A company’s ability to communicate its leadership and vision is the most important factor in maintaining a strong corporate reputation, according to a study of Global Fortune 500 CEOs conducted by the Judge Institute of Management, the business school at Cambridge University. The study found broad consensus that reputational issues including financial, social and environment credibility would be significant to major multinationals in the future.
A reputation for quality was judged second most important, followed by a reputation for having the right knowledge and skills. But in some scenarios social credibility may be the most important factor in successful reputation management.
Says project director Arlo Kristjan Brady, “We already know that a large portion of a company’s value is made up of intangibles—various studies suggest that this can be up to 50 percent of total value. For multinational corporations it is important to establish how, and to what extent, environmental and social credibility will or could impact their success.
“Through dialogue with global leaders this research aims to establish the extent to which corporate reputation could, in the near future, represent the fabled return on responsibility.”
The study asked the CEOs of the world’s largest companies to consider three scenarios for the future of business:
· Fortress World: “A vision based not only on the failure of market led growth to redress social wrongs and prevent environmental disasters but also on the belief that unconstrained markets will exacerbate these problems and that large portions of humanity will be left out of the prosperity that markets bring.”
· Market World: “This scenario describes a future based on the belief that market forces and new technology will lead to rising prosperity and will offer humanity a bright future, a future in which markets rule and global corporations dominate.”
· Transformed World: “In this scenario fundamental social and political change, and perhaps even changed values and cultural norms, give rise to enlightened policies and voluntary actions that direct or supplement market forces. Transformed World envisions a society in which power is more widely shared and in which new social coalitions work from the grassroots up to shape what institutions and governments do.”
They were then asked to consider which of seven elements of reputation (see sidebar) would be most important in each of those scenarios.
Financial credibility was judged the most significant factor in a transformed world (2.5), followed closely by quality (2.4); leadership and vision was judged the most significant factor in a market world (2.8), with quality again in second place (2.7). But in a fortress world, social credibility would be the most important element of reputation (2.8), followed by leadership and vision (2.7), with financial credibility the least important factor.
But all of the seven elements were considered to be of at least medium significance in the preservation of a positive corporate reputation.
There were some significant variations between geographic regions. In particular: European companies consistently assign the future importance of environmental, financial and social credibility a higher level of significance to the preservation of a positive corporate reputation than their North American counterparts.
Knowledge & Skills: It is often said that a company is only as good as its people. Is the company known to recruit and retain individuals of the highest caliber, does it utilize and develop their talent to drive innovation?
Consumers attach emotions to services and products, without this emotional connection many companies would be alike. Includes the perceived values and culture of an organization, and how these link with those of its stakeholders.
Leadership, Vision & Desire.
Is the company concerned led by a group of people who are perceived to have vision and desire? It is not enough simply to have vision, the company must be perceived as being able to realize its visions. This element refers to perceptions concerning motivated and visionary leadership.
Concerns product or service quality, that is, whether it is seen to be meeting customers’ requirements, not just once but consistently. This element concerns historical reliability. Does the company have a ‘reputation’ for supplying unrivalled quality?
Is the company known to generate better than average returns for shareholders?
Is the company perceived as being a valuable actor in society, acting as a ‘good citizen’ and adding to social equity, therefore earning a ‘license to operate’? This can be clearly separated from environmental credibility, primarily because the two are so often in direct conflict. Societal demands are as often aligned with financial performance as they are with environmental responsibility.
In a society framed by growing environmental problems is the company perceived as adding to the negative legacy that we leave for future generations? Or is it perceived to be creating environmental value, and offsetting the actions of less responsible organizations?