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Winning the Reputation GameCreating Stakeholder Value and Competitive Advantage$

Grahame R. Dowling

Print publication date: 2016

Print ISBN-13: 9780262034463

Published to MIT Press Scholarship Online: January 2017

DOI: 10.7551/mitpress/9780262034463.001.0001

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Frequently Asked Questions

Frequently Asked Questions

Chapter:
(p.207) 11 Frequently Asked Questions
Source:
Winning the Reputation Game
Author(s):

Grahame R. Dowling

Publisher:
The MIT Press
DOI:10.7551/mitpress/9780262034463.003.0011

Abstract and Keywords

This final chapter reviews the material in the book by posing and answering some of the typical questions managers ask about investing in and managing corporate reputations. For example, does a company need a good reputation in order to secure a social license to operate? Is it true that corporate reputations take a long time to create but a very short time to ruin?

Keywords:   Social license to operate, Reputation damage, Fast reputation creation, Corporate identity, The role of head office

This chapter is for managers. The following questions are the ones that business school students and attendees at management development programs often ask that I have not addressed earlier. Because there is little research that directly addresses each question, my answers will be based on a blend of scholarship and intuition. And occasionally I will note that an answer is my best guess.

When do organizations need a good corporate reputation to secure a social license to operate?

Put simply, most companies don’t need a formal social license to carry on their current operations. It has already been implicitly granted because they are successfully operating. Companies providing products and services in fields such as the arts, banking, education, energy, entertainment, food, clothing, housing, medicine, telecommunications, and transport are welcomed by the societies they serve. Modern society can’t do without them. And as the global financial crisis demonstrated, when some of these companies wantonly abuse this invitation, they are reprimanded but not hounded out of business.

However, some companies are forced by the nature of their business to invest in a good reputation as a precondition to operate in new fields. For example, mining and energy companies must go to wherever the earth yields up their valued resources. Often the location of a new mine is controlled by a demanding government. And to get access to the resources the company must dig up the terrain, build transport infrastructure, and sometimes move communities. These activities require a social license to operate. And a good corporate reputation can be helpful here.

(p.208) Peter Firestein describes how BP tackled such a task when it built a thousand mile pipeline through Azerbaijan, Georgia, and Turkey.1 It consulted thousands of land tenants to determine the least disruptive route for the pipeline and the locations of power stations and other infrastructure. BP then gave $30 million to NGOs to invest at their discretion in hospitals, water systems, schools, and other social assets along the route. These pragmatic reputation-building activities helped minimize risk from social disorder and support its business case.

Two general situations where a good corporate reputation can help a company operate are when it provides basic infrastructure and when it innovates. When private companies take over “public” assets such as airports, roads, trains, electricity generation and delivery, health care, and water systems, they are often perceived to be more powerful and influential in people’s lives. This expanding social footprint is often accompanied by the responsibility to act honestly and fairly across diverse groups of people because, when these companies were owned by the government, each had an explicit community social obligation. For example, it was expected that the postal service was equally available to everybody. The second situation involves innovation. Often it poses risk to society. So society’s tolerance for the inevitable failures and mistakes that accompany this endeavor can be enhanced if the company involved is highly regarded.

Does a company have to be liked to have a good reputation?

The world of branding suggests that great brands are liked and often loved by their devotees. To show this attachment, many people are proud to wear a company or product logo on their clothing. And sometimes employees and customers even tattoo themselves with the brand name or symbol (e.g., Harley-Davidson). Brand consultants say that it is this emotional attachment that gives brands much of their market power. Many corporate reputation consultants agree. For example, the RepTrakTM measure of corporate reputation includes a variable that measures emotional appeal. Thus being liked is good. But is it always necessary?

Recall the story about Exxon in chapter 2. Exxon preferred to be feared rather than liked because this acted as an entry barrier to competitors who knew that they would pay a high price to compete head to head (p.209) with this giant company. It also encouraged them to appeal the fine imposed for the Exxon Valdez oil spill. The result was a saving of billions of dollars. In the Darwinian world of finance, many firms would rather have a reputation for opportunism or predation than be liked.2 And especially when they are on mission, the armed services would probably prefer to be feared than liked.

So, in a corporate context, companies can be liked or feared and still be respected. What it will strive for will depend on what it needs to succeed. For example, many law firms want to be feared more than loved while many cosmetics companies need love not fear. When companies want to be loved, the price they pay is that they have to show love in return. Hence the people who love the company must be recognized for their love. If you have millions of customers, this is not an easy thing to do. Many companies try to use their customer loyalty program to do this. The trick here is to make sure that the program is designed to foster a deep relationship not just a longstanding one. When people fall out of love, the outcomes can be both messy and nasty. As the old saying goes “be careful what you wish for.”

Can an organization survive and prosper if it has a mixed corporate reputation?

