Corporate reputations are rarely examined until after they’ve been damaged — and that’s a big mistake, says The Wall Street Journal’s Ron Alsop, author of The 18 Immutable Laws of Corporate Reputation. Companies should tend to their reputations as a matter of course, counsels Alsop; after all, it’s every company’s most valuable asset. He recently discussed the subject with CFO.com.
Is it possible to quantify a concept that’s as nebulous as reputation?
I think it’s possible to measure your reputation with your stakeholders through custom research and through published rankings, like Harris Interactive. Executives, of course, want to see the return on a good reputation in terms of profits and stock price. There have been some academic studies linking good reputation and better stock prices, but I would concede that they’re narrow studies.
Companies that do have great reputations, like Johnson & Johnson, do perform really well financially. On the other hand, companies like Exxon-Mobil also perform very well and yet have a generally poor reputation. However, I think that the Harris research clearly shows that the public would rather buy products and services from companies with good reputations; that goes for where they’d rather work and where they’d prefer to invest, too. The benefits are fairly clear-cut: a good reputation can enhance your business in good times, and I think there’s no doubt that it can protect you when you have a crisis.
Some of the broader surveys like Fortune‘s “most admired” lists are good general barometers, but again, I think a company has to do its own customized research, and I think it’s important to do it on a fairly consistent basis. One problem I found with many companies is that they think of their reputation only when it’s in danger; they don’t monitor it on a regular basis, so they can’t detect warning signs.
Talk about the costs of reputation neglect.
Martha Stewart is probably the clearest recent example. Even though she still has her loyal fans, advertisers fled her magazine to avoid the “reputation rub-off” of being associated with her company, Martha Stewart Living Omnimedia. Another example was ValuJet Airlines: When one of its airliners crashed into the Everglades in the mid-1990s, they couldn’t give away seats [on ValuJet flights], and only after it merged with another company and took on a new name did the company rebound.
On the other hand, if you have a really powerful reputation you can bounce back faster. I think a good example is Coca-Cola: Even though they’ve had a number of problems over the years, ranging from the contamination of some of their products in Europe in 1999 to some more-recent difficulties, they still tend to come back pretty quickly.
But didn’t Martha Stewart’s products have a good reputation?
I think that was the problem: To a great extent, hers was a superficial image of perfection. Clearly, a lot of people don’t like her personality, but beyond that, even though she was associated with quality products, I don’t think she ever created the kind of reputation that people admire in a broader way. For example, I’m not aware of any major philanthropic or socially responsible activities that she or her company has been involved in. I went on both websites [hers and the company's], and I couldn’t find a single thing, and yet I did find a lot of information about her cats and dogs and her hairdresser and things like that — on the company website. If Martha Stewart had built a reputation for being someone who gives back — think of Paul Newman or Oprah Winfrey — then maybe she wouldn’t have suffered as much damage, at least with the general public.