Public relations no longer suffi ce to protect a company’s reputation. Large and small companies alike lay their reputation on the line on a daily basis. It matters not how their income is performing or whether the launch of a new product has been a resounding success. Their reputation can nose-dive at any moment at the drop of a hat and subsequently falter for many years due to several operational risks: improper conduct by executives, fi nancial irregularities or social networking attacks, to name just a few examples.

The recent setbacks affecting certain corporations such as BP, Toyota or Goldman Sachs have highlighted the fact that addressing reputational risks requires more than just investing or increasing expenditure in crisis management (investing in pressure groups, advertising, public relations), as stakeholders’ current expectations have raised the level of criticism on business performance.

According to the Trust Barometer 2010 survey, conducted by the PR fi rm Edelman, when reaching their decisions consumers are increasingly taking into account the practices of corporate transparency

and honesty about the quality of companies’ products and services or their fi nancial performance.

Reputation StrategiesBearing in mind this approach, what can companies do to protect their reputation? How can they manage their brands to enhance their strategic value? Professor Paul Argenti from the Tuck School of Business and the consultants James Lytton-Hitchins and Richard Verity suggest that we should begin by identifying the type of reputation strategy our company pursues, and so in their article “The good, the bad and the trustworthy” they present a classifi cation that considers four types of reputation strategy. These range from reckless negligence to deceptive virtue, benign competence and trustworthiness as a competitive advantage. The way companies have developed these strategies in recent years is detailed forthwith.

Reckless negligenceThe companies that opt for this strategy do little or nothing to enhance their management capabilities, under the assumption that this leads to a reduction

Stakeholders increasingly expect companies to deliver greater transparency. Those organizations that cannot reinforce the trust of their stakeholders will be ever more vulnerable to reputational risks.

Strategy Documents I08 / 2011

Four business strategies for protecting corporate reputation

Reputation

Insights

Document drawn up by Corporate Excellence - Centre for Reputation Leadership citing, among other sources, the speeches by Paul A. Argenti, James Lytton-Hitchins and Richard Verity at the 15th International Conference on Corporate Reputation, Brand, Identity and Competitiveness held in New Orleans, May 2011.

Insights 2

in expenditure and cost-saving. This means that any action undertaken is valid as long as prices are kept low, customers are satisfied and shareholder expectations for the quarter are met. According to the authors, we might find that between 25% and 30% of the companies in the industrialised nations and in emerging markets have opted for this strategy, with some food companies that ignore the growing concerns about obesity and health falling within this category, without realising that they are one misfortune away from irreversible damage to their reputation.

Deceptive virtueThis strategy involves a company putting its best face forward through public relations, rebranding, corporate philanthropy, sustainability programmes and the espousal of high-quality business practices, building itself a reputation for being farsighted and responsible, even when it is not. As long as the company is well managed, competent, and reasonably lucky, this strategy works. But if its actual core values and business practices do not match the image it presents to the world, it is taking a huge gamble.

Few companies have adopted this narcissistic strategy, such as tobacco companies in the 1960s, pharmaceutical companies in the 1990s, and large corporations in 2000, including Enron and, more recently, some of the world’s biggest banks.

According to the authors, the changing environment in recent years has shown that these two strategies are untenable over time, as they leave companies too exposed to competitors and litigation and may lead to the loss of their operating license.

Benign competenceFollowing this strategy, a company sets out to be efficient and effective, placing emphasis on the responsible management of its reputation. It complies with regulations and makes adequate investments in building its capabilities for health, safety and environmental management, as well as in corporate communications.

Under this strategy, reputation is not the centre of the business, nor should it be, although investment may be made in systems that monitor this risk. The focus is on delivering quality products and services and fulfilling the company’s obligations to customers and shareholders. Perhaps 50% percent of companies fall into this category.

Trustworthiness as a competitive advantage This strategy provides reputation management with a critical capability within an organization. This capability distinguishes a company from the competition, attracts both employees and customers, and earns it an enviable reputation among its

multiple stakeholders. Being a reputation-driven company is a painstaking endeavour, in which the company needs to pay as much attention to maintaining transparency while at the same time living up to its public promises at all times.

