Expert

Reputation Management – Walking Your Talk (Part I)

Walking your talk

A firm’s reputation is a priceless intangible driver of client satisfaction[i] and purchase intentions [1]. Through its reputation, a firm can influence customers’ quality perceptions more than through price or warranty [2]. Yet, as Lincoln so clearly states, reputation has an elusive, allegorical character. It can relate to the firm itself, the integrity of its employees or even the national or cultural background it reminds of[ii]. Reputation management calls for true leadership[iii] that accommodates its paradoxical nature, as it is an essential resource that the company needs to manage, yet it exists largely out of its control.

The ambiguous nature of reputation

A reputation’s uncontrollability begs consideration of what this mysterious and hard-to-manage concept really is. As an external reflection of an organization’s internal identity [3] it is measured in the eye of the beholder. So, perceptions of a company are selective reflections of its overall behavior, the messages it tries to send and the mass media exposure it gets [4]. Reputation’s duality, as a combination of objective and subjective aspects, also extends to its relationship with time. It is a retrospective evaluation, as “You can’t build a reputation on what you are going to do”[iv], yet always with forward-looking implications, as customers’ perceptions of reputation will support their future decisions. A company’s actions thus resonate in the short and the long term. In the short-term, high-demanding customers and fast-paced competition stimulate window dressing and remaining top of mind. This might provide the company what social psychology calls a ‘HALO-effect’[v], an aura of positivity.

On one hand, this HALO increases goodwill and acts as a buffer so that if critical messages surface, they are often ignored or discredited. On the other hand, there is also a dark side to reputation to the extent that it inflates the company’s shadow out of proportion. Reputation is crucial for a business’s legitimacy, eventually acting as what game theorists call a ‘grim trigger’. This implies that one serious negative signal can substantially impact the firms’ reputation and results. The more a company’s impression management has boosted a HALO-effect and thus stakeholders’ expectations, the stronger the grim trigger will affect it. As such, in the long term companies gain more by building a reputation authentically, which is discussed further below.

Toward a dual perspective of authentic reputation

Sustainable reputation management strikes a balance between the short and the long term. It aligns stakeholders with the company’s mission without inflating its image. In line with an increasingly popular perspective on leadership, building and maintaining such a strong and sustainable reputation calls for authenticity. According to recent studies, authentic leadership of stakeholders increases credibility [5] and avoids hubris [6].

This article outlines a modern approach to reputation management combining two complementary challenges: ‘walking your talk’ and ‘talking your walk’. This two-part white paper series presents both angles on sustainable reputation management as two sides of a coin.

Walking your talk: Trust and consistency as keys to authentic reputation management

Being perceived as authentic first of all requires a continued effort to live up to stakeholders’ expectations; “It takes 20 years to build a reputation and five minutes to ruin it.”[vi]. A reputation can thus be more volatile than we would often like to believe. Managing this volatility and being perceived as consistent is not necessarily a matter of making the same predictable choices at all times. It is rather one of instilling trust among stakeholders when making them. Building trust also creates a buffer that is based on the history between the company and its stakeholders. This is in contrast with the one created by the HALO-effect, which is rather built on thin air. Although trust is a highly complex and dynamic concept, it can be considered to build on two important components: competence and affective goodwill [7].

Competence-based trust is granted if one perceives the other to be capable of fulfilling a certain task. Besides demonstrating a strong track record or a visible capability, this type of trust is maintained by professionalism and consistently living up to contractual expectations. Over the longer term, it also benefits from being up-front about what you can do and what not. This will convey the message that you know what you are doing without creating unrealistic expectations. It will also prevent accepting projects that fall outside what you can deliver. Affective trust implies showing you care about what happens to stakeholders and that you are passionate about protecting the other’s interests as well. So this requires doing more than is perhaps contractually specified to prevent damage to the other party.

For recommendations on how to build trust, we can again look at leadership theory. Consistently delivering on promises and integrity in putting the interests of the group before one’s own are classic attributes of effective leaders [8]. Newer leadership studies indicate that the positive impact of consistency on subordinates’ and peers’ attitudes requires a strong moral grounding [9]  and being highly driven and assertive in the pursuit of personal values [10]. NBC’s political commentator Chris Matthews perhaps summarizes these findings in a more inspiring way when arguing that to find a great leader, “look for the candidate with motive, passion and spontaneity”.

