Corporate reputation in the company agenda

fRC Trends - page 1

Despite the debate that still exists in the conceptual sphere and the difficulty to quantify its true impact in the increase in value of organizations, it seems that reputation is gaining in importance. Is room being made and is a prominent place being found within a company’s management?

Document prepared by Ricardo Gomez Diez (director of the Observatory on Reputation) for the Corporate Reputation Forum with reference to, among other sources, the intervention of Juan Cardona (director of the fRC), Basil Towers (director of Hesleden Partners), and Tomas Garicano (professor IE Business School, director of the Corporate Governance Center) during the sessions of the Corporate Reputation Program organized by the fRC and IE Business School in Madrid in February 2011.

Regardless of whether it should have a specific and privileged location within the Board of Directors (integrating the corporate social

responsibility areas, Brand, Communications and Reputation itself), or if it is a function that fundamentally concerns the top executive of a company (be it the Chairman, Chief Executive Officer or General Director), the opinion and valuation which the various stakeholders have of an organization is, increasingly, a key factor when managing the business reality.

The impact of reputation in the stock exchange value of a company, in the improvement of talent management, its attraction/bonding and subsequent increase in productivity, in the recommendation of its products and services to third parties after a good shopping experience, or in facilitating the process of suppliers’ conversion into true partners is undeniable, according to the data presented and extracted from different studies and investigations developed in recent years.

The function of Communications Management or also Corporate Affairs Management, on the other hand, has been developing in large companies (especially those which are quoted in international stock markets) eventually becoming the real strategic

manager of the perceptions which are generated around a company, of what its stakeholders think about the company.

But this function is still swinging in the imagery of many, between those story tellers more connected to the areas of Advertising and Public Relations and the purely intangible elements of the function, and those other bean counters preoccupied by the more tangible aspects and connected to the areas of Administration and Finance, in the opinion of Tomas Garicano, professor of finance at the IE Business School and director of its Corporate Governance Center.

Value CreationAccording to a study carried out by Hesleden Partners, specialized in investigations on reputation, the role of Communications will not disappear from the management of reputation, but increasingly it will be asked to make a different contribution to the business, of greater reach and value; in short, more strategic.

Aside from the digressions about the differences between perceptions and acknowledgments (a more emotional or rational character of opinion), between brand and reputation (the promise in the hands of the company or the perception /

TrendsSTRATEGY DOCUMENTST01 / 2011

REPUTATION

2. Another more likely to fix its attention on the management, without allowing the obsession for its quantification to push aside this impor-tant aspect.

Increasing the importance of reputationFor Basil Towers, director of Hesleden partners, the way forward to make reputation a real lever of company management includes two ways:

1. To locate the management of reputation at the top of the organization.

2. To generate an internal debate on the subject.

In the first case, it is important to link reputation to the management of corporate governance, generating models and value creating systems through reputation.

In the second case, increase the close relationship with the different areas and functions of the company, constantly exchanging and sharing information, data and comparatives.

But to do all this, it is crucial to also establish and define a model of reputational management within organizations which contributes to plan, taking into account perceptions and their measurement, and on the basis of a model of constant improvement of the behavior of the organization and its subse-quent qualitative evaluation (a basis to identify ex-pectations, taking advantage of opportunities and

reducing risks) and quantitative valuation (with the difficulty that is still involved to isolate it and see it as the only measure of value of a company).

A model which can be described and organized ac-cording to the following workflow and strategic decision-making:

1. Definition of the vision, establishment of the challenges and objectives.

2. Carrying out of analyses, determination of the options and

drawing of scenarios.

3. Development of the business plan and the strategic plan.

4. Realization of annual performance objectives.

5. Execution of the previously fixed strategy.

6. Regular and periodic evaluation of performance.

7. Feedback and rectification/adaptation of the process.

Conclusion: the future of reputationWarren Buffet once said the following to his professional team: “If you lose dollars due to wrong decisions I will understand it, but if you lose reputation I will be ruthless.”

The reputed and most currently renowned investor, financier and philanthropist pointed at reputation as an asset more valuable than money itself, reaffirming the arguments set out until now which point to reputation as the most important resource or intangible asset in the company agenda of the new 21st century.

