Corporate reputation: Managing in good times and bad

How often, and under what circumstances, do you focus on managing your corporate reputation? Do you think of it mostly when you need a protective cushion to help shield you from a bear market or crisis, or when your stock price is up and everything is running smoothly?

TNS Stakeholder Management Practice's CORE study confirms the paradigm investor relations professionals follow as they manage their companies' relationships with the financial community: Corporate reputation has a visible impact on stock value in a down market or disaster, but has masked impact in a strong market. In a bear market, strong investor relations activities help maintain value by leveraging corporate reputation to minimize risk associated with negative issues. But in a bull market, institutional investors have already factored in corporate reputation, and economic factors are the most important elements.

Continual focus

So, when should you expend your resources to actively manage your corporate reputation? "Always," says Shubhra Ramchandani, Practice Leader of TNS North American Stakeholder Management Practice. "Using a crisis-management-only approach will create problems in the long-term. When corporate reputation erodes, so does its power to protect. Like any other valuable company asset, corporate reputation must be proactively managed."

Al Golin, Founder and Chairman of the public relations firm GolinHarris, has written a book dealing with these issues, Trust or Consequences: Build Trust Today or Lose Your Market Tomorrow. He explains, "There's a trend toward long-term investing, and in the long-term, trusted companies do the best." He advises corporations to "focus on building trust first and restoring it second" by building a "trust bank" into which they make deposits and withdrawals when necessary. When complacent about their reputation, "even the most value-conscious companies [are] vulnerable."

Thinking beyond stock value

But corporate reputation is important to more than institutional investors. It also impacts other key stakeholder groups including employees, consumers and business partners. Their behavior affects the bottom line. A poor corporate reputation hinders alliances with strategic business partners, makes the market less receptive to successful new product introductions, creates problems finding qualified employees and motivating/retaining those it has and provides negative fodder for the opinion-leaders.

"Poor corporate reputation handicaps a company's efforts to succeed." says Curt Carlson, Client Service Team Leader of TNS Stakeholder Management Practice. "It manifests itself in situations like high employee turnover despite HR investment and improved employee satisfaction, lack of community support relative to other companies, difficulty creating strategic alliances with potential partners and media reminders of past problems and transgressions."

In managing their reputations, some companies have formally linked the activities of investor relations and public relations to present a more consistent message to all stakeholders. These two functions overlap since institutional investors are just as likely to read their daily newspaper and watch the same TV news show as any member of the public. For instance, if a company is launching a new product or service and uses PR to publicize its innovation to consumers, institutional investors will see that news, and in turn, the exposure may affect stock price.

While investor relations is numbers-oriented, PR's softer side engages emotional components that are also powerful. These results are usually most visible among consumers and employees, but also appear in some surprising ways. Al Golin offers an example: During the Rodney King riots in Los Angeles, most quick-service chain restaurants in Watts were trashed or burned – except McDonald's. "That's because McDonald's had done many things to build strong relationships with the people and institutions in its restaurants' communities. [] This goodwill protected McDonald's during this crisis."

In setting up a proactive relations plan, what should you focus on? The factors that influence stakeholders' impressions. In the three waves of the CORE study, the issues that drove independent investors' ratings of corporate reputation have remained constant. Interestingly, individual investors' multiple roles as investors, consumers, employees and business partners are reflected in this list:

• Trust and confidence
• Product and service quality
• Customer satisfaction
• Fair and ethical business practices
• Positive future growth prospects

Albergo poloniaA strong plan will contribute to positive perceptions about the company and in some way touch on all of these issues.

Proactive planning

"Investing in managing corporate reputation – which affects all stakeholders at all times – is as important as any other priority in building a company's short – and long-term value," emphasizes Shubhra Ramchandani.

Book reference

Al Golin. Trust or Consequences: Build Trust Today or Lose Your Market Tomorrow. American Management Association, 2004.

keno regoleIf you want to further explore how to manage corporate reputation, participate in our complimentary Webinar series.

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