How to safeguard corporate reputation

A positive corporate reputation pays dividends for employees, customers, business partners and investors, so it must be protected. UTS Business School Fellow, Professor Grahame Dowling shares ways directors can safeguard corporate reputation and maintain credibility during disruptions to stakeholder relationships. 

1. Actions speak louder than words

You can’t apologise your way out of a reputation crisis, says Dowling. This is especially the case if the crisis is caused by an operational failure, as opposed to a communication misstep.

“Yes, you have to say ‘sorry’, because the media will hound you if you don’t, and the affected parties expect it,” says Dowling. “Sorry can buy time but, like Optus and Qantas, when failures are repeated, people start to get cranky. But most of the people who are directly affected want more than this. Most importantly, many employees will be devastated by their company’s misbehaviour.”

Dowling points to the recent PwC scandal. “The internal culture and performance appraisal system drove some very questionable client service practices. A message from the managing partner about a few ‘bad apples’ in the firm could not camouflage what most people knew was an organisational culture problem.”

Dowling says when operational failures are repeated, senior leaders are generally viewed as accountable by the media and institutional investors. “And, because the people who created the problem are generally not the best people to fix the problem, sometimes it is the CEO who must go,” he says. “This is exactly the message executive managers don’t want to hear.”

2. Complete a reputation audit

Dowling says reputation has many aspects — from the corporate identity or brand used to identify an organisation to the way it is viewed by stakeholders and the wider perception of the industry in which it operates. He advises boards to complete a reputation audit — what are your company’s desired/actual reputation positions? A crucial aspect of this audit is to profile how reputation differs across different groups of stakeholders. It will reveal that a company does not have one reputation, but many.

“Also, consider where in the company the prime and secondary responsibilities lie for reputation management. Is it in the executive suite, PR department, stakeholder engagement department or social responsibility department? When the prime responsibility for aspects of reputation resides outside the C-suite, reputation moves from being built-in to bolted-on.”

3. Ground reputation in strategy

To provide a competitive advantage, Dowling says reputation must be built into the company’s business model and strategy. He notes that three reputation positions provide the most powerful reputations.

”Being ‘best at’ something may refer to designing the interface of a personal electronic device like Apple,” says Dowling.

“Being ‘best for’ something refers to a particular group of stakeholders — for example, Oxford, Cambridge and Harvard are best for a particular type of undergraduate student.”

Being “best because” of something refers to a key capability, such as a company’s AI technology. “By definition, only a handful of companies can win. So, others have to find a different corporate reputation position that will appeal to a particular group.”

4. Don’t pin a good reputation on ESG

As strong ESG performance is now expected of all companies, Dowling sees it as a secondary reputation strategy. Research indicates this position doesn’t attract less price-sensitive customers or more engaged or productive employees. These two reputation dividends are hard to link to an ESG-type reputation, especially if everyone else is also claiming to be ESG-compliant.

“Many big investors want companies to be seen as socially responsible, but this is as much a compliance issue as something that might generate above normal profits,” he says. “The more ESG reports are published, the more they look like points of parity, not something that offers a company a sustained competitive advantage, and thus a better reputation.”

5. The biggest reputational payoff is emotional

Most people like to work for and deal with a good company. In this regard, reputation brings financial value, says Dowling. “Given these interactions are at the core of our identities and mental health, good reputations are quite valuable. They are monetised via the mechanisms of trust, respect, authority and admiration. These are the things that get people to engage with the company.”

This article first appeared under the headline 'Five Ways To Safeguard Corporate Reputation’ in the February 2024 issue of Company Director magazine.