Book: Corporate Reputation. Chapter 1

Corporate reputation.indd 1 29/05/13 18:06


ENRIQUE CARRERAS, ÁNGEL ALLOZA and ANA CARRERASForeword by Charles Fombrun

LONDON NUEVA YORK MADRID BARCELONA MEXICO CITY MONTERREY BOGOTÁ BUENOS AIRES


Published byLID Publishing Ltd.6-8 Underwood Street,London N1 7JQUnited [email protected]

A member of:

Business Publishers Roundtable.com

All rights reserved. Without limiting the rights under copyright reserved, no part of this publication may be reproduced, stored or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording or otherwise) without the prior written permission of both the copyright owners and the publisher of this book.

© Enrique Carreras, Ángel Alloza and Ana Carreras 2013© Charles Fombrun 2013, for the foreword© LID Publishing Ltd. 2013

Printed in Great Britain by T J International Ltd.

EAN-ISBN13: 9788483567975Collection editor: Jeanne BrackenEditing: Laurie PriceTranslation: Anna RamzinaTypesetting: produccioneditorial.comCover design: Corporate Excellence

First edition: June 2013


To all those companies, institutions, organizations and professionals who are convinced that the key to future success and becoming real leaders in their sector lies not in the company size nor financial variables but in reputation leadership.



Contents

Foreword by Charles J. Fombrun ................................. 11

Acknowledgements ...................................................... 13

Introduction .................................................................... 15

The Economy of Intangibles and Reputation ..... 191. Reputation in Organizations ................................... 212. Managing Intangibles: Challenges for an

Organization .............................................................. 28

The Origin and Promise of Corporate Reputation 331. The Origin of the Concept ..................................... 342. The Value of Reputation ......................................... 39 2.1. The Impact on Market Value ........................... 40 2.2. Impact on Stakeholders’ Behaviour ................. 58 2.3. The Value of Corporate Reputation .............. 643. The Need for Clear Terminology ........................... 66

What do we Understand by Corporate Reputation Today? ........................................................ 711. Reputation is a Value-Generating Attitude ............ 732. The Need for Grand Reputation ............................ 87 2.1. Definition and Classification of Stakeholder 88 2.2. Various Reputations Versus Grand

Reputation .......................................................... 913. Reputation can be Managed .................................... 113 3.1. Signalling by an Organization .......................... 115 3.2. Perspectives: Who We are, What We Say,

What We do and How We are Seen ................ 119

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3.3. What we do not Know about Reputation: Further Research ............................................... 142

4. Strategic Character of Reputation .......................... 144 4.1. Determining the Value of Corporate

Reputation .......................................................... 147 4.2. Reputation as a Resource. The RBV Theory 149

The Theoretical Foundations of Reputation ....... 1531. Social Legitimisation of an Organisation .............. 157 1.1. The Sources of Legitimacy .............................. 162 1.2. The Role of Legitimisation in Corporate

Reputation .......................................................... 171 1.3. The Distance between Legitimacy and

Reputation .......................................................... 1822. The Theory of Planned Behaviour ........................ 187 2.1. From Attitude to Behaviour ............................ 188 2.2. The Model of Planned Behaviour .................. 195 2.3. New Ideas: Identity, Emotion and Desire ...... 211

Modelling and Managing Corporate Reputation 2371. The Customer Loyalty Model ................................. 238 1.1. A Brief Historical Overview ........................... 239 1.2. Components of the Customer Loyalty Model 2452. Development of the Intentional Customer

Loyalty Model ............................................................ 274 2.1. Loyalty Based on the Perceived Value of

the Service .......................................................... 275 2.2. Satisfaction-Based Loyalty ................................ 279 2.3. Trust-Based Loyalty .......................................... 281 2.4. Loyalty Based on Calculative Commitment .. 2853. Reputation-Based Loyalty of Stakeholders ........... 288 3.1. Rational Reputation vs. General Reputation .. 290 3.2. The Model of Stakeholder Loyalty ................. 2974. Overall Reputation as Management’s

Strategic Focus ........................................................... 321 4.1. Automatic Attitude Activation ........................ 3235. Eventual Reputation Status ..................................... 327

