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Harvard Business Review Examines "Reputation and Its Risks"

"Character is like a tree and reputation like its shadow. The shadow is what we think of it; the tree is the real thing."
- Abraham Lincoln

Thanks to a small story in the Wall Street Journal on Friday, I was directed to an article in the February edition of Harvard Business Review, "Reputation and Its Risks," which is where I sourced that quote. Written by Robert G. Eccles, Scott C. Newquist and Roland Schatz, every executive and public relations counselor should spend a few moments reading it.

The authors identify three situations that put reputation at risk:

Reputation-reality gap. When the reality of a company''s behavior or performance is not aligned with its reputation, the gap can pose a substantial risk. While many companies are focused on improving their reputation, the authors point out that the greater risk is to have a reputation that is better than reality. Inevitably, the company will fail to live up to expectations, which can hurt trust and undermine loyalty.

Changing beliefs and expectations. Attitudes and opinions are fluid, dynamic and ever-changing, so attitudes and opinions that shaped an organization''s reputation yesterday are different today and will be different tomorrow. Often, companies see signs that changes are occurring and simply choose the other way, continuing to do what they''ve always done. Failure to adjust corporate behavior to align with shifting beliefs can put repuration at risk.

Weak internal coordination. As stated previously, reputation can be a function of aligning expectations with reality. Therefore, if one business unit (marketing, perhaps?) raises expectations among stakeholders that another (engineering) can''t satisfy, the company''s reputation in the market can suffer. The authors advocate having a person or department responsible for reputation management in order to provide the necessary internal controls.

The authors say companies don''t have to stand back and passively let the chips fall where they may. In fact, they says that few companies do an adequate job of managing their reputations in general and the risks to their reputations in particular. "They tend to focus their energies on handling the threats to their reputations that have already surfaced." As the authors point out, this reactive approach is more akin to damage control than reputation management.

Instead, they encourage companies to "identify, quantify and manage the risks to reputation long before a problem or crisis strikes." They recommend the following five steps.

  • Assess reputation. What is your company''s place in the minds of stakeholders and influencers?
  • Evaluate reality. What is the truth about the company performance in key metrics? Don''t just think about what matters to customers or shareholders. Employees, neighbors and public officials can also wield great influence.
  • Close gaps. Communication can play a central role in making sure the promises being made closely match what the company fulfills.
  • Monitor changing beliefs and expectations. Make a commitment to periodic research to ensure the company can anticipate changes in attitudes and opinions and adjust course as necessary.
  • Put one person in charge. Interestingly, the authors argue against having corporate communications or public relations counselors take charge of this responsibility. They contend that PR can often cause conflicts between reality and reputation by being promoters or over-promising.

Firms with strong reputations attract better people, can charge a premium because of a perception of added value, enjoy more loyalty from customers and employees, and tend to have a higher price-to-earnings ratio than peer companies. Taking steps to ensure your organization''s reputation is in line with reality may be among the most important investments a company can make.


Dan Keeney
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Author: Dan Keeney
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