And it is this agenda that is going to be increasingly marked by the value of talent linked intimately to daily innovation, the risks derived from constant change, the ethical and sustainability challenges in relation to the environment, as well as the exponential expansion of society on the net and the new 2.0 environment, fields in which reputation is playing and will play a central role. Because, as Shakespeare wrote, “the purest treasure mortal times afford, is spotless reputation.”

acknowledgement owned by the stakeholders), or even between image and reputation (with a more circumstantial or more structural character of the valuation), for Juan Cardona, director of the Foro de Reputación Corporativa, reputation is advancing in the agenda of priorities for organizations and for their own leaders with the common objective of achieving a high performance function and which adds value to the company.

One of the factors which also contributes to the awareness of its importance are the crises and the associated reputational risks (be they pure or operational), since, as noted by Garicano, it costs more to win than to lose it, even though it is not easy to lose it completely in a short space of time, as Cardona also stated.

The reputation and corporate responsibilityAnother of the controversial aspects is found in relation to the distinction and relationship between corporate reputation and the corporate social responsibility, disas-sociated from past conceptions which linked it solely to corporate philanthropy.

The first is placed more in the scope of internal politics and procedures, whereas the second is situated in the scope of public positioning.

Likewise, corporate social responsibility looks more for the connection with stakeholders and reputation for their support. Dialogue forms part of the corporate so-cial responsibility management tool with stakeholders, while research and communications are that of corpora-

te reputation. We can also frame company responsibility as one of the dimensions of reputation, linked directly to variables such as corporate citizenship and ethics in ma-nagement.

Together with competitiveness and reputation as a whole, the corporate social responsibility forms with them the three fundamental axes of the process of value creation, in which we can increasingly speak of a circle of value (an organic vision of the relationship between

company and community) and not only of a chain (linear vision).

The reputation agendaIn the following years there will be three fundamental scenarios of the corporate reputation road map:

1. A more explicit contribution, structured and anticipatory of reputation to company management, through information and quality data which reinforce the confidence in the function, as well as helping the senior management to define strategy, aligning reputation with the company’s values.

2. A key support when driving and strengthening the risk management policy within organizations, identifying risks which would not have been de-tected without a “reputational look”, applying metrics and indicators which allow the decision making according to the appetite or aversion to acceptable risk.

3. An awareness of the importance of reputation in company management, bringing the relationship to surface between the decision making and damage to reputation, as well as focusing on the values which surface after this type of behavior, seeing as the most important source of reputational risks often comes from aspects related to Corporate Culture (depending on the values experienced, so will it affect the behavior produced).

In the case of reputational risks, it is necessary to note the existence of two schools of thought:

1. One more centered on its economic quantifica-tion and valuation.

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Corporate reputation in the company agenda Corporate reputation in the company agenda

‘We have to define a model of reputational management which contributes to plan, taking into account

perceptions’

‘The function has been developing eventually

becoming the strategic manager of the perceptions

which are generated around a company’

Trends Trends

Source: Reputation Institute; 2010.

> The impact of reputation on stock prices

(Stock prices of companies with the best reputation v. S&P500 general index)

60%

40%

20%

0%

-20%

-40%

-60%Jan 00 Jan 02 Jan 04 Jan 06 Jan 08 Jan 10 Jul 10

RI portfolio of companies with best reputation S&P 500

Source: José Carlos Martínez, 2010.

> Measuring reputation

Measure Analysis Planning

Indicators of Behavior

+

Perception surveys

Management Plan

+

Communications Plan

Overall Plan

Diagnostic

Risks and opportunities

Actions

Process of continuous improvement

www.reputacioncorporativa.org

©2011, Corporate Reputation ForumThe Corporate Reputation Forum (fRC) is an association made up of 15 companies present in more than 105 countries, with more than 700,000 employees and 1,500 million clients and end users. Its mission is to serve as a place to meet and circulate trends, tools and corporate reputation management models; and increase the value of its members by supporting the management of intangible assets. This document forms part of the Strategy Documents series, produced by the fRC to share company knowledge on corporate reputation management. The fRC’s objectives are: to analyze corporate reputation management methodologies in order to facilitate their introduction into companies; to share investigation and circulate knowledge on reputation; and, finally, to study the influence and the interrelations between the principal variables of corporate reputation.

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