The Frame of Corporate Reputation
There seems to be consensus that corporate reputation is an intangible asset that holds potential for business. This is not the case with the methodologies used, the variables selected, and especially with regard to the alleged causal link between corporate reputation and social responsibility.
In a society where structures are less and less vertical and increasingly networked, where a more holistic perspective is taken and the public is more educated about the financial, social and environmental impacts of firms, the results provided by corporate reputation studies are being called into question by some business practices. In the opposite sense, some companies seem to be immune to the negative perceptions of their stakeholders.
Several colleagues opened this debate a few months ago in a series of articles: “Schumpeter” from The Economist “What’s in a name? Why companies should worry less about their reputations”; Alberto Andreu in ““Sobre Schumpeter y su (limitada) visión de la reputación de las empresas” and its sequel “La mala reputación de la reputación corporativa (a vueltas con Schumpeter y otros blogueros “ and Antonio Vives with several articles including “¿Reputación como fin o como resultado de la RSE?“.
I refer to all of them due to their undeniable interest. However, I will summarize the context of this discussion in the words of Antonio Vives, whose thoughts are in line with the thesis of the Blog in The Economist: “Reputation is not synonymous with accountability. There is no direct relationship between responsibility and reputation. It depends on the communication received from all parties involved and how it is processed. The company “manages” these last parts to its benefit.” His articles contain very interesting opinions that I would like to share here, such as:
- Reputation is made up of many different issues,
- Reputation is overrated and there does not seem to be a clear causal relationship between reputation and its influence on businesses and consumers,
- And as a corollary, the best way to handle reputation is reputation management.
This debate is even more important in the depths of the current crisis, where the true effectiveness of reputation can be tested. The heightened critical awareness of all stakeholders has stripped corporate reputation of some of its ornaments and it has been affected by the contagion effect of country risk. Both of these factors have called into question traditional measurement methodologies although interesting efforts are being made to reach new a consensus and deploy them in the enterprise.
Company reputation is the perception that the public has of the activities it performs and in a very objective and accurate definition Villafañe states that corporate reputation is “the recognition of corporate behaviour by a company’s stakeholders based on how well it complies with its commitments in relation to its customers, employees, shareholders, and the community at large.”(1)
However, this recognition comes from perceptions. Andreu quotes Carl R. Rogers and F.J. Roethlisberger (Barriers and Gateways to Communication, Harvard Business Review, December 1991) who defined perception as the mechanism by which people complete the partial information they have of reality in order to understand and encode the messages they receive. Based on this, Andreu concludes that “nothing is true or false: it’s in the eye of the beholder.”
If we start from this premise, the fact that we all have our own encoding system means that communication strategies will have a key role. Or as Villafañe states, “For reputation to be a value driver it should be managed and communicated.”
But how do we build reputation? Or rather, what is the relationship between reputation and a firm’s activity? This is precisely what this article and the comments that follow deal with: encoding and communication strategies.
The image or reputation of a firm stems from perceptions that may be collective but may be composed of images that come from different parts of the corporate entity. As Italo Pizzolante says (en La Geometría de la Comunicación Empresarial): “When we dig deeper into the analysis of corporate image and remember that the ‘image’ comes from perceptions that may be collective and that ‘corporate’ comes from the Latin ‘corpus’ (body), that is, the sum of the parts of the company, we realize that ‘each one’ of these parts makes up, by themselves, ‘images’ in each of the different audiences. The team that works at the Financial department, creates perceptions in the financial sector and suppliers, among others; the Manufacturing and Distribution team… in the consumer; the Management staff… in the government, the competition, and the community; and the staff at the plants in the neighbours, among many other audiences. Each and every one of the parts of the company as a whole are IMAGES and each public may perceive and thus maintain a particular ‘image’ of the organization. These are publics that, as a result, may have different and even contradictory views of the same company.“
In short, one of the key challenges is to get a reputation or image that adequately brings together these different perceptions, to achieve a reputation that is truly aligned with the “reality” of the company.
Now, if we consider the main reputation assessment and management models (Reputation Quotient, Rep Track, MERCO, The World’s Most Admired Companies and the World’s Most Respected Companies) we find that there are no uniform standards in the selection of variables, or in what groups to survey, or the inputs that are taken into consideration.
It is true that rules are set down for weighting the different categories of stakeholders surveyed, and for the weight given to the different dimensions analyzed, but these corrections are often not explicit in the various models (MERCO is an exception). Furthermore,
-What is the order? Is weight first assigned to each of the dimensions analyzed, or to the strategic prioritization of the stakeholders of each company? In the case of Rep Track, it is explained on its website that seven dimensions are considered and “Inside of each dimension lie specific attributes that can be customized for clients in order to allow for program and message-ready analysis”. If this is so, the result is reputation indexes that are impossible to compare and tailored to the needs of each company.
– Can we then speak of a unique reputation instead of reputation indexes?
– If reputation is a question of responsibility and falls within the issue of sustainability and is not just part of the communication strategy, is it a contradiction or not to measure the perceptions of our stakeholders when there is no proper stakeholders management policy first? In short, if reputation is going to be a mechanism for self-evaluation and improvement and not merely a communication tool, should it not be aligned to what we want our relationship with stakeholders to be and thus set the indicators accordingly? In my article Stakeholders in Search of an Author, I already expressed my scepticism about genuine stakeholder management by firms and even the relationships among themselves.
Another interesting issue is what Pizzolante calls the traditional mistake of giving great importance to what “people say” about the company and not focusing on “why they say it and repeat it.” Antonio Vives in his post on the halo effect talked about one aspect of this problem that has nevertheless multiple facets:
-What factors influence consumer perception and distort the message?
-Does all of the relevant information reach stakeholders, or only partial information?
We can take an example from Solomon Asch’s experiment. We have the description of two people, Alan and Ben.
-Alan is smart – a hard worker – impulsive – critical – stubborn – envious
-Ben is envious – stubborn – critical – impulsive –a hard worker – intelligent
According to Asch’s experiment, most people would give Alan a higher rating than Ben, because listing the positive values first affects the perception of others (anchor effect).
In addition, the discordant views of the different publics, sectors, markets, and countries are not taken into account.
Andreu is critical of those who say the real purpose of reputation is to influence perceptions or manage “reality”. As long as such issues remain unsolved, there is indeed a danger that reputation becomes a kind of “logical framework” in the communication strategy of the company, where the firm is broadcasting or encoding the messages it want to convey to its stakeholders. Namely, “reputational frameworks of excellence” are created first, but they have nothing to do with the activity of the company.
As Pizzolante concludes, the challenge is to achieve comprehensive and transparent communication that combines both form and substance.