One high-profile organization with a mixed reputation is the Roman Catholic Church. Some people like it; others hate it. And most people would agree that the Church has a mix of positive and negative attributes. Its new CEO is being given a lot of free advice about how to fix the more unsavoury aspects of his organization.3

But is the mixed reputation of the Church putting it at serious risk? Are the parts of its tarnished reputation a significant liability? Is it a major problem that most people around the world don’t like it? These issues might stunt the growth of the Church, but it would be a bold person to suggest that it will not survive for the next 100 years. Hence my answer to the question of there being a problem with having a mixed reputation is yes and no.

The No Case Like many contemporary faiths, the primary business of the Roman Catholic Church is to provide spiritual comfort for its flock. Its secondary concern is to provide charity. Across all religions, people buy into the spiritual part of the offer to a greater or less extent. Thus (p.210) there will always be a significant number of people who dislike the product category (religion), some of the various brands (Christianity, Islam, etc.), and sub-brands (Roman Catholic, Protestant, etc.). Some people will give the Roman Catholic Church lip service, and a smaller group will be its active devotees. The majority of people around the world that are atheists, agnostics, and followers of another brand of religion will never be convinced to become a follower of this Church whatever its reputation. So outside of the beliefs of religious fanatics who are focused on destroying the Roman Catholic Church, the Pope can simply ignore the beliefs of most non-Catholics about his Church. As one of the world’s largest membership organizations, his Church is too important in most countries to be persecuted.

The Yes Case A good reputation is necessary to reassure the faithful—both of the lip service variety and the active followers. Here its role is to provide reassurance that the choice of this brand of religion is correct. A good reputation helps to legitimize Church doctrine and provides a degree of extra moral authority to Church elders and lay people. However, where a good reputation could have an immediate affect to help overcome the Church’s current problems would be if it was made a nonnegotiable standard against which its members’ behavior is judged. If any officer of the Church does anything to damage the desired reputation of Roman Catholicism, he or she would be proactively excommunicated. Had this standard been enforced in the recent past, then far fewer of the Church’s current problems would have gained the time to fester to their present damaging state.

Again, the key issue here is to identify who really matters to an organization’s survival and prosperity. Good reputations matter for the people who matter. But keeping a watching brief on the others is a good idea.

Is it true that corporate reputations take a long time to develop but only a short time to destroy?

These twin ideas have been floating around for decades. They were immortalized in the following attributed quotes by Benjamin Franklin and Warren Buffet:

It takes many good deeds to build a good reputation, and only one to lose it. (Benjamin Franklin)

(p.211) It takes years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently. (Warren Buffet)

Advocates for the cause of reputation management love these quotes. In fact they have been repeated so often that this idea has become a fundamental tenet of reputation management.

The notion of slow-to-build is founded on the idea that it is demonstrated past performance over a period of time that is the principal way that reputations are created. The notion of fast-to-destroy is founded on the idea that trust is easy to damage and that being seen as untrustworthy immediately undermines a good reputation. But are these ideas true?

Business people started to question the idea that corporate reputations take a long time to develop when companies like Amazon, Google, eBay, Twitter, Facebook, and YouTube burst onto the business scene and grew at a fantastic rate. In the space of just a few years these companies built very strong corporate reputations. They were based on each company’s technical innovations and how these helped change people’s definition of, and often participation in, a market. In the jargon of the technology industry, each company developed a “killer app.” In other words, they did a simply better job of meeting the current or latent needs of a group of people than the existing products and services. Another key aspect of the reputation-building process was the widespread public attention each company received as a leader in its new field. It was current performance, leadership, initial growth, and a lot of favorable social chatter that made them household names. Thus the media amplified the deeds of these companies. Soon they were appearing in the top stratum of many of the annual corporate reputation polls. However, the fickle nature of this reputation creation process became apparent during the dot-com bubble (1997 to 2000) in the saying “dot.come – dot.go.”

Why did so many tech companies fail in the dot-com bubble? The principal reasons were that their business models were not strong—many simply ran out of cash. The business model many of these companies ascribed to was summarized as get big fast, and hope that the winner takes all. Another reason for failure was that a company with a better or more reliable technology came along that allowed it to offer a better deal for customers or a better quality service. In this case the media chatter amplified the difference between the incumbent and the challenger. As we (p.212) now see, in many of these markets the company with the best offer was the one that persisted and then won the reputation game.

However, to confound the issue of fast-to-destroy we sometimes see a well-respected company involved in a major crisis that emerges with its reputation largely undamaged. An old example of this was when Johnson & Johnson’s Tylenol brand of pain tablet was tampered with in 1982 and again in 1985. In both cases people were poisoned. And in both cases the company was not blamed for the incident. Their communications and product recalls were seen as a concerned and dutiful response to this unfortunate situation. In contrast, in recent years J&J has been savaged in the media for Medicare fraud, the illicit marketing of off-label drugs, and having to recall some high-profile drugs and products used in hip replacements. Despite these home-grown disasters, the company still ranks highly in many reputation polls. For example, in 2014 it was ranked first in the pharmaceuticals category of the Fortune poll and 19th overall.