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06 Measuring Corporate Reputation ............................ 3311. Objective Reputation Measurement Tools ............ 337 1.1. Corporate Reputation Rankings ...................... 337 1.2. The Cravens Reputation Index ....................... 345 1.3. The MERCO Index .......................................... 347 1.4. An Overview of Auditing Tools Used

by Experts ........................................................... 3522. Reputation Measurement Tools by

Stakeholder Groups .................................................. 353 2.1. Rational Reputation Scales ............................... 355 2.2. Global Reputation Measurement Tools ......... 394

Conclusion ....................................................................... 4131. Reputation is an Attitude ......................................... 4142. What are the Rational and Emotional Processes

that Translate Reputation into Favourable or Unfavourable Behaviours? ....................................... 415

3. How does Reputation Generate Loyalty and Value? Our Model ..................................................... 416

4. What is an Appropriate Organizational Model for Reputation Management? .................................. 417

5. How does Reputation Help to Establish a Balance between Legitimacy and Differentiation? 418

6. Are there Multiple Reputations or can we Speak about an Overall Reputation? ...................... 419

7. Is it Possible to Develop a Balanced Scorecard with Indicators for Each Dimension of Reputation and an Indicator of overall Reputation? ................................................................ 420

8. What is the Future of Reputation? ........................ 422

Notes ............................................................................... 425

Bibliography .................................................................. 465



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Foreword

“You cannot open a book without learning something.”

—Confucius

Opening a new book is always a joy: there’s the anticipation created by the book’s title, the expectation of benefiting from its authors’ experiences, the very real possibility of being challenged by new ideas, and the learning it will create.

And so it is with this book whose title Corporate Reputation compels me from the start. After all, I am pretty sure that my own 1996 book on that topic must have inspired and influenced it! Hard as it is to believe, it’s been 18 years since my own book was written and helped to launch a concerted effort to understand and stimulate research and analysis of corporate reputations. I had set out to examine the academic underpinnings of the reputation construct, and I concluded with a hopeful message that we could learn much better and faster by forging an alliance between academics and practitioners.

Time has proven me somewhat visionary, I suppose. I’ve organized conferences, built a company, served clients, developed ideas, and written a lot. But nothing thrills me more than to see a new book being published that promises to invigorate us thanks to a rich dialogue across the stakeholder ecosystem of thinkers and doers with which we are all involved.

The authors of Corporate Reputation are a judicious mix of academia and practice. Together they seek to create learning from that mix. The Carreras duo bring their academic credentials to bear by examining


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the large body of research and writing carried out on intangible assets and corporate reputations over the last two decades. This they juxtapose against the experiences of some of the prestigious Spanish companies that have joined forces via Corporate Excellence – Centre for Reputation Leadership (established in 2011), itself the result of a re-combination of two prior Spanish associations, The Corporate Reputation Forum and The Institute for Analysis of Intangibles. The guiding force behind all three is the book’s co-author Ángel Alloza, formerly Global Director of Corporate Communications Strategy, Reputation, Brand and non-financial metrics at BBVA Group.With those credentials, there can be no doubt that this book is a happy marriage of theory and practice. It fuses current thinking about corporate reputations and their role in creating intangible value with best practices from some of Spain’s leading companies and practitioners. In this sense the authors fulfill my basic requirements for any new book: that it have a good topic and great experiences to cull from.

My third requirement for a good book is that it challenges us with new ideas. I don’t expect the authors of Corporate Reputation will disappoint us on that count either! Just as Spain itself was at the vanguard of global exploration in the 1400’s, so too are its largest companies today committed to exploring the world of ideas, familiar names such as BBVA, CaixaBank, Iberdrola, Repsol, Santander, Telefónica, Adif, Agbar, Bankinter, Correos, Danone, El Corte Inglés, Gas Natural Fenosa, Mapfre, Meliá Hotels International and Renfe. They are the founding members and associated companies of Corporate Excellence – Centre for Reputation Leadership, and together represent 65% of the IBEX-35 and more than 750,000 employees in 80 countries. As a seasoned observer and occasional contributor to many of their measurement programs, strategic thinking, and stakeholder initiatives, I know that Spain’s practitioners have a visionary view of the role that intangible assets can play in creating value for companies.

And so, like you, I look forward to reading this book. And cannot wait to learn from its pages!

