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28 March 2016

Reputation: The Key to a Company’s Success

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Reputation is a synonym of fame, according to the Larousse dictionary, while the Spanish Royal Academy defines it as the “opinion that people have of a person”, in a rather positive than negative sense: “an outstanding person in a science, art or profession”. A person therefore has a good or bad reputation according to the image that others have of him or her; a good, upright and respectable person obviously has a good reputation.

This obviously has a great deal to do with “corporate citizenship”, a synonym of Corporate Social Responsibility (CSR) in some circles. And it makes sense for this to be so, as a company is a corporate entity, made up of natural persons; that is where its responsibility arises, above all its social responsibility as the good citizen it must be. So a socially responsible company is like a good person: a good corporate citizen that performs its economic, social and environmental duties.

What do the experts say?

That is why one of the major subjects for which specialists in CSR are responsible is reputation, understood not as the opinion people have of a person but the opinion stakeholders have of a company. Of course, distinctions between the two concepts also arise, and what’s more there is still no complete agreement on the matter.

In fact, experts in reputation admit this close relationship with social responsibility, so much so that you can’t have one without the other; although they note that the two concepts should not be confused. What’s more, they consider CSR as something necessary, but not sufficient, for reputation; because a company that has a good reputation must be socially responsible, but CSR is not enough to guarantee a good reputation.

Reputation therefore requires other conditions or variables in addition to CSR. In fact, it is these variables that allow us to measure reputation in practice, making it tangible, as it were, despite its intangible nature.They give us the well-known rankings of the companies and businesspeople with the biggest reputation, which are so common around the world and to which so much publicity is given – and rightly so.

Let’s recall some of these variables, accepted today at international level:

  1. The commercial offering or goods or services that make up the company’s basic activity.
  2. Leadership, which requires companies to be led by people with a good reputation.
  3. Corporate Governance, which has so much to do with ethical values (consider the Code of Ethics) and the healthy administration of the business.
  4. Corporate Citizenship, which is CSR in its strictest sense.
  5. Employment quality, with due respect for workers’ rights.
  6. Innovation, the most important competitive factor.
  7. The economic results, reflected in the corresponding balance sheet.

The key to success

“Reputable capital does not appear on corporate balance sheets, but it soon will”, it has been said. And that is true. It is an asset that is increasingly valuable for companies, as is Corporate Social Responsibility overall, as demonstrated by multiple studies carried out at global level.

In fact, it is common to include reputation among the main benefits of CSR for a company. And lack of reputation brings enormous harm, as confirmed by the relentless way consumers punish firms with a bad reputation due to irregular practices, such as violation of human and employment rights, corruption or pollution of the environment.

Author: / via: Shutterstock

Companies thus generate substantial earnings due to their good reputation, but also enormous losses if they do not have it. This situation sooner or later will have to be reflected on the income statement or the balance sheet.

In these circumstances, it is no surprise that reputation is the subject of such great attention today in the world of business, including enormous sums of money used to improve it through the media, and in particular, advertising or communication and marketing strategies. Executives are aware that increased sales, a key source of income, largely depend on reputation, and therefore brand positioning, name or public recognition.

People pay much more for their preferred brands, as is well known. They therefore pay much more for reputation, in which this greater value that we have stressed so much consists. Some sectors do not see this as positive, above all when CSR, according to Friedman in his controversial critical essay, is nothing more than “window-dressing” for companies whose reputation is important and that are more interested in generating earnings from their reputation, prestige or fame, than in the quality of their products. In this case we really are dealing with a false reputation, manufactured in marketing, communication and public relation offices. This is the opposite of real CSR, which is founded on solid moral principles such as transparency and consistency between what is said and what is done.

The other side of the debate

This new debate has not been presented correctly. At the end of the day, the quality of the commercial offering is simply one variable of reputation, as we have seen. Reputation includes much more: ethics, labor issues, leadership etc., and these aspects give rise to CSR, without which a good reputation is not possible (any reputation without CSR would be misleading and would soon become known as such, leading to major losses for the company).

In short, there are more reasons to defend reputation and CSR than to attack it.

Lastly, to sum up, business leadership today aims to manage reputation in business, taking advantage of the knowledge of stakeholders and aligning its actions across the company’s departments. As the Conference on Corporate Reputation in Milan concluded, reputation is a key success factor in business.

This text is an extract from an original article published in i-ambiente.

Jorge Emilio Sierra Montoya

Jorge Emilio Sierra Montoya, Editor of the magazine “Desarrollo Indoamericano”, Universidad Simón Bolívar (Barranquilla, Colombia)

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