More recently the relationship between corporate irresponsibility and reputation has attracted academic scrutiny. This is a “grey area” of corporate ethics. It is inhabited by activities like tax avoidance, which is legal, as opposed to tax evasion, which is illegal.4 Here a company occupies an ambiguous or contested zone of social judgment. In a study of US firms during the period 2006 to 2012, Gregory Jackson and Stephen Brammer could not find any systematic evidence for sharp reputation penalties associated with many “grey area” instances of corporate irresponsibility.5 This finding and specific cases like the poor recent publicity of J&J noted above, run contrary to the conventional wisdom expressed in the quotes by Benjamin Franklin and Warren Buffet. They also question the veracity of the role of the loss of reputation as a social form of corporate regulation or private governance.6

So how do these examples speak to the question stated above? My suggestion is that it is about time to consign this assertion to the dust bin. There are simply too many counter examples to blindly believe that corporate reputations are like fine china—difficult to craft and easy to smash.

(p.213) Can a company fully recover from a crisis that damaged its corporate reputation?

A reputation once broken may possibly be repaired, but the world will always keep their eyes on the spot where the crack was.

Joseph Hall, English bishop (1574–1656)

While Bishop Hall’s observation seems reasonable, I am aware of no major scientific study that provides definite support for it. The problem with designing such a study rests on the issues of defining the size of reputation damage, what level of change would constitute “recovery,” and over what time frame should the study be conducted?7 Also, if there are many individual cases suggesting recovery does happen and many that suggest it doesn’t, then a large cross-sectional study will tend to be inconclusive because the overall effect will be the average of a lot of positives and negatives.

However, not all is lost in terms of answering this question. There are some interesting studies about stakeholder response to a crisis, and a thought experiment can help identify conditions when you might expect full or partial recovery or long-term damage. Consider the following findings about how two different types of stakeholders responded to the same crisis.

A study conducted by Anastasiya Zavyalova found that when some highly reputed US colleges and universities suffered negative incidents (on-campus murders and basketball team rule violations) some alumni increased their donations to their school while non-alumni tended to decrease their donations.8 The explanation for this behavior was that when an organization is held in high repute the stakeholders (alumni) who identify strongly with it can protect both the organization and their personal identities by actively supporting and defending its actions. The other group was happy to punish the organization for its misdeeds. Thus, when an organization has a lot of people who use it for vicarious self-enhancement, it might be insulated from severe damage and in some cases might even achieve a net positive outcome from a negative event. Now consider a thought experiment.

Crises come in many forms, and it would be reasonable to expect that the form of crisis together with the way it is reported and handled will affect whether or not people attribute the incident to be the company’s fault. And it is this attribution that is likely to affect the damage to and (p.214) subsequent recovery of a company’s reputation.9 Consider the following possible causes of a corporate crisis:

  • An act of God

  • An act of a random outsider

  • Poor company procedures

  • Management failure

What differentiates the first two from the others is attribution, namely the likelihood that a person will blame the company for the incident. If the company is deemed to be at fault, then its reputation is in far greater risk than otherwise.

Now consider some possible outcomes of a crisis:

  • One-off financial loss to the company

  • Damages to the company’s operational capabilities or prospects

  • Significant damage to the environment or a local community

Here the time frame and the magnitude of loss are the differentiating factors. The longer lasting and bigger the outcomes of a crisis, the more damaging it might become. Also, if the organization suffers the loss as opposed to an outside group, then the reputation damage might be different.

We would expect that various combinations of these causes and outcomes together with whether the company is considered to be well recognized (a so-called elite company), how it handles the crisis (well or badly), how the media report it (factually or sensationally), and whether the company’s competitors have been involved in a similar incident will result in different levels of reputation damage and thus chances of recovery. So the answer to the question above is “it depends.” Thus beware of any categorical answer of yes or no.

Is it possible to quickly establish a strong corporate reputation?