Especially motive and passion are relevant to walking your talk. For example, the legendary Tylenol crisis, a famous best practice reputation management case, illustrates how these leadership qualities translate into great reputation management. The case recounts how CEO James Burke reacted to sabotage by one of his employees who laced bottles of Tylenol with cyanide. Motive had him sticking to the firm’s credo, putting patient safety instantly before the bottom line. He immediately recalled 31 million bottles, taking a $100 million hit. After a second case of tampering, sales of the capsule form were shut down altogether, amortizing another $175 million, even though there was no direct blame. Passion was Burke’s vigor in the actions undertaken and getting personally involved, spearheading a crisis management team.  In contexts where making the right choice is often anything but clear-cut, motive is the moral compass to not persist in wrong choices. Passion is the drive and assertiveness to act upon those beliefs.

How does an organization gain trust among its stakeholders?

3.1 Nurture a strong culture internally to sustain reputation externally

First of all, motive and passion should be present throughout the organization. To demonstrate consistency over the longer term, leaders at all levels in the company should be motivated intrinsically to do so. So, although they might help, extrinsic motivators such as values-driven bonus or promotion schemes are insufficient to induce desirable behavior over time, all the time. Employees should be compelled to act in a desirable way because they believe it is right to do so and thus get satisfaction out of the actions themselves.

One major tool to stimulate such intrinsic consistency and to foster sensemaking and action as if it were based on one ‘collective mind’ [11], is the company culture. A strong values-driven company culture motivates behavior that is consistent with the company’s shared values. Besides motivating values-driven behavior itself, a strong company culture is also instrumental to instill positive perceptions among stakeholders. In fact, companies enjoying high reputation rankings such as RQ over longer periods of time are the ones that are notorious for cultivating a strong culture dedicated to strong shared values. Strong cultures induce consistent behavior from all members through a self-reinforcing cycle of attracting people with the right values, selection of the most fitting candidates for promotion and attrition of those that deviate from those values [12]. So, the question then becomes how to create such a strong, self-reinforcing culture to guide values-driven behavior.

Academics mostly focus on the conceptual and processual aspects of culture, and leave these tough ‘how’ questions to practitioners. Nonetheless, the cases and models they study do offer some insight. For instance, it underlines the importance of systematically using the company’s values as a benchmark for good decisions as a way to increase the likelihood of making the right choices consistently. The case teaches us that regular top- and middle-management coordination meetings explicitly discussing and re-evaluating the company’s mission and values helps build and maintain a strong culture that is widely supported throughout the company.

In terms of coordination and control mechanisms, the clan-based model [13] is known to intrinsically motivate desirable behavior and support strong cultures. It is particularly relevant in the management of reputation, where the outcome is both unpredictable and hard to measure. Clan-based control systems guide employees’ decisions through solidarity, shared-values-drivenness and social control. Organizations can create such a system by heavily using team-based coordination rather than formal controls and by stimulating the development of social capital among employees [14].

3.2 Avoid pitfalls to building a sustained reputation

Besides culture, there are some other considerations to maintain reputation consistency. As reputations are affected by interpretational filters and by the extent to which these interpretations are updated, internal coordination becomes crucial in the event of a crisis [15]. Every communication inconsistency can potentially be multiplied by these double filters. For management, this requires balancing between decentralized, frontline reactions to what is being said by stakeholders, while maintaining central oversight and coordination for consistent communication campaigns [16]. Finding such a balance is much likelier when a strong culture is in place to guide those reactions anyway.

In trying to maintain a consistent, authentic reputation towards stakeholders, there is also an important role for the way leadership is executed in the company. Although part II of this white paper series will go into more depth on the authentic leadership style relevant for reputation management, we provide a short comment on leadership values here. Although one cannot prescribe which values company culture should be based on, the following pitfalls should be kept in mind.