Dr. Charles J. FombrunChairman, Reputation Institute

www.reputationinstitute.com


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Acknowledgements

At first glance, co-authorship seems to be a more difficult task than writing a book on one’s own, but in our case we were lucky enough to work as a close-knit team of friends that complemented each other. Our shared vision and critical evaluation of each other’s work during innumerable discussion sessions helped us to take advantage of the academic knowledge, business experience and creativity demonstrated by a sociologist, a psychologist and an economist with a wide range of interests in research, teaching and corporate reputation management.

The three authors appreciate all the support, cooperation, patience and determination of other people who were passionate about this project and generously contributed their knowledge and expertise.

We offer our gratitude to Macarena Estévez, one of the most brilliant and creative mathematicians who helped many companies and institutions transform vast volumes of data provided by our complex everyday reality into models that allow us to understand and predict attitudes and behaviours. Macarena joined this project from its first working session and has been a source of inspiration ever since.

We are thankful to the great team of professionals of Corporate Excellence – Centre for Reputation Leadership, without whose patience, enthusiasm and good judgement we would have been unable to realize this project, namely to Augusto Leiva, Juan Cardona, Saida García, Beatriz Magro, and especially to two team members — Clara


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Fontán for guiding text development and improving it immensely, and Anna Ramzina for the excellent job of translating the text into English.

We would also like to thank Antonio Franco, Professor of Statistics and Director of the Applied Mathematics and Statistics Department at the CEU San Pablo University for his vision and unconditional support of the project from its very start.


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Introduction

Reputation has become a strategic asset for organizations. Businesses with a good reputation are able to differentiate themselves and thus lure investments and retain customers and employees, and at the same time achieve higher levels of satisfaction and loyalty towards their products and brands.

Currently, corporate reputation is one of the two most popular non-financial indicators in the business world, including both private and public organizations.1 This book presents an in-depth analysis of the psychosocial phenomenon of corporate reputation.

We invite the reader to join us on the adventurous path towards a good reputation. Here, adventure should be understood in the broader sense of the word –– our journey has quite a few surprises in store. The appearance of reputation as a concept brought about promises and hopes; it was viewed as the corner-stone capable of reconciling the different interests of stakeholders to make the whole organization stronger. However, the giant turned out to have feet of clay, lacking sufficient theoretical and methodological foundations. We will see how the initial excitement was followed by disenchantment with what appeared to be the Tower of Babel built on numerous concepts and perspectives that conflicted with each other –– a disturbing picture for our traveller. However, once we step on the terra incognita of corporate intangibles, we will understand that the vague idea of reputation is gradually acquiring scientific weight via the development of measurement tools and models that lay the foundation for the long sought-for technology to manage reputation. The order of the book’s chapters follows the footsteps of the concept’s evolution.


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In the first chapter, The Economy of Intangibles and Reputation, we attempt to explain what the management of intangible assets means to organizations. We are entering a new economic cycle that we can call the economy of intangible assets and corporate reputation. In this new context, the roles of companies and the traditional balance of power are changing. This means that power is shifting over to stakeholders’ hands (public opinion, customers, employees, regulators, shareholders, suppliers, etc.), and the new role of companies and institutions is to be at the service of the stakeholders. Thus, business success should be defined as the capacity to understand the social context better than one’s competitors, achieve sustainable differentiation over time and strengthen one’s relationship with key stakeholders.

The company’s ability to develop this new model depends on the degree of trust society has about its companies and institutions. Brand and reputation are management tools that can be used to recover trust. The basis of trust is commitment to the issues relevant for citizens (as a response to stakeholders’ expectations of the organization) and the ability to meet these commitments. The first chapter discusses key characteristics of this new economic cycle based on generating trust and fulfilling promises.

The second chapter, The Origin and Promise of Corporate Reputation, is an overview of the concept of corporate reputation and its evolution until the present day. Over the last three decades we have observed a growing interest in the concept that gave rise to many academic and business publications in the field. One of the recent scientific reviews realized in 2010 by Kent Walker found 1,559 publications related to corporate reputation and associated concepts such as organizational identity, corporate image, brand equity or corporate branding.2

In fact, corporate reputation is not a new field of study in the area of corporate management. On the contrary, its origins go back to the 1950s, and more specifically, to the article penned by Pierre Martineau3 in 1958 on the benefits of extending the concept of brand image to corporate image. This creates a broader concept that integrates the perspectives of all stakeholders whose behaviour is critical for


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the company’s continuity, such as shareholders, consumers, potential consumers and employees.

