On the 3rd December 1984 the world’s worst industrial accidents happened. A gas and chemical leak at Union Carbide’s Bhopal site killed an estimated 20,000 people and left a further 100,000 to 200,000 permanently injured. An event that caused the company to collapse. There are many other examples of corporate disasters including:
• BP: Gulf of Mexico oil spill.
• Johnson & Johnson: cyanide scare (Tylenol).
• Toyota: break failure recall.
• BA: Heathrow terminal 5.
These mishaps had a direct impact to the reputation of said companies, which in turn caused their share price to drop and sales to fall. Could there have been something that the companies could have done to mitigate and/or limit the impact of these disasters?
The introduction of a Corporate Reputation Management Process would go a long way in answering this question. Unfortunately, most organisations rarely manage their reputation until they have been damaged (Yoon). This report will look at the pros and cons of introducing a corporate reputation process. It evaluates the key drivers then provides a case for establishing one with detailed recommendations on what should be done.
Corporate reputation (CR) has been widely reviewed by academics and practitioners: Dutton et al, Dowling, Deephouse, Fombrum, and Weiss et al. They all offer slightly differing views: table 1.1 illustrates a summary of these views. The author feels that these variations have caused confusion amongst those looking to implement a CR management process. The key point to remember is stakeholders need to have their expectations managed. Figure 1.1 graphically displays the stakeholder groups and their areas of interest: this is an adaption of van Riel and Fombrun’s drivers for reputation.
|Researcher(s)||Corporate Reputation View|
|Dutton et al||Employee identification|
|Dowling||Market value of a company|
|Deephouse||Favourable media cover|
|Weiss et al 1||Customers view of the company|
|Fombrun||Financial and strategic performance|
Table 1.1. The differing views of researchers on corporate reputation.
Why introduce a Corporate Reputation Management Process?
There are two schools associated with the management of CR: those who argue for actively managing it and those who argue against. This section of the article will critically asses both cases.
Investor relations, access to capital and M&A: There have been many who have stated that a firm’s positive reputation will attract investors (Gray; Gregory; Marconi; Milgrom and Roberts). The author believes this to be the case for public companies and/or large privately owned corporations like Virgin, unfortunately there is little or no evidence relating it to the smaller privately owned businesses. Further research should be conducted to clarify the impact of CR to this segment of companies.
Customer Loyalty and premium pricing: McGill et al are one of many who have highlighted the fact that customer loyalty creates repeat business, which in turn builds a more profitable company. The effort and costs for managing existing customers is much lower than finding new business (Kotler et al). Ultimately it is the great reputation that simplifies the buying decision for customers (Chun). Loyal customers gain an emotional tie to the brand and are willing to pay a higher price.
It should be noted that this is not always the case, Ryanair, the classic example of a company that customers “love to hate”. It is fair to say that they are the exception. They have built their success on a business model where price is the overriding factor.
The reputation for companies operating in the pharmaceutical industry is critical: product quality and efficacy is an “order qualifying” criteria.
Recruiting and keeping the best employees: Behrend et al confirmed this hypothesis in a study that used a fictitious environmental message on a recruitment website to see if it would increase job applicants’ perceptions of organisational reputation. Winkleman also suggests that good reputation reduces staff turnover.
Reputation alone will not endear the employee to a business. Atchison cites the story of I Love Rewards, a Canadian based organisation that stopped the high staff turnover by introducing a range of innovative employee perks. Businesses should critically look at its rewards and recognition scheme as well as the CR management process.
Competitiveness, market positioning and licence to operate: Davies et al goes through in detail how CR can increase competitiveness (a number of points have already been highlighted above). Little has taken it a stage further and argued that good CR is generated from good corporate citizenship: setting fair standards for labour in developing countries and having corporate social responsibility high on their agenda are just two examples. This allows a business to alter its market position to gain a competitiveness advantage and obtain a “licence to operate” in the eyes of the consumer.
The author feels that this model might fall down in businesses being run by venture capitalist. There is no evidence to support this fact but it would be worth testing the hypothesis in further research.
Resource and Cost: Most, if not all studies on CR promote it as a process that businesses should adopt. From an academic and theoretical point of view the argument is strong, however from a practical and application stance there are flaws. A survey of CEO’s found that CR can be classed as an intangible asset (Institute of Directors ). This leads to the first problem: how and who manages an intangible process? This report has already highlighted the fact that it has no clear definition. With this in mind, what are the skill requirements of an ideal candidate?
Where should the budget for CR sit and how is it calculated? Schreiber has an elegant answer to this dilemma: no one function should be responsible, it should be holistic. Businesses should use the same model as the management of health and safety: large manufacturing organisations employ dedicated individuals to facilitate the process and small / non-producing sectors have it as part of every employee’s brief.
Dominant product brands: Some companies (mainly FMCG) have product brands that are more dominant than the corporate brand: washing liquids and alcohol beverages are good examples of businesses that fall into this category. Their strategy is to focus on the reputation of the brands.
The key point to remember is that the management of CR involves a variety of stakeholders: customers are just one of many. The arguments for introducing a CR management process will still apply to the others.
Survival verses growth: The most poignant argument against introducing a CR management process is when the company is fighting for survival. Bigelow recommends that businesses need to stay focused on the important aspects: getting new orders, ensuring financial stability and maintaining customer satisfaction. Although, if the business already had a process in place and its reputation was high would it have not found itself in this predicament.
The ultimate decision will rest with the board. There are clear reasons for and against the introduction of a Corporate Reputation Management Process. More considerations need to be made: in the coming weeks we will review the key forces that impact on the company’s reputation: this may help in making the final decision.