  1. Consistency in leadership is often misinterpreted as achieving high reliability, or having a low tolerance for failure. This is exactly what should be avoided, as we know that such an excessive focus on success leads to unethical behavior and burnout [17].
  2. Probst and Raisch furthermore point at the dangers of leadership that sets growth targets beyond the organization’s natural growth potential, of changing too much or too often and of unquestioned leadership. According to their study of the 100 largest organizational crises between 2000 and 2005, these are consistent signs of unsustainable leadership. These pitfalls are caused by the euphoria of success and point to the need for an anchoring of and a critical attitude toward your own views, plans and actions.
  3. A last pitfall is that managers are often tempted to confuse sustainability with corporate social responsibility (CSR). As a response to managing reputation risks, large and highly visible organizations create CSR departments or programs. These programs often represent quite large investments and an underlying logic is that these heavy contributions demonstrate the company’s commitment to societal and stakeholder values. However, by promoting consistency and values-drivenness in leadership and letting you managers think ethically themselves, you can effectively manage your reputation.
3.3 Measure your reputation – and take action

A final advice: ‘walking your talk’ focuses on the importance of measuring reputation. As reputation is often perceived differently by internal and external stakeholders, it needs to be monitored on a frequent basis. It is not because management thinks it is acting in a consistent, value-driven way that stakeholders perceive it as such. Luckily, tools up to the task do exist and although reputation management engages a broad public of stakeholders, it is advisable to go for more specialized tools that suit your specific situation. Scales like the RQ (Figure 1) are perhaps useful to measure the reputation of highly visible companies among the broad public.

Harris Interactive, The Annual RQ® 2009 Summary Report; A survey of the U.S. general public using the Reputation Quotient®

Yet, measuring reputation among the stakeholders relevant for your company should focus on the issues directly relevant to them. More strategically useful measures are the ones which are custom-developed to the specific situation and stakeholders relevant to your organization [19]. Moreover, this reputation monitoring should be approached in an actionable way so that the results are not an end point, but a basis for action and dialogue. In doing so, this should take the form of practical recommendations which are distilled out of the reputation analysis. In talking your walk, the next part of this white paper series, we dig into this more dialectical aspect of reputation management. As it encourages firms to become more flexible and responsive to changes in the stakeholder environment, it is the seemingly paradoxical counterpart of consistency. Yet, in part II, we clarify how both are equally crucial and need to be combined for sustained effective reputation management.

4  Ten key take aways from management literature

Five internal reputation management practices
  1. Sustainable reputation management starts and ends with values. Consistently plan, organize, lead and control in accordance with your company’s values. Sustainable reputation management calls for true authentic leadership. Managers across all layers should be stimulated to lead by example and evaluated on their ‘organizational citizenship’ as much as on their performance [9]. The latter will make your company’s year or quarter, the former helps build its future.
  2. Reputation is to a large extent based on actions [3], both large and small. If you want everyone to act right, invest in intrinsic motivation through values, culture and social control [13].
  3. Be very cautious in the expectations you set [4]. The public loves an underdog.
  4. Your reputation is a legitimacy factor; stakeholders will not notice it until it goes wrong. So the gains from overstatements are always temporary and small; losses are not [15].
  5. The biggest internal threats to your reputation are overconfidence and over optimism[6]. Paradoxically, those are highest when your company is doing well [17], so remain humble and be very critical of prolonged success, because that is when spectacular failures are seeded.
Five external reputation management practices
  1. As stakeholders cannot be managed, creating trust is your best option to have some control over your image. It will certainly last you longer than an inflated image.
  2. Trust is both competence-based and affective [7]. To have it granted to you, focus on making stakeholders believe that you are reliable and able to perform what you planned and interact transparently on a human level.
  3. Reputation resides in stakeholders’ perceptions, not your own. So when it is essential to your strategy, make reputation management evidence-based.
  4. Be critical and responsive to reputation scores. Stakeholders are not there to make you feel good; they will point you to where you can do better.
  5. Reputation and stakeholder management are most effective when directed specifically at the stakeholder groups which are relevant to your company [19]. Good reputation management thereby requires more than CSR [18]. In fact, it does not need it at all.

Our next newsletter, which will be released in the beginning of September, will discuss in more detail the other side of how to manage a reputation sustainably, by also talking your walk. These short reflections on reputation management are both part of a white paper, which sets the topic for our first world café on the 25th of September 2013 in cooperation with the Antwerp Management School, to which you are cordially invited.