The third chapter, What Do We Understand by Corporate Reputation Today? is an in-depth discussion of the nature of the concept. We examine the characteristics that came to be associated with the term and conclude by suggesting a scientific definition that brings together all the desirable properties: reputation as a shared social evaluation and having the ability to lead to value-generating behaviours. We will then be prepared to understand the possibilities associated with Charles Fombrun’s famous thesis presented in 1996 on the existence of a grand reputation –– a unique measurement tool able to integrate all perceptions of reputation held by all stakeholders.

The fourth chapter, The Theoretical Foundations of Reputation explores this aspect further. Once we are familiar with reputation’s potential for creating value, we face its dilemmas: Is there one or are there several reputations? Is their nature rational or emotional? Is it an intangible asset or an invisible resource? Is it an objective reality or a socially developed construct? What is the role of the numerous available measurement tools? How do we choose among them? and, more importantly, How should they be used? It seems that the concept, instead of offering solutions, raises more questions. That is why this chapter attempts to understand the theoretical frameworks that explain the phenomenon of corporate reputation and its implications. Two major theories attempt to explain the origins of reputation and approach the concept via different dimensions. The first theory, the theory of legitimisation, looks at the general level and explains the basic mechanisms that sustain stakeholders’ value-generating behaviours and for that reason, is strategic in nature. The second theory, that of planned behaviour or action, targets a more tactical and specific level and explains specific behaviours. Thus it is useful for making more effective diagnoses for reputation policy management. The chapter concludes by suggesting a new concept of global emotional reputation and describes the theoretical foundations and advantages it has in store for reputation managers.


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The fifth chapter, Modelling and Managing Corporate Reputation, steps away from general theory and enters the terrain of practical application of explanatory models that translate reputation into value-generating behaviours. Previous chapters defined corporate reputation as stakeholders’ general attitude towards a company able to result in stakeholders’ support for the company. We investigated the theoretical foundations of this premise. This area of study is relatively new and researchers have been more preoccupied with the theoretical structure and development of reputation measurement tools than with developing causal models that might shed light on the drivers of stakeholders’ value-generating behaviours –– an issue that has special importance for companies and organizations.

The last chapter, Measuring Corporate Reputation presents different measurement tools developed over the last two decades. The great variety of indices and scales that have recently appeared are evidence of the scientific and professional communities’ interest in reputation. However, the proliferation of tools may also lead to uncertainty and confusion. That is why the last chapter offers a detailed guide for reputation measurement that can be used for managing reputation and creating value for companies and institutions.


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01The Economy of Intangibles and Reputation

We are entering a new economic cycle that can be labelled “the economy of intangibles and corporate reputation”. Over the past 30 years, a steady increase in the value of intangible assets has been observed (the value of intangible assets held by S&P 500 companies tripled over this period, with 62 per cent of the total value of all listed companies in the world now reported to be intangible1). This trend intensified further with the crisis that began in 2008.2

Intangible assets are more important than ever before. They account for an increasingly greater share of companies’ business value, so much so that financial results and profitability are more deeply affected by the exchange and management of ideas, information, knowledge and services rather than by control of physical and tangible assets.

Intangible assets include patents, strategic alliances, client databases, employee profiles and other non-physical assets. However, for many companies their most valuable asset is their brand, which may account for as much as 70 per cent of their total market capitalization.

Although intangible assets and resources are key factors that drive the modern economy, the competence of senior executives and investors in this area leaves much to be desired. This lack of awareness leads to management failure and a significant bias in risk evaluation and the identification of opportunities and adequate evaluation by investors. Given that management tends to limit itself to what can be measured, traditional accounting focuses almost exclusively on tangible assets. At


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the same time, measurements are applicable only to concepts that are well understood.

Reputation is the best example of an intangible asset characterised by great strategic value as well as by insufficient awareness, measurement and management techniques. The term reputation economy was coined during the 15th International Conference on Corporate Reputation, Brand, Identity and Competitiveness held by the Reputation Institute in 2011 in New Orleans, LA, USA. It attempts to reflect the new context where the role of companies and the traditional balance of powers are changing; it implies that today, power has shifted to stakeholders (public opinion, clients, employees, regulators, shareholders, suppliers, etc.).3

The new role of companies and institutions is to be at the service of their stakeholders. Today, success in business must be defined as the capacity to initiate and reinforce the relationship with these groups before it is done by one’s competitors — and in a more efficient manner. The success of this new business model depends on the level of trust that society places with its companies and institutions.

