Reichheld F.F, The ultimate questions: driving true profits and good growth, Harvard Business Press, 2006.19. Kotler, Ph, Marketing 3.0, Lid Editorial, 2011.20. Montañés, P. Here who’s boss, Pearson, 2011.21. Ana Casado Molina’s Doctoral Thesis, Universidad de Málaga 2011, Chief Reputation Officer. Artículos 3
  4. 4. ©2011, Corporate Excellence - Centre for Reputation LeadershipBusiness foundation created by large companies to professionalize the management of intangible assets and contribute to the developmentof strong brands, with good reputation and able to compete in the global market. Its mission is to be the driver which leads and consolidatesthe professional management of reputation as a strategic resource that guides and creates value for companies throughout the world.Legal NoticeThis document is property of the Corporate Excellence - Centre for Reputation Leadership and has as its objective to share businessknowledge about Brand, Reputation, Communication and Public Affairs Management.This document is directed exclusively towards its addressee and contains confidential information, subject to professional secrecy, whosedisclosure, copy or non-authorized use is against the Law. If you receive this document by mistake, let us know immediately and erase itwithout keeping a copy.Corporate Excellence - Centre for Reputation Leadership is the owner of all the intellectual property rights of the images, texts, designsand any other content or elements of this product and has the necessary permission for its use, and therefore, its copy, distribution, publicrelease or transformation is prohibited, without express authorization from the owner.