[1] Shamdasani, P. N., Stanaland, A. J.S., and Tan, J. Location, location, location: Insights for advertising placement on the web. Journal of Advertising Research, 41, 4 (2001), 7-21.
[2] Akdeniz, B., Calantone, R. J., and Voorhees, C. M. Effectiveness of Marketing Cues on Consumer Perceptions of Quality: The Moderating Roles of Brand Reputation and Third-Party Information. Psychology and Marketing, 30, 1 (2013), 76-89.
[3] Fombrun, C. and Van Riel, C. The Reputational Landscape. Corporate Reputation Review, 1, 1/2 (1997), 5-13.
[4]Fombrun, C. The Building Blocks of Corporate Reputation: Definitions, Antecedents, Consequences. In Barnett, M. L. and Pollock, T. G., eds., The Oxford Handbook of Corporate Reputation. Oxford University Press, Oxford, 2012.
[5]George, B., Sims, P., McLean, A. N., and Mayer, D. Discovering Your Authentic Leadership. Harvard Business Review, 85, 2 (2007), 129-138.
[6]Petit, V. and Bollaert, H. Flying Too Close to the Sun? Hubris Among CEOs and How to Prevent it. Journal of Business Ethics, 108, 3 (2012), 265-283.
[7]Levin, D. Z. and Cross, R. The strength of weak ties you can trust: The mediating role of trust in effective knowledge transfer. Management Science, 50, 11 (2004), 1477-1490.
[8]Yukl, G. Managerial Leadership: A Review of Theory and Research. Journal of Management, 15, 2 (1989), 251-289.
[9]Valsania, S. E., Leon, J. A.M., Alonso, F. M., and Cantisano, G. T. Authentic leadership and its effect on employees’ organizational citizenship behaviours. Psicothema, 24, 4 (2012), 561-566.
[10]Briscoe, J. P., Hoobler, J. M., and Byle, K. A. Do “protean” employees make better leaders? The answer is in the eye of the beholder. Leadership Quarterly, 21, 5 (2010), 783-795.
[11]Weick, K. E. and Roberts, K. H. Collective Mind in Organizations: Heedful Interrelating on Flight Decks. Administrative Science Quarterly, 38, 3 (1993), 357-381.
[12]Schneider, B., Brief, A. P., and Guzzo, R. A. Creating a culture for sustainable organizational change. Organization Dynamics (1996), 1-17.
[13]Ouchi, W. G. The relationship between organizational structure and organizational control. Administrative Science Quarterly, 22 (1977), 95-113.
[14]Kirsch, L. J., Ko, D.-G., and Haney, M. H. Investigating the Antecedents of Team-Based Clan Control: Adding Social Capital as a Predictor. Organization Science, 21, 2 (2010), 469-489.
[15]Eccles, R. G., Newquist, S. C., and Schatz, R. Reputation and Its Risks. Harvard Business Review, 85, 2 (2007), 104-114.
[16]Gaines-Ross, L. Reputation Warfare. Harvard Business Review, 88, 12 (2010), 70-76.
[17]Probst, G. and Raisch, S. Organizational Crisis: The Logic of Failure. Academy of Management Executive, 19, 1 (2005), 90-105.
[18]Hillman, A. J. and Keim, G. D. Shareholder value, stakeholder management, and social issues: What’s the bottom line? Strategic Management Journal, 22, 2 (2001), 125-139.
[19]Ackermann, F. and Eden, C. Strategic Management of Stakeholders: Theory and Practice. Long Range Planning, 44 (2011), 179-196.

[i] As Trilations’s own Charlotte Gagelmans concluded in her Antwerp Management School thesis project.
[ii] Which is e.g. why a Polish New Yorker labeled his ice cream brand Häagen Dazs, after a perceived quality repute of Danish dairy products or a Spanish retailer branded his clothes Massimo Dutti alluding to an Italian brand origin.
[iii] As defined by Harvard’s Ronald Heifetz in his influential book ‘Leadership Without Easy Answers’: “Leadership is taking responsibility for hard problems beyond having formal or informal authority”
[iv] Henry Ford
[v] This positive bias is mainly based on prior performance and is certainly visible in the most widespread measures of reputation.
[vi] Berkshire Hathaway’s Warren Buffett

Expert