Putting reputation on the agenda

How global executives deal with today’s reputational risks and opportunities.

From September 2015 to January 2016, Reputation Institute surveyed more than 150 global executives to gather insights on today’s trends, practices and priorities related to their stakeholder management.

The companies were sized between $1 billion and $30 billion in revenues and based in 20 countries across Europe, US/Canada, Central and Latin America. The key topics were the top-of-mind issues for senior executives with corporate brand and reputation responsibilities, activating the right strategies to capitalise on growth opportunities, the link between reputation and corporate purpose, the organisational setup for success, communicating on corporate social responsibility (CSR), and the trends in stakeholder measurement and communications.

The biggest challenge that companies are facing in this space is the lack of a structured process for integrating stakeholder views as a leadership practice in their business. Fewer than half of the executives interviewed reported their organisations have the right internal competencies, structures, processes and methodologies in place to assess and manage their reputation.

Too often, companies are tracking their stakeholders in silo, meaning there is no consistent model or comparable set of data, and no consistent way to share the insight across the various departments at headquarter level (communications, marketing, HR, investor relations, etc.), as well as between the local markets.

The majority of global companies seem to have understood the importance of measuring stakeholder perceptions, and many of them are doing it in a variety of ways. The challenge at this point is in moving to market-level integration of the insights, and using the outside-in perspectives for course-correction in the business strategy.

Why is that not straightforward? For one, there is a lot of tracking research in the market that is not really actionable – basically, long reports with charts and numbers that are hard to interpret.

Secondly, you need to have the appropriate forum internally in the company to discuss and act on the evidence; more often than not, it never gets out of the drawers in the market intelligence unit.

Thirdly, the insight is often not anchored in a concrete set of business problems or opportunities; the knowledge base is stand-alone in nature, and perhaps highly accurate as such, but without a strong link to the business strategy, it will remain under-leveraged.

When these challenges are mapped to the reputation performance of the organisations surveyed, it is evident that companies with strong/excellent perceptions have the foundation of measurement in place and are focusing their efforts on cross-stakeholder communication, CSR and managing risks.

At the same time, companies with an average reputation are still working on developing the business case for this and experimenting with the best approach to measure their brand and reputation.

At the high level, the business case for reputation investment is simple: your success as a company relies on people supporting you, customers buying your products, policy makers and regulators giving you a licence to operate, the financial community investing in you, the media reporting on your point of view, employees delivering on your strategy. For them to support your business, they need to trust you as a company that will deliver on its promises. We measure this as stakeholder = business support.

The business case for reputation

At the more operational level, you either need endorsement from the very top of the firm based on the company’s strategic ambitions, or a trigger point (which often comes with a media storm) that unleashes the mandate from the top, or a very well-architected business rationale that is firmly grounded in the views and behaviour of the stakeholder groups that matter the most to the success of the company.

Our study confirms that the corporate communications/public affairs department continues to have the leading role in reputation management (60 per cent of functions represented), and the trend is clearly that the bigger the company is in terms of revenues, the more involved the corporate communications office is in the management. This means that this department has the responsibility to build and bring the case forward, unless they have sufficient mandate already.

Moreover, the study shows that communications executives are still spending most of their time on ‘classic’ matters, rather than, say, using external stakeholder views to validate business strategies, company positioning, and providing actionable market input for board-level decisions. Less than 20 per cent of the senior communications professionals are really involved in board decisions, while at the same time 45 per cent of them report that reputation is a prominent agenda item for their board – so there is a gap that needs to be closed.

“There is  a unique chance for senior communications officers to elevate their role and contribute to the corporate agenda.”

For the most part, corporate communications officers (CCOs) have had direct responsibility for communications-related issues, and less so on broader strategic business issues. One of the key findings in this study is that there is now a unique chance for senior communications officers to elevate their role and contribute to the corporate agenda and decision-making, taking a fact-driven approach to providing that guidance.

The point is not for the CCO to seek or take responsibility for the company’s reputation performance at the stakeholder group level, but to influence or drive the company’s stakeholder support and behaviour in line with corporate objectives a) through communications and b) by means of business advice to the company’s executive team and line units on the interactions with the company’s core audiences. The CCO in the sole capacity of the company’s spokesperson is a dying species.

Also, managing reputation risk has become top-of-mind for almost half of the executives interviewed, and two-thirds of them are now involved in reputation risk assessment and crisis management. However, less than half of them report that their organisations have the right internal competencies, structures, processes and methodologies in place to assess and manage reputation risks.

This is no surprise in today’s world, where social media enables news to travel around the world within minutes and the perception of who you are as a company has a direct impact on sales, stock price and licence to operate. However, assessing the internal capability to manage the reputation risk is as important as understanding the external impact of the risk event materialising.

Study participants from companies headquartered in the US and Canada are clearly ahead of European companies in implementing a “well-established structure for addressing and mitigating key reputation risks” and “a cross-functional governance structure to manage the key reputation risks.” This is a significant finding, given that 84 per cent of all of the respondents worldwide acknowledge their corporate communications is the most responsible entity when it comes to reputation risk management.