However, today’s business reality is characterised by a loss of trust that has affected businesses and governments. Recovering this trust is a prerequisite for overcoming the economic crisis. Good management of brands and one’s reputation is a tool for recovering this trust, and businesses find themselves in a better position for promoting the management of these strategic intangible assets.4

An important step towards the effective management of these resources and intangible assets is to develop a rigorous definition of the concept of reputation and to design reputation measurement tools that enable one to gauge improvements and provide a tangible economic return.

The goal is to persuade top managers to include these reputation measurement tools in their balanced scorecards, in addition to using traditional financial indicators.

In the last ten years in Spain, various projects were initiated to assist private companies and the public sector to advance their search for corporate


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reputation measurement tools and to improve their management of intangible assets (reputation, brand and communication). These include The Corporate Reputation Forum (2002) and The Institute for Analysis of Intangibles (2004), which recently merged to form Corporate Excellence – Centre for Reputation Leadership, a think tank. Driven by the current context, all of these initiatives originated from the business sector.

1. Reputation in Organizations

Brand and reputation are instrumental for managing the recovery of trust. “The foundation of trust lies in commitment to the topics and tasks that are relevant for citizens (as a response to the expectations of stakeholders) and to living up to this commitment.”5

Corporate brand is the balance that a company, an institution or a country manages to establish between the perceptions that it communicates, ie. the expectations that it creates, and the reality or experiences that it delivers to its stakeholders, both internal and external (Alloza, 2010). That’s why an organization must live up to the message that it communicates. And this can be applied to persons, professionals, companies, institutions or countries.6

Corporate brand is an action platform for expressing and communicating the commitments and promises that the organization has then to fulfil.7 A brand is strong, credible, characterised by good reputation and capable of gaining trust for the company that owns it as long as there is no mismatch between the perceptions or expectations that it generates and the experience and reality that it delivers. In other words, the brand “says what it does, and does what it says”.

Reputation is the ultimate result of this process when maintained over time. Good reputation enables one to gain and maintain the trust of the stakeholders. In this sense, reputation is a management tool for strengthening trust.8

Reputation is a positive sentiment towards a person or an institution that integrates three vectors: admiration, esteem and trust. Reputation


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is the heart of trust. “It is a sentiment of great importance as it drives attitudes and favourable behaviours towards a company, an institution or a country”.9

A good reputation is rooted in good deeds and is the fulfilment of the promise made by an organization in response to the expectations of its stakeholders.10

In the last decade, reputation has been gradually admitted onto the business agenda:

a) The first argument for including it was in recognizing the danger that reputational risks pose for the continuity of companies.

Businesses started to take interest in corporate reputation at the beginning of this century in the wake of reputational crisis cases such as Enron, Tyco, Ahold, Parmalat and Arthur Andersen, which demonstrated the scale of devastation that can be brought about by said reputational risk. These cases made companies around the world realize that a poorly managed reputation could threaten the very continuity of the entire business.11

b) The second argument that propelled reputation to corporate agendas was the internationalization process. Companies from different countries compete in an increasingly globalised market. Even those companies whose strategies focus on local markets will have to face competition on the part of international companies and brands.

c) Reputation is becoming a key element in the search for sustainable differentiation. In the context of accelerating globalisation, companies can no longer compete solely on price, and, in the long run, not even on the quality of their products.12 Products and services have become increasingly more similar while their quality, although necessary, is insufficient. True differentiation leading to competitive advantage is achieved through branding (Oroval, 2012; Alloza, 2001).

d) The process of economic internationalization and globalisation also emphasises the link between companies and brands and their countries


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of origin. A product or service’s country of origin represents an important part of its strength or weakness in the global marketplace. The country brand acts as a pillar that supports trust in the product or service originating from this country. Attributes associated with the country are projected onto its product brands and companies.13

This projection may have both positive and negative implications. A brand or a company originating from a country perceived as sophisticated is likely to be perceived as sophisticated too. However, for the same reason, a brand originating from a country perceived as irresponsible will have many obstacles to overcome in order to be perceived as being serious.14 Similarly, successful brands and companies with good reputations contribute to the improved perceptions and reputations of their country’s brand. This is especially true of large corporations characterised by greater visibility. The effect that large companies have helps to improve the reputation of less visible brands and companies originating from the same country.

e) From management’s point of view, reputation helps companies and organizations adopt a long-term action plan and a multi-stakeholder vision.

