Who Wants to Be a Millionaire?
Investment strategies for reputation management in the twenty-first century
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| Joachim Klewes |
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| Robert Wreschniok |
Mr Klewes, Mr Wreschniok, how important is a solid corporate reputation?
Joachim Klewes: Now so more than ever. Over the course of our recent financial or economic crisis, many companies have lost the confidence of their stakeholders and must now try to painstakingly renew that trust. The crisis itself has shown how reputation is increasingly becoming a decisive competitive factor. To name just three examples: a company with a solid reputation can, firstly, more easily create loyalty among high potentials and, secondly, expect less regulatory control. Finally, investors also have more confidence, for example, when it comes to injecting capital.
Robert Wreschniok: A recent study by Harvard Business Manager places reputation among the five most important intangible corporate assets, together with customer satisfaction, employee satisfaction, brand and corporate culture – well ahead of patents and licenses.
How can you protect reputation when the economic performance no longer stacks up?
R.W.: Certainly not by then investing more in CSR activities whilst merely affecting remorse. Corporate reputation consists of three dimensions. The first and most important dimension is indeed economic reputation. Here, it is a question of meeting expectations with respect to economic performance. 80 percent of public judgements about a company are determined by this. The second dimension is societal reputation. However, only 20 percent of public judgements relate to societal questions. For this reason, corporate communications that is matter-of-fact, sincere and reliable is often the best means of regaining stakeholder trust.
And the third factor?
J.K.: That is expressive reputation, which reflects the extent to which a company succeeds in establishing a unique identity, setting itself apart from its competitors. Management must continuously perform a balancing act: on the one hand, the expectations of the most important stakeholders must be met – and on the other hand, it must always break with those expectations in order to distinguish itself from other companies.
You compare reputation strategies to classical investment strategies on the stock market. How do these two relate?
J.K.: The principles for successfully building up capital, both financial and reputational, are similar. On the financial market – as with the opinion market – communication and psychology play an increasingly important role. Second, our analogy with the financial market helps us express complex relationships concisely.
R. W.: For example, everyone associates the term ‘hedge strategy’ with a highly speculative investment style that promises high returns, but also carries high risks. A value strategy, on the other hand, stands for sustainable investment. Growth strategies promise controlled growth, while total return aims for absolute security – everything you invest, you get back. And, just as no one any longer believes in total return on the stock exchange, we too are critical of total return strategies in reputation management.
What are the benefits of this analogy?
J.K.: Analogies reduce complexity. They help us perceive problems from different perspectives. That helps a great deal when making decisions and solving problems. The analogy with investment strategies, for example, highlights the idea that every reputation strategy involves choosing a particular risk-return ratio – that is, one must weigh up reputational opportunities and risks.
R.W.: The more aggressive a company’s communications strategy, the greater the expectations it creates and the greater the reputation risk it necessarily assumes. Examples are corporations or people, who in terms of our analogy have chosen a hedge-fund strategy for building up their reputation. One example that has received special attention internationally is the Obama campaign. Here we have extreme success, extremely high expectations – and an extremely high risk of folding if these expectations are disappointed. A certainly somewhat unintended result of this hedge strategy in this case is the award of the Nobel Peace Prize to Barack Obama. It’s hard to imagine greater trust in advance.
J.K.: At the other end of the scale, we have companies who follow a total-return strategy. They consistently attempt to avoid publicity. One can find examples in the B-to-B sector especially. Interestingly, the reputation risk here is particularly high, despite this restraint. Total return strategies today are compatible with neither the scandal dynamics of the global media system nor the new spheres of influence emerging in Web 2.0. Companies that have in the past failed to firmly establish a clear and trusted profile among their stakeholders, will in future more easily become a football for media interests and opinion forums in the internet.
So, those responsible for communications must always choose between the devil and the deep blue sea?
J.K.: No, there are specific reputation risks and opportunities for every company. Before you decide on a particular reputation strategy, you should evaluate the internal and external conditions for your company. Let me demonstrate this using Siemens as an example: when the corruption affair was uncovered in 2006, it created a massive reputation problem for Siemens. This could not be fixed through communications alone. Consequently, Siemens decisively opted for a value strategy and began to change corporate structures and employee behaviours. This process was accompanied by internal audits, and a process for changing corporate culture and values.
R.W.: Only when Siemens began to be perceived as a leader in the fight against corruption did the company increasingly use external communications activities. Through the Siemens Answer Programme, Siemens has actively positioned itself since mid-2008 on certain pre-defined global megatrends, such as demographic change, urbanisation and climate change. In this way, it has been building up its opinion leadership on issues relevant to business. In stock-market jargon we would say: Siemens is now increasingly pursuing a reputational growth strategy.
Top Story: Reputation Revised
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