One of the fastest corporate reputation-building episodes that I can recall involved a group of academics and practitioners who established the company called Long-Term Capital Management (LTCM).10 In 1993, 11 men started a small hedge fund management firm based in Greenwich, Connecticut USA. The company slogan was “the financial technology company.” Consider their short biographies as listed in Wikipedia:

  • (p.215) John W. Meriwether—former vice chair and head of bond trading at Salomon Brothers, MBA (University of Chicago)

  • Robert C. Merton—leading scholar in finance; Professor at Harvard University, PhD (MIT)

  • Myron S. Scholes—co-author of the Black–Scholes model; Professor at Stanford University, PhD (University of Chicago)

  • David W. Mullins Jr.—former vice chairman of the Federal Reserve Board, Professor at Harvard University, PhD (MIT)

  • Eric Rosenfeld—arbitrage group at Salomon, former Harvard Business School professor, PhD (MIT)

  • William Krasker—arbitrage group at Salomon, former Harvard Business School professor, PhD (MIT)

  • Gregory Hawkins—arbitrage group at Salomon, worked on Bill Clinton’s campaign for Arkansas state attorney general, PhD (MIT)

  • Larry Hilibrand—arbitrage group at Salomon, PhD (MIT)

  • James McEntree—bond trader

  • Dick Leahy—executive at Salomon

  • Victor Haghani—arbitrage group at Salomon, Masters in Finance (London School of Economics)

When LTCM began operations in February 1994, the firm quickly amassed $1 billion in capital from some of America’s richest individuals and institutions. This can be considered a measure of the financial value of LTCM’s reputation. At the time of its formation, this group was seen as the best-of-the-best, or as one commentator noted—the finance team of the century. Their approach was to use complex mathematical models to eliminate risk and take advantage of small anomalies in the bond market. For the first few years of operation they were very successful and produced annual returns of 21, 43, and 41 percent. The status of Merton and Scholes as the high priests of the academic finance discipline was confirmed in 1997 when they shared the Nobel Memorial Prize in Economic Sciences for their work in pricing stock options. In 1998 LTCM crashed and the Federal Reserve Bank of New York organized a bailout to avoid disaster in the financial markets. At this time their market exposure was approximately $1trillion.11

Before its collapse, LTCM was widely regarded as best at modeling financial markets and the best place to invest for wealthy investors. After (p.216) its collapse, it became a case study in the limits to using complex mathematical investment models.12 What is also of note was that the bailout of LTCM by the Federal Reserve sent a signal to many Wall Street firms that some institutions were too big to be allowed to fail. This moral hazard would be seen to play out again a decade later in the global financial crisis of 2007 to 2009.

As noted earlier in this chapter, many Internet companies have also created good reputations in quite a short period of time. At the heart of their success was a service that fulfilled a need, was in many cases cheap to try, and that was supported by a lot of positive media hype and vast amounts of favorable word-of-mouse communication. While most of these services failed, when one really helped people to solve a problem or enhance a relationship, it became a household name. For example, the phrase “to Google something” is now well established in the language of many Western countries. And Dr Google is often the first general practitioner consulted about an ailment.

The case of LTCM and many of the Internet companies illustrates a paradox. For most companies, reputations are only available to established enterprises. They have to be earned through good products, services, and gestures. However, for others, they are created almost immediately. They are simply conferred. While both such types of establishment provide insight into what helps create a strong corporate reputation, the fast-track group suggests that storytelling is crucial. All these companies focused on telling a convincing story about themselves. They then supported this with some signals about the company’s strategy, character, quality, and competence.

To illustrate this storytelling approach to reputation formation, consider how a new market research firm might establish its identity and signal its quality without an established track record. The starting point is the firm’s name. Because names introduce firms, they can be used to set expectations and position the enterprise relative to its rivals. For example, descriptive names like Cheap-Research, Customer Insights, and Advertising Metrics immediately suggest what these firms do. Another popular naming strategy is to coin a catchy or clever name that has no inherent meaning to anybody other than the owners. The problem here is that for a new firm, these names don’t work to position the firm as standing for something. This will take time to achieve. Another common (p.217) naming strategy for a new firm is to name it after the owners. This is wonderfully uplifting for the principals but only works if they are well known and have a good reputation. Here their established reputation acts as a security bond for the engagement. This strategy can sometimes cause problems for a new firm if one of the named owners is not an engagement partner for a new client. Descriptive names tend to be the safe alternative.

A key aspect of a new firm’s reputation is the sum of the reputations and status of its principals and their commitment to the new enterprise. For example, LTCM’s principals had lots the formal qualifications from prestigious universities, they had about 350 years of accumulated experience in the industry, and all had held highly paid positions in academe or the finance industry. Thus they had both good reputations and high status, which combined to produce a strong signal of quality.13 Other signals of quality are the reputations of any prominent financial backers, members of an advisory board, and initial clients. For example, some of LTCM’s founding investors were thought to include the prominent investment banks Julius Baer & Co., Bear Sterns, and Merrill Lynch. The reason for attracting well-known and respected clients is so that the new firm can “rent” their reputation by association.

Commitment can be signaled in a number of ways. One is by investing the money of the principals in the firm. In the case of LTCM these people had $149 million invested in the firm. Another signal of commitment is whether the firm’s launch marketing is expensive or cheap. When a firm spends a considerable amount of money launching itself, it is signaling to its clients and competitors that it is confident in its ability to survive and prosper.

