Companies, both big and small, risk their reputation each day. No matter how good things seem to be — earnings are on the rise or a new product is a smash hit — serious threats can instantly damage a company’s reputation, sending even the most respected businesses into a tailspin from which they might not fully recover for years. Environmental accidents, manufacturing mishaps, executive misconduct, financial irregularities, product recalls, and online attacks by special interest groups, for starters, are now commonplace. Many businesspeople seem to think, watching the recent public excoriation of BP, Toyota, Goldman Sachs, and other companies, that the most appropriate way to manage reputational risk is to significantly increase spending on crisis management: Invest in lobbying, “apology advertising,” and a crackerjack public relations agency that can swoop in to make such problems go away.
However, this approach will no longer fly, because the public is growing increasingly cynical about corporate behavior. Some companies’ hapless responses to accidents and other incidents have made business seem generally out of touch and untrustworthy. At the same time, the strategic value of a good corporate reputation seems to be growing stronger. The 2010 “Trust Barometer” survey by the PR firm Edelman found that people believe that trust, transparency, and honest business practices influence corporate reputation more than the quality of products and services or financial performance. Given this intriguing sentiment, what can companies do to safeguard their reputation and their brands — and beyond that, to enhance and even realize strategic value from them?
The answer starts with taking a long, hard look at your company’s current reputation management strategy and determining whether it is still tenable. In the past, companies adopted one of four possible strategies; all four were effective to some degree. However, today only two, numbers 3 and 4 in the list below, are viable.
1. Reckless negligence. This strategy involves continuing with business as usual: doing little or nothing to improve your capabilities in health, safety, and environmental management, assuming that you can cut corners and shave costs without reprisal. You believe that whatever chances you are taking will be justified as long as you keep your prices low, your customers satisfied, and your quarterly shareholder expectations met. Perhaps 25 to 30 percent of the companies in the industrialized world and in emerging markets have chosen this strategy. These companies are one misfortune away from irreversible damage to their reputation. Some food companies that ignore the growing concerns about obesity and health are in this category.
2. Deceptive virtue. You put your best face forward through public relations or rebranding campaigns, corporate philanthropy, sustainability programs, and espousal of high-quality business practices, building yourself a reputation for being farsighted and responsible — even if you aren’t. As long as the company is well managed, competent, and reasonably lucky, this strategy works. But if your actual core values and business practices don’t match the image you present to the world, you’re taking a huge gamble. Comparatively few companies have adopted this narcissistic strategy; those that have include tobacco companies in the 1960s, pharmaceutical companies defending killer drugs in the 1990s, and the highest-profile corporate falling stars of the 2000s, including Enron and, more recently, some of the biggest banks.
The seismic events of the past few years have shown that these two strategies are untenable. They leave companies too exposed — to populist outrage, competitors, litigation, and the loss of a license to operate. Moreover, as they falter, new rivals with better reputations (and better reputation management strategies) can always step in and fill the gap.