Budgets and resources

On the matter of budgets, one fifth of the companies surveyed dedicate more than 20 per cent of their annual communications budget to reputation-related initiatives, one quarter spend between five and 20 per cent, and one-third spend five per cent or less. These numbers are relatively moderate, and likely tie with the observation that many are still working on developing the business case for a structured approach to track and use stakeholder insight.

Until that case is in place, the majority of funds will continue to flow into classic communications which may not be where the business impact is the greatest, or for that matter, easy to measure.

This is important, given that our research shows the total budget for communications rarely exceeds 0.1 to 0.3 per cent of the revenue line. Granted, some industries are more convinced about the necessity to invest in communication than others – for example airlines, financial institutions, hotel chains, luxury brands and retailers.

Others are less inclined to do so, and they include IT, building and construction, or semi-public institutions that hardly have competitors.

The top performers in reputation management have sufficient resources aimed at building licence to operate among key stakeholders. The more complex the relationships with stakeholders are, the bigger the budget needs to be to achieve the right level of professionalism; and the higher the dependency on specific stakeholders, the greater the necessity  to have specialised communication managers to serve their needs.

Sixty-seven per cent of the companies in the study report current investment/budget for improving communication with stakeholders around CSR/sustainability performance and initiatives. So how do the companies then communicate performance in the context of CSR and sustainability?

They mention CSR initiatives in their annual report or dedicated annual CSR report and in corporate-level communications (press releases, statements, executive interviews, etc.), and they take public positions that are communicated on social or environmental issues pertinent to their stakeholders.

When it comes to current budgets for CSR and sustainability, the money is mostly going into charitable contributions and philanthropy (donations) and improving CSR and sustainability-related communications. Our take is that these items may be necessary (‘check the box’), but not sufficient.

Other global surveys of ours reveal uncertainty in society when it comes to the citizenship and governance dimensions of even the biggest companies around the world. Corporations invest millions of dollars in being viewed more favourably in the context of their social footprint and shared values.

However, the initiatives often do not seem to matter much to their stakeholders; it is not that they are not thought to be well-meant or positive in nature, they just fail to resonate because they do not come across as relevant for their business audiences.

Broadly speaking, our position is CSR should be built into the core of the company as an integrated strategy rather than a separate function or set of activities. We see a clear pattern in our research that successful sustainability strategies are fully integrated into the business model, and they are executed in genuine programmes that reflect corporate heritage and culture – and when all is said and done, there is really no such thing as CSR/sustainability strategy, there is just business strategy.

Narrative and purpose

The biggest reported area of focus for the companies to make progress over the next 12 months is in articulating a cross-stakeholder, cross-market narrative. However, only 59 per cent of respondents overall “strongly” agree that their organisations have a credible and compelling narrative that addresses cross-stakeholder expectations and aligns with corporate purpose.

When asked about the mechanisms that are in place to ensure that the company’s purpose and values are clearly and consistently demonstrated in how it acts and does business, the answers are mostly about internal policies and codes of conduct, company marketing materials and core value/vision statements.

Significantly fewer have corporate or personal performance metrics tied to their core values, or for that matter, internal processes and controls set up to ensure employee adherence to their values.

But how do you know you have a powerful purpose that can enhance your reputation and therefore your business results? There are many components to the answer, but our strategic ‘health check’ for the corporate brand purpose typically includes that it embodies vision and mission, imbues enterprise legacy, is central to core competencies, aligns with organisational identity, has distinctiveness versus competition, identifies with stakeholder expectations, inspires universal engagement, and drives metrics of enterprise success.

Historically, it’s been difficult to measure the positive financial impact of the corporate communications department, and therefore ask for more resources to do more. Generally speaking, chief marketing officers have had more quantitative tools at their disposal than CCOs. Now, 73 per cent of the respondents report that they use reputation scores to evaluate the effectiveness of their corporate communications initiatives.

The point is, reputation metrics are becoming much more widely used as proof points that corporate communications actually contribute to shifts in supportive behaviour in the marketplace and thus the results of the company, specifically in regards to the question of whether its key stakeholders intend to buy the products/services, recommend the company, invest in the stock, work for the company, and give the company the benefit of doubt in the case of a crisis.

Once the company’s stakeholders are mapped out and prioritised depending on which ones have the greatest impact on goals and ambitions, and once their perceptions and expectations are measured in the core markets on a regular basis, then you have the basis for an effective communications strategy.

With this foundation in place, the CCO can establish the necessary credibility at the executive team level in the role of the steward of the company’s reputation.

Images: Thinkstock, Reputation Institute (2)

Carsten Wegmann

Carsten Wegmann is director of Reputation Institute, the research and advisory firm on corporate reputation. He leads client relationship management in Europe and the Far East. His professional services experience spans more than 20 years of executive positions worldwide in the tech, media and finance sectors. Prior to joining Reputation Institute, he was director for the Nordic region at Taylor Rafferty, a New York-based capital markets advisory firm.