Managing a country’s brand and reputation means creating value for the long run. Companies assume this new role by serving the interests of stakeholders, where creating shared and balanced values enables sustainable growth and generates the possibility of social cohesion.15

We have summarized the interest in reputation in these points to clarify the concept of reputation and inspire the development of rigorous measurement tools for reputation to be incorporated into the strategic management of organizations.

Over the last two decades, communications departments performed reputation management functions. These management areas developed from press departments. Now, as they develop and redefine the role of communication and strategic intangible assets, their activity becomes increasingly important for companies (The Arthur Page W. Society, 2012).


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Communications departments assume new functions as they develop. In the future, their success will depend on six key areas: reputation, corporate brand, communication, public affairs, social responsibility and measurement tools (Zerfass et al., 2012). These functions may become the drivers of transformation that organizations will need to implement to become successful in the new competitive environment of intangibles and reputation.16

However, the prevailing approach in most companies today is that top management defines business strategy, which then trickles down to inspire strategies for business areas that may include communication. This position is common business practice. Only a few large companies have communications directors who participate in management committees.

The conceptual framework that this text suggests is an attempt to overcome this linear one-way relationship between business and communication strategies and look at communication systems and strategic intangibles management (reputation and brand) as key tools for developing and executing corporate strategy.17

A communications director in charge of all stakeholders’18

communications is aware of their aspirations, demands and expectations and may contribute to corporate strategy development, implementation and communication.

The role of communication director needs strengthening through access to information, management tools and functions necessary for participating in the decision-making process at the top level. They need to have the power to inform the board about implications that decisions may have for the stakeholders. This limitation also exists within the academic community. In many universities and business schools, courses on communication strategy or corporate reputation are delivered by marketing departments and, in some cases, by specialized departments, and rarely related to the area of business management.

Much needs to be done to consolidate these functions and establish measurement tools and management models that will be accepted by the


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academic and business worlds. In this context, reputation measurement tools become indispensable for demonstrating economic and financial returns on good management performed by the communications director.

As follows from this statement, reputation metrics should be included in balanced scorecards at the top management level. These balanced scorecards should combine conventional financial indicators with new non-financial indicators — such as reputation, brand, customer satisfaction, commitment of employees and level of recommendations. These non-financial indicators will allow companies and institutions to go beyond the short-term vision offered by financial indicators and introduce long-term perspectives and multi-stakeholder focus that lead to in-depth changes in strategy. These changes aim at consolidating a new sustainable business model or source of sustained differentiation that will enable business strategy to align with internal and external stakeholders.

Clarifications of definitions are as important as the development of measurement tools that will follow rigorous conceptualization. This is the only way to respond to the growing demand expressed by companies and institutions wanting access to better techniques of managing their intangible assets.

In the last few years, much work was done to meet these challenges and unleash the potentials contained in the concept of reputation. The most important developments thus far are:

•Action lines based on academic research.

•Empirical action lines based on business practice and applied research.

The first group did research and made advances in defining the concepts of communication and corporate reputation as well as in their measurement and organizational implications.

The second group led to the forming of associations, foundations, think tanks and other institutions that brought together different


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enterprises willing to join forces. The contribution that large companies made to innovation in reputation management, corporate brand, communication and measurements has been extremely important because of their pragmatic and empirical approach.

Some very innovative initiatives emerged in Spain ten years ago with the creation of groups of companies that worked together to apply the models of coopetition (cooperation among direct competitors), involving cooperation between public and private companies and alliances with prominent scholars and scientists.19 Some of the most important examples involve large companies that form part of the stock market index as well as some public companies. In Spain, the three following business initiatives had a major impact on development:

•The Corporate Reputation Forum (2002-2011).

•The Institute for Analysis of Intangibles (2004-2011).

•Corporate Excellence – Centre for Reputation Leadership (2011- present).

Since its inception in 2011, Corporate Excellence – Centre for Reputation Leadership has been integrating these activities and bringing together companies that founded The Corporate Reputation Forum and The Institute for Analysis of Intangibles, with their own networks and alliances including experts and academic institutions — the Corporate Reputation Forum and the Institute for Analysis of Intangibles have merged to form Corporate Excellence.