The new firm’s head office is a signal of numerous things. Its location makes a statement of who you are and sometimes where you expect your clients to be. In the case of LTCM locating in the rich town of Greenwich signaled two things. One was that this was a somewhat mysterious firm with a different approach to investing. Being away from Wall Street was important to cultivate this image. The second was that what they were doing was secret. Not even their clients were allowed to know the precise suite of mathematical models used. Also, when a firm locates in an architecturally interesting building, this acts as a billboard to clients and a statement of organizational culture to employees. How the office is (p.218) presented, especially the crossover areas where clients and employees meet signals the type of engagement approach to be expected. Formal meetings in a boardroom suggest something different to less formal meetings in employee–client work spaces. Advertising agencies and architectural firms tend to set themselves up quite differently to engineering firms.

Another signal is to offer a sample of quality. Sometimes signing up to a voluntary industry code of best practice can signal quality. For LTCM their samples of quality were the highly acclaimed academic papers of Merton and Scholes and later the Nobel Prize. Many professional service firms, even those that are well established, write thought leader articles to do this. A variation on this approach is to publish case studies of how previous situations could have been improved or some new research that provides new insights into old problems. Also the partners of the firm can give presentations at industry and client events. Some may volunteer to make presentations in university courses, such as to executive MBA students where potential clients lurk. However, the best sample of quality is to do some quick assignments for prestigious clients that show bottom-line results.

The pricing of the firm’s services is another interesting signal. For most clients (and people) price is either a signal of quality or a measure of sacrifice. The same general rule applies here. However, if price is set high to signal quality, then the firm will need to offer some implied guarantee of quality. The best way to do this is to base price on benefits delivered not the cost of delivery. Most professional firms use a cost-plus approach to pricing where fees are designed around a markup of the blended head-rate hours of the people who do the work. The alternative is to set a price based on value created by the assignment undertaken. This success fee approach requires that the firm understand what this value is to the client. It can then set its price as a percentage of the value created. This type of price signals that it is in the best interests of the new firm to do the best job it can.

Another type of signal to invest in is critical acclaim. Can the new firm get some important person or publication to certify its strategy, character, and competence? Many business and finance magazines did this for LTCM. The idea here is to get publicity for some hidden attribute of quality that is otherwise difficult for an outsider to verify, such as a new (p.219) analytic technique or database of information. The roles of critics are very important because they channel the attention of buyers to some companies and away from others. They also confer legitimacy on a company by discussing it. An added bonus occurs if they praise it.

The weakest but often the most used signal is the corporate proclamation. All new companies make statements about themselves, their capabilities and what they will do. In effect they are trying to provide a proof of service. There are two problems with these proclamations. One is that they are often poorly worded. For example, a new firm might say that it is “reliable.” A better way to say this would be that “it offers old-fashioned reliability.” This now links it to a widely held free-standing emotion. A second problem with proclamations is that too often they are simply cheap talk. To be effective, they must be verifiable and enforceable or be accompanied by some type of money-back guarantee. Only in this way will corporate declarations link the company’s subsequent actions to its reputation.

So yes, a new corporate reputation can be engineered, but it really helps to have some substance behind the signals sent to outsiders.

Will a change of corporate identity symbols boost our reputation?

Many companies think so, and many consultants are pleased that they think this way. But will a change to the typography of the company name, the logo, color scheme, and corporate slogan help produce a better reputation? As I’ll argue here, the answer is likely to be no. And occasionally a change of the corporate identity symbols will cause derision and a backlash among people on social media who consider that they are members of the company’s community. This happened to the clothing company Gap and to the coffee giants Starbucks when they made a change to their corporate logos.14

Many corporate identities get changed after a merger or acquisition, or when a holding or investment company decides to become a more prominent operating company. Other identities get changed when a new CEO takes over, especially one from outside the company, and especially when he or she is brought in to rejuvenate the organization. If corporate identity is changed after there is tangible organizational change, then it can help signal this substantive change. However, if the identity symbols are changed prior to meaningful organizational change, this is (p.220) often interpreted by employees and the media as a cosmetic response to a substantive problem. And if the changes are small, most customers won’t notice. Hence a positive flow-on reputation effect is unlikely.

