Warren Buffett once said: "Lose money for my firm and I will be understanding; lose a shred of reputation for the firm, and I will be ruthless."

As we well know, it is possible to lose a reputation overnight, and the consequences can be financially devastating. On the positive side, it is also possible to build a stellar reputation, and the consequences can be financially rewarding. Companies considered to be trustworthy attract better talent, sell more products and have higher share price valuations.

The field of corporate social responsibility (CSR) evolved partly as a tool to build corporate reputation and safeguard against reputational damage. Many companies whose CSR programs are outstanding today started those journeys after a human rights or environmental disaster and consequent reputational crisis. Consumer and activist responses to bad corporate behavior are some of the most powerful incentives for corporations to try to institutionalize good behavior.

But how do you do that? How do you ensure that your company both earns people's trust and avoids reputational damage?

Companies used to focus mainly on how customers perceived their product and their brand. They would compete with similar companies for attention, hoping consumers would select their products over those of their direct competitors. But in the age of social media, companies now compete for the trust of the wider public, not just of their own customers. All stakeholders matter now: the community, politicians, citizen activists, online reviewers, shareholders, and others - even if their interests may be complex and conflicting. One mistake can be fatal. Lying to the public may never be forgiven.

A recent survey on corporate reputation conducted by the Corporate Responsibility Association (CRA) showed that nearly 50% of the companies who responded had been targeted by activist citizen groups, and now engage with these non-governmental organizations in order to help improve public perceptions.

So companies are aiming higher: the product still needs to interest consumers, but in addition, the entire company needs to be perceived as making a positive contribution to society, or at least as trying to limit its negative impacts. And product, brand and corporate reputations can all boost each other. It only takes a glance at the websites of local retailers to see examples of projects they are launching to benefit society.

Reputational tools available to companies include collecting data, including from stakeholder focus groups and broad surveys, as well as monitoring, dissecting and analyzing the data. A SWOT analysis, zeroing in on Strengths, Weaknesses, Opportunities and Threats, can allow you to identify specific areas and actions to improve your company's reputation. 70% of the CRA survey respondents said they had identified key drivers of reputation for their company.

Actions are important; reputation management is not simply a communications exercise. You need to both do the right things and communicate that you are doing them. And never forget that your product's reputation, based on measurable things like quality and safety, must be safeguarded above all else.

Strategies for building a quality reputation include setting up programs such as corporate citizenship and "shared value" programs, which aim to create value both for the company and for the communities in which it operates. There are plenty of benefits: these programs can sometimes help the company earn an informal license to operate from the local population. Members of that community might also become new customers.

Thirty-six percent of the companies responding to the CRA survey said they had these types of programs, while another 30% said they communicate a full range of sustainability measures, including corporate governance, sustainable supply chain management, and employee engagement, helping them to enhance their reputations.

But my personal favorite reputational tool is this one: company managers and employees should ask themselves, when making decisions for the company, whether:
a) they would feel comfortable telling their mother about that decision, and
b) they would feel comfortable reading about that decision on the front page of a newspaper.

When leaders of a company place profit above all else, they may be tempted to make a decision that doesn't pass these tests. It may not be worth the risk.

 

Published on: Oct 29, 2015