Corporate Excellence – Centre for Reputation Leadership is a think tank and a non-profit organization. It was established by BBVA, CaixaBank, Iberdrola, Repsol, Santander and Telefónica (who act as founding trustees) and brings together some of the largest Spanish private and public companies, such as Adif, Agbar, Bankinter, Correos, Danone, El Corte Inglés, Gas Natural Fenosa, Mapfre, Meliá Hotels International and Renfe. Together, these companies employ more than 750,000 people, are present in 80 countries and their aggregate capitalization amounts to more than 50 per cent of the stock market index.


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The think tank’s name expresses the idea of innovation implied by reputation management. This centre for reputation leadership attempts to transform companies into excellent organizations through reputation management. In line with this vision, companies that belong to this organization state their position by using the corporate tagline Leading by Reputation, which reflects the competitive challenges of the new economy of intangibles and reputation.

Reaching this objective requires a preliminary step: clarifying the concept of reputation and revising its key definitions suggested by academics and professionals. Without a clear definition, it is impossible to develop rigorous measurement tools accepted by all involved social actors: academics, managers of intangibles in organizations, regulators and investors.

Reaching consensus on reputation measurement is especially important because the goal is to create reputation indicators based on the metrics approved by the market. This would enable them to be integrated into organizations’ balanced scorecards. Traditional financial indicators would be complemented by non-financial indicators that measure an organization’s reputation. Reputation would become a non-financial indicator, potentially the most important indicator in the world of organizations, both private and public, to have an impact on strategy and contribute to a long-term view and a cohesive multi-stakeholder vision.

In order to be managed, reputation has to be measured. This measurement must be focused on decision-making processes that enable management and ensure protection of or improve an organization’s reputation.

The underlying idea of this hypothesis is that an organization’s good reputation depends on its capacity to respond adequately to its stakeholders’ expectations. This assumption leads to the first step: the ability to quantify in order to find out what these expectations are. This means that reputation metrics must measure expectations held by all stakeholders of different organizations and be flexible enough to change over time.


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To improve or protect reputation, measurement techniques must be operational in the process. This means measurement must help identify which management tools will be useful and which dimensions or blocks reinforce or erode reputation.

Therefore, metrics must deliver the following:

a) A global indicator of the reputation.

b) A set of indicators that point to dimensions or pillars that, when managed effectively, boost the reputation’s global indicator. Metrics should enable one to identify each dimension that has a positive or negative impact on the overall reputation indicator.

Identification of different dimensions and pillars allows an organization to commission tasks to different departments responsible for functions that can strengthen or weaken these indicators and thus affect the organization’s general reputation.

Finally, in order to be useful for management purposes, measurement tools must monitor the development of global reputation as well as its dimensions — into the future.

Measurement techniques may be used in the process of reputation management if they are accepted internally (inside the company, by other departments and functions) and externally (by major stakeholders). However, in order to ensure their acceptance, the concept of reputation as well as the indicators and metrics developed to measure it, must be recognized among large companies at the national and international levels.

2. Managing Intangibles: Challenges for an Organization

Financial and informational globalisation makes it increasingly complicated for companies to construct and maintain relations with markets and strategic groups: clients, investors, employees, regulators and the public opinion.


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Because of this, companies and institutions must aim to become flexible and innovative in managing their corporate affairs (reputation, communication, brand, public affairs, investor relations, etc.) and in how they act and communicate, so they can coherently and consistently present themselves to their stakeholders. This is how they gain credibility and trust for achieving strategic business objectives.20

In this new environment, the concept of reputation is highly innovative. First, because it is a milestone in the history of business management, as noted before, and therefore for it to be included in a company’s agenda is quite recent. Second, the application of reputation as a psychosocial concept to business and institutional practice is novel and can become a source of continual transformation in organizations that use it.

In this sense, reputation management sets the dynamic that furnishes an organization with research tools and the ability to listen in order to learn the perceptions, opinions and evaluations held by its stakeholders. This mechanism allows the organization to identify the gaps between the organization’s reality, the communicated reality and the reality that will be perceived eventually by its stakeholders.

Continuous reputation management means that the company’s “to do” and “to say” are complemented by this analysis, essentially a mechanism that generates innovation and drives ongoing company-wide transformation in response to its stakeholders’ ever-increasing expectations and demands.