“Stakeholders are ever more critical of corporate performance”

The US supermarket chain Wal-Mart is a good example of a company that has made significant progress toward trustworthiness. Based on environmental sustainability, the company is managing to change consumers’ buying habits. Furthermore, it is transforming its operations through supply chain transparency, increased fuel efficiency in its vehicles, greater energy efficiency in its stores and waste minimization. As a result, Wal-Mart is achieving its three sustainability objectives: operating solely with renewable energy, creating zero waste and, finally, selling environmentally sustainable products. Accordingly, it has sold more than 350 million energy efficient compact fluorescent light bulbs in the United States.

The five strategic pillars of trustworthinessFor Argenti, the quest for trustworthiness is not an altruistic practice, but rather yet another option for those companies that need to find their place in the market guided by the management of their corporate reputation. This does not mean that a company has to be flawless to be worthy of trust. Instead, companies must gain the commitment of all employees to fix broken business practices that no longer reinforce the business strategy, and offer a realistic plan to deliver on its promises in the future.

A strategy of benign competence is an easier and more suitable path for many companies, whereas a strategy based on trust is harder to implement; as companies choosing this course will probably need to change deeply embedded habits and instil new capabilities. If companies manage to make these changes,

Types of reputation strategy

Source: The good, the Bad and the Trustworthy; 2011.

1. Reckless negligence

2. Deceptive virtue

3. Benign competence

4. Trustworthiness as competitive advantage

Four business strategies for protecting corporate reputation

Insights 3

they will have the chance to create a sustainable strategy for growth that could beat the competition regardless of industry conditions. According to these authors, there are fi ve strategic pillars for becoming a trustworthy, reputation-driven company. Companies should consider the following:

1. Facilitate dynamic strategy development and execution. Trustworthy companies must develop strategies based on deep insight into the needs and perceptions of their stakeholders. They should develop nimble systems to enable employees to participate in dialogue to resolve and pre-empt potential threats or problems. One example of this is Avon Products, which has created a so-called 360-degree communications programme that has placed the company closer to its customers throughout the world.

2. Foster the key behaviours for a one-company culture. Implementing a market-driven strategy requires companies to build a globally integrated culture that benefi ts their employees. The transformation of Philips over the last decade from an electronics fi rm into a much more diverse healthcare, lighting and lifestyle company is a good example of this management. Having established a coherent business portfolio, the company launched two major communication campaigns called “One Philips” (to revitalize the company’s identity internally) and “Sense and Simplicity” (to reposition its brand).

3. Nurture reputational capital. Internal business practices must institutionalize the alignment of the company’s reputation with its actual behaviour. This typically involves closing any gaps that may exist between corporate identity and image. To recognize these gaps, companies must maintain early-warning systems to keep them continually informed of reputational risks. Nurturing reputational capital requires rethinking corporate social responsibility programmes as vehicles for competitive

advantage, distinguishing the company’s practices and overall capabilities from those of its competitors.

4. Harness social media to strengthen relationships. Companies must empower their employees with the tools that facilitate dialogues with stakeholders to better understand their interests and pre-empt any problems that might arise. During the 2008–09 recession, Ford Motor Company took advantage of its website and social media platforms to launch live conversations among suppliers, dealers and customers. These actions helped the company to more readily overcome the problems caused by the crisis when compared to its rivals General Motors and Chrysler.

5. Integrate rigorous crisis management policies. Rapid response capabilities at local, regional and global levels are critical. There are four rules for protecting reputation:

– Frame the problem.– Execute a practical plan that offers

concrete steps to rebuild confi dence among those directly affected.

– Tell the truth. – Transform the crisis into strategic

opportunities to build reputational capital.

“Organizations that cannot reinforce trust within their internal management are increasingly more vulnerable to risks”

ConclusionsOrganizations that fail to develop trustworthiness completely are vulnerable to signifi cant criticism from their environment and stakeholders. The choice between a strategy based on neglect and one built on trustworthiness is essential and may well become vital for the competitive advantage of organizations in a world looking for institutions it can count on for the long haul.

Four business strategies for protecting corporate reputation

Strategic pillars of trustworthiness

Source: Paul A. Argenti, James Lytton-Hitchins & Richard Verity, 2011

Trust

Facilitate dynamic strategy

development Fosterthe key

behaviours for a one-company culture

Harnesssocial media to strengthen relationships

Nurture reputational

capital

Integrate rigorous crisis management

policies

©2011, Corporate Excellence - Centre for Reputation Leadership Business foundation created by large companies to professionalize the management of intangible assets and contribute to the development of strong brands, with good reputation and able to compete in the global market. Its mission is to be the driver which leads and consolidates the professional management of reputation as a strategic resource that guides and creates value for companies throughout the world.

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