Another time corporate identity symbols get changed is when management gets convinced to do so by an identity consultant. One line of argument here is that good identity design reflects and demonstrates the presence of effective management.15 However, whether a new logo is a better signal of this than higher profits is something I will leave up to you. An audit of the inconsistent use or abuse of the corporate livery is another trigger for identity change, as is the argument that the identity is simply out of date. From this point on it is easy to convince the CEO and the board that some change is required to modernize the symbols that adorn every piece of corporate hardware and communication. Because even minor changes can cost millions of dollars, it is worth thinking about when such a change might offer some reputation benefits. For example, in 2000 it cost BP approximately $200 million to become “Beyond Petroleum” and change its retail and corporate livery.16

In most organizations it is not unusual to find some inconsistent use of corporate identity symbols—even when there is a thick manual that prescribes when and where they should be used. To dramatize their inconsistent use, consultants may create a display of this muddled usage. While such a display highlights the diversity, it is not really a valid test of whether or not stakeholders are confused by the inconsistent usage. The reason is that a person seldom sees more than one version of the corporate identity at the same time. And if they do see two slightly different versions, it is unlikely that they would notice the difference. The sad fact is that most people are not very interested in your company’s logo and color scheme, and thus its potential to enhance a corporate reputation is limited.

When auditing the consistency of use of corporate identity symbols, the crucial reputation issue is to determine whether inconsistent usage is a sign of sloppy administration of the company’s identity policy or is it a signal of a fracturing organizational culture. In the first case, a bit more vigilance is all that is needed to rectify the problem. In the second case, when different parts of an organization are making changes to the corporate identity or deliberately not using it, they may be signaling that (p.221) they want to be different from their colleagues. And this is a signal of reputation risk. For example, many years ago the package delivery company UPS used the corporate slogan “as sure as taking it there yourself.”17 This slogan was clever because it spoke to the essence of UPS, namely it could be trusted because it took as much care with your delivery as you would. For some reason the slogan was discontinued in the United States. However, in Asia the old slogan kept being used. This was a subtle signal to head office that UPS’s reputation in Asia was based on a different value proposition than the one used in the United States. This type of identity inconsistency is an important reputation issue because it is signaling something fundamental about different parts of the organization.

Whether making any change to company’s identity is likely to pay off requires specifying the roles that these symbols should play to support or enhance the desired reputation of the company. For example, from a strategic point of view, a good corporate slogan makes the company’s mission amenable to proof. Recall my redrafting of the Bell Pottinger Private slogan mentioned earlier—“better PR, better reputation, better results.” This slogan would remind employees and clients what the firm is offering and how to judge its success. In effect it holds the firm’s operations (better PR) hostage to its success. Identity also plays a tactical role. For example, a company like McDonald’s wants to stand out to the public and do so in a friendly and inviting way. Thus its identity symbols need to attract attention in a cluttered retail environment, foster true recognition, and project an image conducive to being a “family restaurant.” In both cases, for a small change in identity to impact on reputation, it must change or reinforce the desired salient beliefs about the company.

The strategic and tactical problem with many corporate identity symbols is that they are essentially meaningless to everyone other than their creators. Most are composed of a name, colorful logo, and a slogan that do not resonate with each other. Let me illustrate this problem with two sets of identity. The current Qantas identity is the name of the airline that now means nothing to most people. It is an acronym for Queensland and Northern Territory Air Service. This is where in Australia the company first operated. The second element is a white kangaroo on a red sloping (p.222) triangular background. The kangaroo is a distinctly Australian animal. Various depictions of it have been used on the Qantas logo since 1944. Most travelers who see this logo on the tailfin of an aircraft know that it belongs to Qantas. Sometimes the company name and logo are accompanied by the slogan “Spirit of Australia.” The company has made some memorable corporate advertisements using this theme. Both the logo and the corporate message reinforce each other. The dominant salient belief fostered and reinforced by these identity symbols is that Qantas is the Australian airline. This belief may then trigger any number of other beliefs about the company’s culture, service, safety record, and so forth. Thus the Qantas identity signals and signifies some key aspects of the company’s desired corporate reputation.

To contrast the way the Qantas identity works, consider the identity of DELL computer. I am writing this book using a DELL computer and monitor. As I look at the company logo on these two products, the only memory that they prompt for me is that Michael Dell is the founder. There is nothing in the way that the logo is written in upper case and a backward sloping E that triggers anything special about the company. A look on the company website reveals that their current corporate slogan is “Listen. Learn. Deliver. That’s what we’re about.” This site also suggests that for the company “customers are at the core of everything we do.” Because this sentiment and the slogan could apply to any computer manufacturer, it doesn’t differentiate DELL from its competitors. In comparison to the Qantas identity, it underperforms.

The best corporate identity symbols reinforce in graphic or literary form the corporate brand promise—for both employees and customers. This promise or value proposition is the prominent salient belief that fosters a good reputation. Mediocre identities do nothing. They are boring and anonymous and unlikely to upset anyone. The worst corporate identities are confusing and set incorrect expectations. For example, one of the largest private UK health insurance and healthcare companies is called Bupa. It is the initials of the name British United Provident Association. Now the old name was fairly meaningless, and I would venture that the new name is just as meaningless. For example, if you didn’t know this was a health fund, you might think it was an Indian restaurant.

