Your good name rests on customer perception, so the idea that reputation can be managed is delusional
We live, apparently, in "an emerging reputation economy". Had you noticed? Charles Fombrun has, but as chairman of the Reputation Institute in the US he may know more about reputation than most of us. Among the insights he shares, in a press release about a new study into "the world's most reputable firms", is the fact that "the greater the reputation of a company, the more support it earns from consumers, the better its operating performance, and the more money investors are willing to pay for its shares". Wow! Let's all rush off and buy some of what he's selling.
But hasn't the institute got it the wrong way round? Surely, good companies enjoy valuable reputations because they are good companies; they're not good companies because they have worthy reputations. The likes of Google, Apple, Disney, BMW and Lego, which top the Reputation Institute's list, are liked, trusted and respected by consumers because they provide excellent products and services, are ethical and successful.
A positive reputation is a valuable by-product of doing the right thing, every day, by a range of stakeholder groups, in as many different places as possible.
But this tendency to put the reputational cart before the behavioural horse is widespread. A Google search of reputation generates 620 million responses and a search of reputation management brings 16 million responses. But reputation is other people's perception of you, based on their experience of you, so the idea that you can manage reputation is deluded. Rather than seeking to manipulate what people say and think about you, as the term reputation management implies, the way to build a valuable name is to concentrate on doing the right things.
So why do surveys tell us that reputation is one of chief executives' top five concerns? Could it be because the reputation managers – who are, after all, PR and investor relations people masquerading under a fancy title – have told them they should be worried about it? But the kings of spin are spinning a dangerous line if they encourage companies to focus their investment, time and effort in the wrong places.
And how damaging is a bad reputation anyway? The banks may have plummeted in the public's esteem during the recent financial crisis, but their profits remain buoyant. Ryanair boss Michael O'Leary delights in being obnoxious and in continuously paring down his airline's offer to customers, yet the company's financial health is a beacon in a troubled industry. And former BP boss Tony Hayward, roundly vilified last year for the way he handled the Deepwater Horizon oil spill crisis, has secured £1bn backing for a new venture in the energy sector.
Rupert Younger, director of the Oxford University Centre for Corporate Reputation, says there is a link between stature and financial performance – but it depends on which aspect of reputation you measure.
He points out that the reputations of businesses vary among different stakeholder groups, so the general perception of any one organisation might not reflect its aggregated score. Goldman Sachs, for instance, arguably enjoys a positive reputation with investors and with top-flight potential employees, but has a poor name among the public and US regulators. But while dropping one reputational ball might be forgivable, investors will penalise repeated transgressions.
Organisations' apparent ignorance of what makes up a reputation is exemplified in their unrealistic expectations about the amount of reputational capital to be amassed through social media. Excited by the prospect of having relationships with thousands of customers, many are blind to the real value of social media, which is as a source of free, unmediated, real-time market research.
Not that companies would necessarily act on any insights gleaned: they have had many opportunities over the years to listen to their customers, but usually ignore them. Most people have been turned off a brand as a result of one bad experience, yet brands continue with loathed practices such as call centres and cold calling while at the same time trying to be everyone's friend on Facebook. It's hardly a recipe for enhancing reputation.
Of course, in fairness, while reputation is primarily a function of behaviour, communication also plays a part. You can be a good company with a non-existent reputation because no one knows about you. Likewise, you can do some things badly, and, with clever communication, get away with it – but only for a while.
So those companies seeking to buff up their tarnished image with expensive advertising campaigns, without addressing the underlying problems, are on an expensive hiding to nothing. As the old adage goes, you can't make a silk purse out of a sow's ear.
