Building and Protecting Your Reputation Capital

Dr. Terence (Terry) Flynn, APR, FCPRS

April 3, 2012

BC TRANSIT 2012 WORKSHOP

Today’s Game Plano What is Corporate Reputation

• Group Exercise

o CR as your ICA

o Conditions and Attributes

o Safeguarding your Reputation

At Your Table…

• Five things that are important to you when you think about an organization’s CR

• Three (3) organizations that have a good reputation

• Three (3) organizations that have a bad reputation

Some of The Drivers/Attributes of Reputation Are…

What Philosophers Think…

• “The way to gain a good reputation is to endeavor to be what you desire to appear.”

Socrates

• “It is easier to cope with a bad conscience than with a bad reputation.”

Nietzsche

What Business Leaders Think…

• “You can’t build a reputation on what you are going to do.”

Henry Ford

• “If you lose dollars for the firm, I will be understanding. If you lose reputation for the firm, I will be ruthless.”

Warren Buffett

A Conceptualization of Reputation

• Identityo The internal traits of the firm that are

critical to its distinctiveness and longevity• Image

o The perceptions and associations that are constructed by the purchaser of the product/service

• Brando The constructed visualization of the

company’s value proposition• Reputation

o The holistic viewpoint in which an organization is internalized by its stakeholders

Putting Reputation Into Perspective

• A concept held in the minds or cognitions of stakeholders.

• A set of attributes ascribed to a firm, inferred from past actions.

• Perceptions, attitudes and/or beliefs of stakeholders

• “A corporate reputation is a perceptual representation of a company’s past actions and future prospects that describe the firm’s overall appeal to all of its key constituents when compared with other leading rivals” (Fombrun, 1996).

Creating the Business Case for Reputation

Management

The Competitive Context of the 21st Century

• An intensely competitive, global marketplace

• 24/7 media and internet environments

• The drive for Inimitable advantageso commoditization

• Vocal consumerism/stakeholder centric

• Increased focus on corporate governance

• The rise of intangible assets

RM as ICA• A strategic management process should

result in a distinct competitive advantage

• Strategy = how to gain competitive advantages

• SMP = sequential set of analyses and choices that can increase the likelihood that a firm will choose a good strategy: that is, a strategy that generates competitive advantages

The Growing Importance of Intangible Assets

The Reputation Capital Pipeline

• Reputation: o “A resilient asset to some companies in a

difficult marketplace”o Stakeholders’ perceptions of reality

• Customers, employees, investors, media, financial analysts

o Influence investment decisions (herd mentality), prospective

o A good one acts like a magneto Create differentiation and competitive

advantageo Affect strategic positioningo Mirror that reflects company success

Why Reputations Matter

• Reputation and financial value are related in three ways:o Operating performanceo Profitability affects market perceptions of future prospectso Operating activities themselves contribute to building

“reputation capital” – a shadow asset• Reputation Affects Operating Performance

o Stimulates employee productivityo Creates reservoir of goodwill

• Reputation Creates Financial Value That Builds Reputationo Receive favorable endorsements from stakeholders and the

mediao Fortune’s most admired

• Reputation Has Financial Value as a Corporate Asseto Branding and reputation-building help build a company’s

visibility, familiarity, and fame – investments in creating reputational assets

• Crisis costs include loss of reputation capital

What Are Reputations Worth?

Value of Corporate Reputation• Operational Value

o Increasing employee satisfactiono Ability to recruit & retain talento Help customers to choose between products

(when little functional difference exists)

o Supports new product introductionso Provides a second chance during crises

• Arguably, the internal benefits are the most valuable, especially for companies that rely on employees to support external positioning

Value of Corporate Reputation

• Financial Valueo Based on work Dowling conducted in

conjunction with the Fortune 500 “Most Admired Companies”

• Good Corporate Reputations increase the length of time that firms spend earning superior financial returns (a carry-over effect)

• Good Corporate Reputations may reduce the length of time that firms spend earning below-average financial returns (a lead indicator effect)

Worth In Progress• 26 Companies from 2006 Leger Top 100

Reputation Companies (Canadian Tire, Tim Hortons, MLF, SDM)

• Canadian owned and publicly traded• Beta = 0.783• Difference with Market Beta = -0.217• Rate of Return (1 year) = 25.09• Total Expected Rate of Return = 10.7• Reputational Difference = 15.02%• 5 year rate of return (annualized) = 16.31

DOES Reputation Matter…you bet!

Reputation is a Differentiator of Value

• Employees o Attracts and keeps

talento Builds pride o Makes jobs more

attractive and motivates employees

• Customerso Attracts new

customerso Encourages repeat

purchaseso Builds market shareo Opens new market

opportunities• Investors

o Lowers cost of capitalo Attracts new

investments

• Mediao Generates more positive

coverage• Government

o Enhances supporto Minimizes chance of

enhanced scrutiny• Communities

o Builds supporto Minimizes concerns

The key is to develop mutually beneficial relationships with these stakeholder groups resulting in continued supportive behavior!