Let me conclude this section with a story about Air India and the danger of fiddling with a company’s identity symbols. Some years ago (p.223) when I visited the airline, its logo was a red-and-white stylized centaur sometimes accompanied by the slogan “your palace in the sky.” At 3am while driving from the airport into Mumbai, I noticed the corporate logo proudly displayed on the company’s main building. Upon commenting about one of the few illuminated neon signs in this part of the city, my host advised that I not mention this logo during my discussions with the airline’s management team. A previous CEO had changed the logo to signal his intention to make some significant changes to the airline. Many customers were delighted, but many senior employees were wary and some senior functionaries criticized his endeavor. The next CEO quietly reinstated the old logo. What happened here was that while everybody knew that Air India needed to make some fundamental change if it was to survive as India’s major airline, in typical Indian fashion some senior managers and politicians really did not want significant change. They were regents in their own palace in the sky. Thus the old corporate logo became a symbol of resistance. It was like a heraldic shield, which is from where many of these corporate logos were originally derived.18

What is the role of head office in building reputation?

To give the discussion some context, I will introduce the issues by reference to universities. These institutions are acutely aware of the value of a good reputation for their teaching and research. And there is always debate about where investments should be made to enhance these two types of reputation.19

One critical debate within universities is about where to invest to get reputation gains. The usual options are in the faculty (e.g., by buying star professors), students (via scholarships), university facilities (e.g., buildings), programs (e.g., alumni), or administration (the C-suite and their support staff). A tension within many universities is about the growing size of the investment in administration. Administrators argue that a better run university generates a better reputation. However, most academics argue that the role of administration is to complement them in their generation of reputation. Not surprisingly, as an old academic I favor the second option. My argument is that administrators do not create the sources of capital that deliver the university’s desired outcomes at the quality that enhances the reputations of their universities. They do (p.224) not teach the students. They do not make discoveries. They do not publish research and scholarship. But their decisions affect these endeavors, so they do matter.

The problem within the university sector is the same for all companies. What is the reputation role of head office? Is it a primary source of reputation, or a guardian of reputation, or a complement to the activities of others? While the CEO has a special role to play because of his or her leadership, the point of view taken in this book is that the role of head office is complementary. Their value comes from two activities. One is to design ways in which to release the reputation benefits from the company’s various sources of capital, especially to the stakeholders who really matter. The other is to design and enforce protocols to protect the organization’s reputation. As many recent corporate crises have demonstrated, often this second role is not well executed.

Are social media an important source of reputation risk?

There are many people who say that the answer to this question is a definite yes—just look at any current business magazine. However, I disagree for a number of reasons. First, I don’t subscribe to the argument that the chatter of spectators who use social media is necessarily important to a company’s reputation. Most of this chatter occurs in an echo chamber—like-minded people share their views with other like-minded people. For most companies, few major customers, potential employees, or business partners troll these media spaces as a source of information to help them decide whether or not to engage with a company. Yes, there are some sites like TripAdvisor where this happens, but for most companies there is no evidence that this is a credible source of information for the stakeholders who really matter to the company’s commercial success.

Second, some recent research suggests that most of the comments made about businesses on these social media have a positive tone of voice rather than being negative.20 So the only way that bad information could cause a bad reputation is if it is regarded as much more influential than good information. We simply don’t know if this effect occurs. So until then it is a good working assumption to conclude that good social media information probably dampens the bad information. The net effect is probably zero.

(p.225) Third, the new broadband technologies have made it much easier for people to create a lot of noise about companies relative to the amount of new information they create. As the ratio of information to noise decreases, it becomes harder for anyone to get a clear picture of a company. And as noted earlier, by seeding these media with positive comments, it makes it easier for poor companies to parade as if they are good companies.

Fourth, because much the advice proffered by consultants about the massive influence of the Internet and social media is self-interested, I regard most such pronouncements as premature and exaggerated. There are two reasons for this. One is that these pronouncements reflect what Michael Porter says is a confusion of technology with company strategy.21 This occurs when people think that the new technology must become the firm’s strategy rather than it being an enabler of this strategy. The second reason is the vast literature on the adoption and diffusion of innovations that suggests that this new media is like most other technology innovations. It will be adopted by certain groups, some more enthusiastically than others, and ignored by many people for as long as they can (the laggards). And many of the adopters have a low capacity to affect a company, in either a positive or negative manner.22

There are a couple of caveats to my general opinion about the influence of the web. While most of its criticism of companies seems to have few major reputation effects, sometimes it can create significant problems. The situations of concern are twofold. One is for the so-called viral loop companies such as Facebook, YouTube, and LinkedIn.23 Most of these companies rely for their success on people who are social network strivers such as artists, rappers, photographers, models, comedians, entertainers, teenagers, and wannabees. Others like eBay rely on communities of shared interest such as product traders. Bad word-of-mouth, or more accurately word-of-mouse, can destroy the social and interpersonal foundations of these companies. Because of this many of them design online reputation systems to help their customers determine the trustworthiness of people with whom they will associate.24

