Benjamin Franklin noted that “It takes many good deeds to build a good reputation, and only one bad one to lose it”.
Individuals, corporate organisations, churches, mosques and states are mindful of their reputations and make efforts to maintain or improve them. It is a fundamental reality that the hard earned reputation of a person or a corporate body can be destroyed by a false report or pronouncement by another person or institution. The fact that individuals and organisations sue persons for defamation shows how important and dear their reputations are to them.
Concept of Corporate Reputation
In their book ‘Concepts in Strategic Management and Business Policy’ (2012), Thomas L. Wheelen & J. David Hunger define corporate reputation as “A widely-held perception of a company by the general public. It consists of two attributes: (1) stakeholders’ perceptions of a corporation’s ability to produce quality goods; and (2) a corporation’s prominence in the minds of stakeholders”. They explained that a good corporate reputation can be a strategic asset, be considered as both a signal and an entry barrier in marketing, and further serves as a basis for a company’s goods having a price premium.
On the part of Gareth R. Jones & Jennifer M. George (Essentials of Contemporary Management – 2013), “Reputation, the esteem or high repute that people or organisations gain when they behave ethically, is an important asset”. The writers indicated that, for example, shareholders who see managers behaving unethically may refuse to invest in their organisations – and this will lead to a reduction in the stock price, undermine the organisations’ reputations and further put the managers’ jobs on the line.
Corporate reputation is closely linked to the survival, growth and profitability of an organisation. It denotes an institution’s status among employees and other stakeholders compared to its competitors and the public. It can be seen as an intangible corporate asset that will not be found on the balance sheet of any company.
According to Ladipo Patrick Kunle Adeosun and Rahim Ajao Ganiyu (International Journal of Business and Social Science Vol. 4 No. 2; February 2013 ‘Corporate Reputation as a Strategic Asset’) corporate reputation “affects investor confidence, staff recruitment, supplier attitudes and a myriad of other stakeholders in its capacity as relationship capital. Reputation represents a principal risk to any business, and as such falls within the strategic issue that companies must give top priority”.
Adeosun and Ganiyu identified corporate reputation as a concept with exceptional multidisciplinary richness. The concept can be found in Sociology, Psychology, Economics, Marketing, Human Resource Management, Business Strategy and Public Relations.
In the research of Adeosun and Ganiyu, they note the risk component in corporate reputation and observe that the probability of reducing its value constitutes business risk. Their findings indicate that most institutions do not know much about the drivers of corporate reputation and how to pinpoint or protect same against devaluation risk. They add that any event which decreases trust among any single group of stakeholders has a possibility to cause reputational damage.
They further stated that: “Risk to reputation occurs when the organisation fails to meet the expectations of a specific stakeholder group. The key to effective reputation risk management is therefore the management of expectations. It has been said that reputation risk lies in the gap between expected and actual behaviour”.
Drivers of Corporate Reputation
The publication ‘State of Corporate Reputation in 2020: Everything Matters Now’, revealed various drivers of corporate reputation. The research was conducted by Weber Shandwick in partnership with KRC Research, and surveyed executives from 22 markets around the world. The basis of the discussion below is partly attributed or credited to the findings of this great work done by the aforementioned.
There are various factors which influence and affect corporate reputation. In other words, corporate reputation is omni-driven. They may not be difficult to identify, but very careful thought might not have been given to them constantly. The threats and opportunities of this concept may be internally or externally driven. Drivers of corporate reputation are very important areas that management and boards of organisations must carefully consider, monitor and evaluate periodically.
The financial performances of any corporate organisation are likely to earn that institution a reputation. Financial analysts have tools they can apply to assess the financial strength of a company and the prospects. They may use liquidity ratio, earnings per share ratio, working capital ratio, asset turnover ratio, current ratio, quick ratio, debt-to-equity ratio, net profit margin, return on assets, return on equity and others to assess the ‘financial health’ of the entity.
In Ghana, the central bank requires all universal banks to publish their previous year’s financial statements of accounts by 31st March the next year to show operational and financial performances. Investors, business executives, analysts, researchers and other stakeholders will look out for the publications, evaluate the performances and form their opinions about the organisations.
For banks with correspondent banking relationships, non-publication of financial statements and inability to file same with their correspondent banks affect their corporate reputation. It is expected banks will fulfil this regulatory compliance to sustain their operation of correspondent bank accounts – to effect international funds transfers, establish letters of credits, issue guarantees and do other international banking business.
Experience has shown that financial statements can be manipulated such that the true financial position is not disclosed. About two years ago, a regulatory body sanctioned some auditing firms of some banks for grievous lapses in the latter’s work, auditing firms’ sanctioning also dented their public and professional image.