Reputation is a source of innovation that generates value in the sense that, as suggested by Joan Costa (2009), only social innovation creates value21 since it strengthens the trust relationship and affinities among organizations and stakeholders, therefore allowing any organization to obtain and maintain operating licenses.

Reputation may be perceived as a coin with two sides: it allows the strengthening of the trust relationship and engenders affinity with stakeholders. However, we should not forget that the risks of reputation erosion could lead to the destruction of value.22 This occurs when


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the balance of adequate responses to the demands of stakeholders is broken, despite the fact that they are currently the ones who possess power (Abril, 2011; Montañés, 2011).

An organization that manages its reputation can respond swiftly and effectively to protect its value by identifying and mitigating its reputational risk. It can even increase its value thanks to strengthening its reputation.

By strengthening its reputation, an organization achieves differentiation that sustains over time and unleashes the power of favourable behaviour on the part of its stakeholders, thus creating wealth. Companies that quickly adapt to changes and can listen and respond will lure major future cash flows.

In order to achieve sustainable creation and protection of value for companies and organizations in the long run, the same degree of importance, excellence and rigour must come from the management of these intangible assets and resources as is attributed by companies and organizations to their economic assets and resources. It is especially important when designing and implementing business strategy — where the true weight of intangible assets and resources is so frequently not taken into account (Alloza, 2012).

The strategic importance of reputation and other intangible assets (brand and communication) contrasts with management limitations that proceed from a scarcity of theoretical foundation and methodology developed by academics and professionals early on in their investigations of this concept.

With time, we see how some of the currently abundant definitions of reputation become scientifically accepted and give rise to the development of measurement tools and management models.

It is important to further clarify the concept and development of metrics that will be derived from the concept. This will enable organizations to respond to increased demands for better technology concerning reputation management.


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Reputation is a multidisciplinary concept that in the last twenty years gave rise to multiple working and academic research lines. Some of the most important ones are:

•Economic perspective defines reputation as a set of features and signals of a company: what it is, what it does or represents and whether it is capable of driving the conduct of economic agents whose behaviour is based on limited information.23

•Strategic perspective views reputation as a source of long-term differentiation, difficult to imitate because it comes from a company’s identity.24 This differentiation gives rise to competitive advantages thanks to favourable stakeholder behaviour and that is increasingly relevant for value creation in the current competitive context, where products and services become more homogeneous while their quality is a necessity, but insufficient. True differentiation leading to competitive advantage is achieved through brand and reputation (Oroval, 2012; Alloza, 2000).

•Multi-stakeholder perspectives and long-term vision. Companies and organizations need to avoid the short-term vision imposed by financial indicators. A long-term action framework and multi-stakeholder vision25 need to be adopted.

•Marketing perspective. This is an attempt to construct brand equity identifiable by name and logos and capable of evoking positive associations in customers to facilitate marketing activities and sales.26

•Globalisation perspective. Companies can no longer compete solely on price, and, in the long run, not even on quality.27 The position of a company and its brand may be largely explained by its link to the image and reputation of its country of origin. Country branding begets an additional source of trust for brands and services coming from this country.

•Organizational perspective. Corporate culture and identity are seen as factors that determine the conduct of employees and managers. This conduct creates the basis for the identity of internal groups and for


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achieving alignment between stakeholders and the strategic objectives of organizations.28

•Sociological perspective. Reputation is perceived as a source of social legitimization for companies. Reputation is a social construct shared by involved groups and it drives social acceptance or rejection.29

•An accounting perspective looks at measuring and managing intangible assets derived from collective perceptions and their incorporation into the accounting statements of the company for making recommendations with regard to cost and investment distribution in service of building reputation.30

•An integrated perspective defines reputation as collective judgments about a company’s credibility and reliability held by different but related groups. This perspective is still in its nascent stage and may give rise to more specific research programmes in the future.31

Significant work must be done in order to appreciate the entire potential of reputation and ensure its excellent management. This implies treating intangible assets and resources with the same degree of importance — and applying professional methods and rigour usually associated with financial assets and tangible assets (Alloza, 2012).

The importance of reputation and other intangible assets contrasts sharply with certain limitations and challenges that must still be addressed. Subsequent chapters in this book discuss the historical development of the concept of reputation.