The second case concerns opinion leaders who start what has been called a “communication fire.” And because of the persistence of content on the web and the ease of use of search engines, episodes of bad (p.226) company behavior can have a long shelf life. For example, in June 2005 Jeff Jarvis, the creator of the popular technology blog Buzz Machine wrote a post describing his bad experience with Dell Computer’s customer support.25 After receiving comments from other customers who had similar complaints, he put up additional posts and links to other bloggers. Technology and business mainstream media then picked up the story. Two of Jeff Jarvis’s blogs were entitled “Dell Hell” and the “Flaming Notebook.” These names lingered on the web long after the problems that caused them were rectified. And because of this, they are easy for people like academics to find.

Notes:

(1.) P. J. Firestein, Building and protecting corporate reputation, Strategy and Leadership 34, 4 (2006), 25–31.

(2.) G. Haigh, Who’s afraid of Macquarie Bank? The Monthly (July 2007). Downloaded from http://www.themonthly.com.au/issue/2007/july/12409644771.

(3.) Flocks and shepherds, The Economist (March 9, 2013), 55–56; Schumpeter, Pope, CEO, The Economist (March 9, 2013), 65; The Francis effect: The Pope as a turnaround CEO, The Economist (April 19, 2014).

(4.) G. R. Dowling, The curious case of corporate tax avoidance: Is it socially irresponsible? Journal of Business Ethics 124, 1 (2014), 173–84.

(5.) G. Jackson and S. Brammer, Introducing grey areas: The unexpectedly weak link between corporate irresponsibility and reputation, Socioeconomic Review 12 (2014), 154–66.

(6.) D. Vogel, The private regulation of global corporate conduct, Business and Society 49, 1 (2010), 68–87; B. G. King, Reputational dynamics of private regulation, Socioeconomic Review 12 (2014), 200–206.

(7.) In the discipline of finance, the event study methodology has been used to study this kind of problem. If one could identify a number of public company crises that had reputation effects, then changes in share price data (abnormal returns) might throw some light on this question.

(8.) A. Zavyalova, Negative consequences of good reputation and positive outcomes of negative events, Socioeconomic Review 12 (2014), 181–86.

(9.) D. Lange and N. T. Washburn, Understanding attributions of corporate social irresponsibility, Academy of Management Review 37, 2 (2012), 300–26.

(10.) L. N. Spiro, Dream team, Business Week (August 29, 1994), 48–52.

(11.) LTCM’s success and growing reputation allowed it to secure $3billion in investment funds and billions more in borrowings.

(12.) R. Lowenstein, When Genius Failed: The Rise and Fall of Long-Term Capital Management (New York: Random House, 2001).

(13.) I. Stern, J. M. Dukerich, and E. Zajac, Unmixed signals: How reputation and status affect alliance formation, Strategic Management Journal 35, 4 (1014), 512–31.

(14.) L. Kellaway, Listening to your customers can be bad for business Financial Times (18 October 18, 2010), 12; Schumpeter, Logoland, The Economist (January 15, 2011), 66.

(15.) T. Spaeth, The identity recession, Conference Board Review, Report TCBR4 (January 2010).

(16.) T. Bower, OIL: Money, Politics and Power in the 21st Century (New York: Grand Central Publishing, 2009), p. 231.

(p.248) (17.) At the time Federal Express (FedEx) was using the slogan “when it absolutely, positively has to be there overnight.”

(18.) W. Olins, Corporate Identity (Boston: Harvard Business School Press, 1989).

(19.) D. L. Kirp, Shakespeare, Einstein and the Bottom Line (Cambridge: Harvard University Press, 2003).

(20.) L. Muchnik, S. Aral, and S. J. Taylor, Social influence bias: A randomized experiment, Science 341 (August 9, 2013), 647–51.

(21.) J. Useem, Business school, disrupted, New York Times (June 1, 2014), BU1.

(22.) G. Moore, Crossing the Chasm (New York: Harper Business, 1991, 2006).

(23.) A. L. Penenberg, Viral Loop: From Facebook to Twitter. How Today’s Smartest Businesses Grow Themselves (New York: Hyperion-HarperCollins, 2009).

(24.) C. Dellarocas, Online reputation systems: How to design one that does what you need, MIT Sloan Management Review 51, 3 (2010), 33–38.

(25.) P. Del Vecchio, R. Laubacher, V. Ndou, and G. Passiante, Managing corporate reputation in the blogosphere: The case of Dell Computer, Corporate Reputation Review 14, 2 (2011), 133–44.