Presidents, CEO’s and Area Managers continue to point out to their corporate reputation as one of the most valuable company assets.

Nevertheless, with swiss watch precision, reputational disasters make their stand on the covers, destroying the value of companies and their client’s trust, along with the very valuable confidence of key stakeholders.

Throughout the last year, undisputable leaders as Toyota, Goldman Sachs, BP, HP, Johnson & Johnson, etc. have seen themselves involved in severe reputational crisis.

Recently, we have all witnessed the devastation caused by a tsunami in Japan, as well as Tepco’s, Fukushima’s nuclear plant operator, poor and late reaction on top of a cloud of transparency accusations. Possibly, the “coup de grâce” to the nuclear sector reputation.

Even while the origins of these reputational crisis vary from case to case and from industry to industry, worldwide markets have decided to take upon companies, resulting in severe punishments and constant drawbacks to their market value. More than often, loss of public confidence (license to operate) is just the start to a whole set of forthcoming problems.

Lawsuits, public hearings, regulatory investigations, and social judgment start to take place straight away. In some cases, public offices catch on the possibility to undertake policy reforms or simply occupy the role of heroes against the corporate villains they kindly endorsed a while ago. In other cases, regulators and politicians can feel the public pressure forcing them to take decisions which may change the competitive environment.

Reputational Boomerang

In every single one of the cases above, observers have pointed out specific mistakes or misjudgments made by the executives or line managers. However it would be an error to focus just on those tactical faults and let go the chance to step back and adopt a wider perspective where trends and their manifestations, can be evaluated.

Although trust is recognized to be an essential part of current business, companies, in general, haven’t responded yet to the reforms they have been demanded. Their reputational risk has increased drastically, although their detection, mitigation and recovery capacities have remained almost untouched.

The unavoidable result is a crisis chasing another crisis and the continued general erosion of the companies’ public trust.

 

“Companies find themselves in an environment of higher expectations matched with higher scrutiny leading to higher reputational risk.”

 

WRONG MENTALITY

Recent research demonstrates the message is gradually spreading and understood. Global corporate leaders have understood how essential reputation is to the current business, although they still feel overwhelmed (or skeptics) about the need to develop a risk oversight process which may allow them to manage their reputational risk, among other equally important risks.

The problem kicks in when tackling this new issue with a wrong (narrow or ex post facto) mentality. The vast majority of the companies still consider reputation to be a corporate communication function or a PR activity and not a strategic competence or a core capacity affecting their sustainability.

This deformed attitude is derived from or supported on the following beliefs:

  • A good reputation is the consequence of good, legal business practices and from complying with clients, employees and supplier agreements.
  • If problems take place, they can be calmly delegated to the public relations area, the legal department and/or to external advisors.
  • The management of the reputation requires little more than a bit of common sense and the desire to ‘’do the right thing’’.
  • Keeping a reasonable level, shareholder permitted, of volunteering and philanthropy will do the job.

 

Every single one of these beliefs is faulty or defective.

First, Span of Reach. The need to actively manage their reputation is critical to any organization. Actually, the importance of doing it is probably leaning towards growing than diminishing in the near future. Obviously good practices are important, even necessary, but insufficient to achieve a successful reputation management.

 

Second, Visibility. Reputation management belongs on the the leader’s agenda. It is not because the reputational risk is one of the main risks facing the company, but because reputation is also one of the few remaining sources of sustained competitive advantage. Highly reputed companies can charge premiums and are difficult to imitate.

The responsibility of managing the company reputation relies within the leader who shouldn’t simply delegate it to specialists like lawyers, communication or public relations experts.

Although these experts have an essential role in the reputation management process, they should not be its owners. In the vast majority of companies, whenever the process exists, it is (typically) assigned to the communication or legal departments.

If the company’s reputation is actually considered to be a precious asset, Why to entitle it to a department which, more than often, is resource-scarce and lacks influence in business and corporative policy decisions?

Surprisingly enough, the vast majority precisely do that, considering reputation management as Quality was in its early days.