Determinants of Reputation

• Visibility• Authenticity• Transparency• Consistency• Distinctive• Effective• Resilent

Determinants of Reputation

Relationship Relationship IntelligenceIntelligence

Stakeholder Engagement Index

• Identify priority stakeholderso Influence/powero Interest/involvement

• Measuring relationship variableso Trust, commitment, satisfaction, transparency,

mutuality

• Create scorecard metric• Track the delta (change over time)

Analyze and engage stakeholders

Interest

High

Low

Keep informed Key Player

Minimal efforts Keep satisfied

Low High

Power

Components of Relationship Management

• Trust• Satisfaction• Commitment• Transparency (Honesty/Openness)• Control Mutuality• Exchange Relationship• Communal Relationship

It’s All About Relationships• When thinking about the company or organization that you like a

lot (on a 7-point scale) – Leger/McMaster March 2010 (N=1500)

o To what extent do you trust this company (M=6.0)o To what extent do you believe that they are

honest/transparent (M=5.8)o To what extent do you believe they are committed

to meeting your expectations (M=5.9)o To what extent are you satisfied with this company

(M=6.1)o To what extent do you believe that you can

influence the decisions or direction of this organization (M=3.8)

When You Don’t Have A Relationship

• To what extent do you trust this company (M=1.9)• To what extent do you believe that they are

honest/transparent (M=2.0)• To what extent do you believe they are committed

to meeting your expectations (M=2.1)• To what extent are you satisfied with this company

(M=1.9)• To what extent do you believe that you can

influence the decisions or direction of this organization (M=1.7)

How Important is it that a Company

• Builds trust with people like you (M=6.1)

• Be honest and transparent (M=6.2)• Commits to meeting your expectations

(M=6.0)• Satisfy people like you (M=6.1)• Allow people like you to influence their

decisions (M=5.2)

Your Challenge Then Is To…

1. Increase Trust2. Demonstrate Transparency3. Strengthen Commitment4. Enhance Satisfaction5. Give your publics/stakeholders a

voice

Toyota’s Accelerated Reputation Decline

Toyota’s Climb to #1

2005 2006 2007 2008 2009

Awareness

66% 71 80.8 80.8 83.1

Reputation Score

58 66 76 75 77

Good Opinion

62 69 78.6 77.8 80.2

Bad Opinion

4 3 2.2 3 2.9

Global Sales

2 2 1 (tied with GM)

1 1

A Reputation Recalled! But…

Toyota(Feb 1-3)

Toyota (Feb 8-13)

Honda GM Ford

Nissan

Mazda Hyundai

Kia Chrysler

Aware

83.5 80.2 79.1 79.9

83.8 62.5 64.9 61.4 48.7 75.8

GO 72.1 59.1 74.1 47.7

57 54.6 57.2 42.5 25.6 38.9

BO 11.4 21.1 5.0 32.2

26.8 7.8 7.8 18.9 23.2 36.9

RS 61 38 69.0 15.5

30.3 46.8 49.4 23.6 2.4 2.0

DKE 11.9 15.5 17.9 16.5

13.8 31.7 29.1 32.2 41.7 20.1

Aware = Awareness (G0+B0)GO = Good OpinionBO = Bad OpinionRS = Reputation Score (GO – BO)DKE = Don’t know this company enough to have an opinion

90 Days Later…Toyota (Feb 8-13)

Toyota(May 1-6)

Honda

GM Ford Nissan

Mazda Hyundai

Kia Chrysler

Aware

80.2 84 82.5 78.7

83.5 67.5 68.7 63 51.6 75.6

GO 59.1 61.4 77.3 48.8

60.7 59.5 62.9 45.6 28.7 42.1

BO 21.1 22.6 5.2 29.9

22.8 8 5.8 17.4 22.9 33.5

RS 38 38.8 (.8)

72.1 (3)

18.9 (3.4)

37.9 (7.6)

51.4 (4.6)

57.2 (4.6)

28.2 (4.6)

5.9(3.5)

8.6 (6.6)

DKE 15.5 12 14.3 17 13.5 27.5 24.5 31.3 39.6 20.2

Aware = Awareness (G0+B0)GO = Good OpinionBO = Bad OpinionRS = Reputation Score (GO – BO)DKE = Don’t know this company enough to have an opinion

But it’s a different relationship story

Relationship Factors Canadians(n=1273)

Toyota Owners(n=204)

Benchmark(n=1506)

To what extent do you trust Toyota

4.2 5.3 6.1

To what extent do you believe Toyota is honest/transparent

4.0 4.8 6.2

To what extent do you believe Toyota is committed to meeting their customer’s expectations

4.6 5.5 6.0

To what extent are you satisfied with Toyota’s response to the recalls

4.2 4.9 6.1

To what extent do you believe that customers can influence the decisions or direction of Toyota

4.9 3.7 5.2

SR + OR + RR + MR = ICA• Relationships

o Your role is to develop and strengthen mutually beneficial relationship with your priority publics

• Reputationo Your role is to enhance and leverage reputation

to strengthen priority relationships• Risks

o Your role is to identify, assess and mitigate (where possible) risks to corporate reputation

• Results o Your role is to measure how your contributions strengthen

relationships and enhance the overall reputation.

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Questions/Comments?Contact Information:

Dr. Terence (Terry) Flynn, APR, FCPRSAssistant Professor

Department of Communication Studies & MultimediaMcMaster University

Hamilton, ON L8S 4M2(905) 525-9140 ext. 26977Email: tflynn@mcmaster.ca

Twitter: terryflynnBlog: terryflynn.ca

Linkedinwww.mcm.mcmaster.ca