Why companies should worry less about their reputations

Schumpeter-longWhat’s in a name?
Why companies should worry less about their reputations.

Je moet niet hard hoeven te werken om een goede reputatie te krijgen, je moet je reputatie zijn.

Written by Schumpeter

Why companies should worry less about their reputations

People have been debating reputation since the beginning of history. The Bible says that a “good name is rather to be chosen than great riches, and loving favour rather than silver and gold.” Others have dismissed reputation as insubstantial—a “shadow” in Abraham Lincoln’s phrase, or an “uncertain flame” in James Lowell’s. Shakespeare provided material for both sides: Cassio described reputation as “the immortal part of myself”, while Iago dismissed it as “an idle and most false imposition: oft got without merit, and lost without deserving.” Today’s management-theory industry has no time for such equivocation. For its acolytes, reputation—or at least the corporate kind—is a “strategic asset” that can be  leveraged” to gain “competitive advantage”, a “safety buffer” that can be called upon to protect you against “negative news”, and a stock of “organisational equity” that can be increased by “engaging with the stakeholder community”.

On April 17th Gibson Hall—a wonderful Victorian edifice near the Bank of England—echoed not with the sound of Shakespeare (which would have suited it), but management speak. The Reputation Institute, a consultancy, revealed the results of its latest “Reptrack” Corporate Reputation Survey. And various spokespersons hammered home the importance of managing reputation. Reputation is so important these days, they said, that we live in nothing less than a “reputation economy”. The launch of the British corporate-reputation survey was only one of a number of similar launches around the world: the Reputation Institute has offices in 30 countries. And it is only one of many consultancies that plough this particular furrow. Plenty of other organisations offer firms “holistic” advice on improving their reputations, such as Perception Partners in the United States or specialised divisions within many big consultancies. And a rapidly growing number of niche consultancies, such as  reputationDefender, give people advice on managing their reputations online. For example, they offer tips on how to push positive items up the Google ranking and neutralise negative ones.

It is easy to see why so many bosses are such eager consumers of this kind of advice. The market value of companies is increasingly determined by things you cannot touch: their brands and their intellectual capital, for example, rather than their factories or fleets of trucks. The idea of a “reputation economy” makes intuitive sense: Facebook is worth more than General Motors. At the same time, reputation is getting ever harder to manage. NGOs can turn on a company in an instant and accuse it of racism or crimes against the environment. Customers can trash its products on Twitter. Corporate giants such as Toyota and BP have seen their reputations collapse in the blink of an eye. How successful are reputation consultancies in rendering the intangible measurable and manageable? The Reputation Institute has produced some intriguing results. Americans and Britons are more impressed with “old-economy” firms than “new-economy” ones. The three most reputable companies in America are General Mills (which sells food), Kraft Foods and Johnson & Johnson (drugs and household goods). The top three in Britain are Rolls-Royce (jet engines), Dyson (vacuum cleaners) and Alliance Boots (drugs and prawn sandwiches). In Britain the overall reputation of the corporate sector has declined since last year. In 2011 it looked as if British firms were recovering from the
reputational catastrophe of the financial crisis. But outrage over bosses’ business bloated pay and phone-tapping by big media companies—particularly News Corporation—have reversed that trend. Nevertheless, there are three objections to the reputation-management industry. The first is that it conflates many different things—from the quality of a company’s products to its relationship with NGOs—into a single notion of “reputation”. It also seems to be divided between public-relations specialists (who want to put the best possible spin on the news) and corporate-social-responsibility types (who want the company to improve the world and be thanked for it). Reputation as a by-product. The second objection is that the industry depends on a naive view of the power of reputation: that companies with positive reputations will find it easier to attract customers and survive crises.

It is not hard to think of counter-examples. Tobacco companies make vast profits despite their awful reputations. Everybody bashes Ryanair for its dismal service and the Daily Mail for its mean-spirited journalism. But both firms are highly successful.
The biggest problem with the reputation industry, however, is its central conceit: that the way to deal with potential threats to your reputation is to work harder at managing your reputation. The opposite is more likely: the best strategy may be to think less about managing your reputation and concentrate more on producing the best products and services you can. BP’s expensive “beyond petroleum” branding campaign did nothing to deflect the jeers after the oil spill in the Gulf of Mexico. Brit Insurance’s sponsorship of England’s cricket teams has won it brownie points in the short term, but may not really be the best way to build a resilient business. Many successful companies, such as Amazon, Costco, Southwest Airlines and Zappos, have been notable for their intense focus on their core businesses, not for their fancy marketing. If you do your job well, customers will say nice things about you and your products. In his “Autobiography” John Stuart Mill argued that the best way to attain happiness is not to make happiness your “direct end”, but to fix your mind on something else. Happiness is the incidental by-product of pursuing some other worthy goal. The same can be said of reputation.