Communications plays an essential role in the reputational process, but such process should be intimately integrated in the business, in its design, operation, evaluation and control. The management of the reputation must be another key responsibility of the business leaders and carried out by the CEO, as caretaker and ambassador of the corporate reputation.

An analogy with the dimension ‘’people’’ might help me make this point a bit clearer. Throughout the last decade, CEO’s have learnt they should be sole proprietors of today’s essential process ‘’people’’. Human resources departments play a crucial role on daily management of the people, helping in policy making, implementing and facilitating the whole process. Nevertheless, it is the business leader who should be the owner and the spirit of the process itself.

Challenges to the company’s reputation, typically, emerge outside from the business context (outside the office). They require special efforts and will to be integrated in the standard management practices, as part of the business decision making process. This is especially critical for reputational crisis prevention, which may emerge as a result of business decisions themselves. Strategic or operational decisions, like product design, marketing strategy, pricing models, compensation programs, resource utilization, M&A activities or market strategies.

In many cases, the most effective way to manage reputational risks is to improve the capabilities and skills of our business leaders, helping them to develop a ‘’sixth sense’’ to the reputational risks and opportunities, while giving them support with an integral, well designed and implemented process, instead of just adding a new corporative layer. In short, avoid repeating traditional operating models (departmental) as historically done with quality management or product design.

 

Third, Systemic Nature. Managing reputation is a difficult and complex activity. It requires a strategic sophistication, social agility and systems dynamic understanding, which usually clashes against the day to day objective driven decisions, far simpler and straightforward, in comparison.

A company’s reputation isn’t just formed by direct relations with partners, clients, employee, investors and providers. Other external stakeholders, as the media, activists, social networks, groups of power, regulators and politicians exert a noticeable influence to the company’s reputation. These, frequently, lie dormant throughout several years, waiting for a new crisis to take place.

A strategic approximation to the reputational difficulties requires of a high emotional fortitude to treat them as understandable challenges, even predictable. One should take them into account and be prepared to face these issues, even in advance, in the current business environment.

As a result, companies should manage the reputation (and its crisis) in the same way as any other major challenge, risk or scenario approaching their business: ‘’Based on a principled leadership, supported by processes with sophisticated capabilities and integrated culturally and strategically in the corporation’’

The effective management of the reputation will always be a highly demanding activity and, just as any other business skill, it will require of innovation and adaptation. However, adequate capacities and tools might reduce drastically its complexity, help to identify problems early enough and assist in the development of effective counter measures and closely integrate management policies in the rest of the business.

 

CULTURE AND REPUTATIONAL STRATEGY

Any company leader must realize that even the most sophisticated reputational management systems are run by people. Every single one of them must be able to evaluate the situation at hand and calibrate the risks to be able to take the best decisions in the ‘’moments of truth’’. To achieve this, not only a strategic attitude is needed. In addition, being explicit on values, ethics, culture, transparency and case exercise might serve as a direct experience guide to every individual.

We can’t expect every one of us to be able to evaluate the reputational risk involved in every situation, but we can surely cease doing and escalate whatever it is when it doesn’t look right, according to the agreed values, principles and purpose.

Moreover, the strategic management of the reputation requires the skill to picture, even the most familiar business decisions, from the perspective of other stakeholders. People who, although they aren’t specialists, they might have very strong opinions about certain problems. Frequently, these opinions aren’t objectively-driven, but rather driven by deep emotional or passionate visions regarding what attitude or behavior is right or wrong.

A strategic mentality regarding reputation requires, also, of situational intelligence or “Big Ears”. Reputation, in essence, is public. It is a social force producing actions at a distance. It is activated by us but interpreted, oriented and modulated by third parties and their own ‘’agendas’’.

All of these third parties and intermediaries must be treated as serious competitors in our market, competing for the attention, engagement, influence and perception of our stakeholders. Our reputation!

 

To aim for understanding the motivations, perceptions and strategic capabilities behind the diverse key stakeholders of our organization is essential to develop social intelligence and situational anticipation.

 

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2 Responses to Reputational COMPETENCES

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