The quality of goods and services, popularity of the brand and safety of services and the company’s products affect its reputation. Institutions which uphold customer service excellence and respect for customers and their rights – and respond appropriately to their complaints and feedback – win good corporate reputations. They may be considered as the companies that care.
If an organisation has a good reputation, it has to keep abreast with technological development in order to improve its business strategy, systems, processes and operations. Failure to keep pace with technological advancements will not make their products and services competitive, and will eventually affect its corporate reputation. The organisation will lose some of its customers.
During this COVID-19 period, companies must not lose sight of the related business challenges. These challenges must be managed well so they do not have very serious repercussions on their corporate reputation. If their business operations plummet, then they will lose market share; their competitors will take over most of their customers and their reputation will also go down.
A company can also drive its reputation upward by fulfilling its corporate social responsibility. In supporting community health and educational projects, promoting and supporting environmental cleanliness and environmental protection, the image of an entity is improved.
Employees are ambassadors of the organisation. The grooming, training and development of employees is essential for the image of the entity. Their professional outlook, dressing, customer service delivery, conduct and core values shape their lives within and outside the company to project the entity’s reputation. Employees with impeccable professional records, outstanding competencies or superior job performance contribute to corporate reputation, as these traits positively affect the output and quality of service delivery.
Marketing and communication strategies of an institution constitute drivers of corporate reputation. For example, getting your loan within a certain number of hours or a few days can earn a bank a good reputation. How a company delivers on its instituted mission, visions and norms projects its integrity and reputation. Publicity with respect to the activities and operations of the entity and its responses to issues, problems and challenges reduce the risks to reputation.
It must also be remembered that a company’s position on the corporate ranking list and the awards an organisation wins can raise its public confidence and reputation. A company must be able to manage its public relations very well and update information on the institution’s website, and further respond appropriately to social media stories affecting it.
The Board of Directors itself constitutes a corporate reputation, and it is also a body expected to drive corporate reputation and improve business values. The Fit and Proper Persons Directive For Banks, Savings and Loans Companies, Finance Houses and Financial Holding Companies issued in July 2019 by the Bank of Ghana indicates who qualifies to be directors.
Ahead of its third Annual General Meeting that took place on 25th May 2021, MTN Ghana published the high performing individuals (directors) controlling the very successful African telecommunication giant. The company showcased the wide variety of their experiences and positions held across various areas of business (Ref: The Mirror, Saturday, May 22, 2021).
According to the State of Corporate Reputation in 2020: Everything Matters Now – “Executives are in agreement regardless of their size in terms of revenue. Those companies where reputation is especially important to the board are public companies and those with a multinational focus. Underscoring the value of reputation, boards of companies that have recently experienced a reputation crisis within the past two to three years are even more focused on reputation. Undoubtedly, they know from first-hand experience the significance of reputation loss.”
Board members with tainted reputations and bad/fraudulent public or business operations records will cause loss of reputation. The directors of banks, savings and loans companies and micro-finance institutions whose licences were revoked by the central bank about three or four years ago had their reputations severely affected, and may not be permitted by the central bank to occupy similar positions in the financial sector.
An institution may re-model its branches and offices to improve its corporate image. It may also embark on expansion of business operations and branch network across and beyond the country’s borders. It may also acquire new vehicles and rebrand them to project the image of the organisation.
Board members and all stakeholders of corporate entities must be determined to build and protect the reputation of their organisations. All institutions must work assiduously to deliver on their core values and strategic targets. The corporate reputation is most likely to contribute to your organisation’s development and earnings. Your high corporate reputation may be lost through poor management and incompetent leadership, negligence of staff, and natural disaster.
It must also be remembered that any institution fraught with fraud, forgery, lack of professionalism, unethical handling of customer service and customer needs, increasing strikes and non-compliance with regulatory requirements will experience negative impacts on corporate reputation.
It is time for management of companies to measure and communicate corporate reputation to the Board, Staff and stakeholders so necessary actions can be taken to repair corporate image damage or raise their reputational flags higher for survival and profitability.
The Board, Executive Management, Risk Department, Internal Audit and Internal Control Departments as well as the Compliance Department must collaborate to ensure that corporate efficiency and effectiveness are enhanced while fraud and regulatory infractions or lapses are reduced. The image, service operations and products must be strategically projected.
The work on ‘State of Corporate Reputation in 2020: Everything Matters Now’ convincingly pointed out that: “Reputation affords companies numerous benefits, but a key finding of the research is that reputation contributes substantially to a company’s market value”.
Looking at reputation from a time perspective and achieving it, Warren Buffet had this to say: “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you will do things differently”.
The writer is a Chartered Banker. e-mail:[email protected]