It has been reported that the average person recognizes 1,000 corporate logos. This highlights the importance of “intangibles” such as brand, knowledge and reputation to business success and value. According to Interbrand 2000, 96% of the market capitalization value of Coca-Cola is “intangible”; this is 97% for Kellogg and 84% for American Express. Figures such as these highlight that companies are vulnerable because reputation is highly perishable, and they need to protect themselves for their stakeholders.
A survey by Hill Knowlton and by Korn Ferry found that 60% of the world’s CEOs think that reputation is much more important now, and a further 28% believe it is somewhat more important now than it was five years ago. Consequently, 65% have taken direct charge of corporate reputation. Customers were reported as having the most influence (78%), followed by the media (48%).
But what is important for a company to be considered good? What is relevant? Is it okay to carry out a lot of socially responsible practices or is it better to communicate successfully with key stakeholders? In other words, what should companies do? What items should be communicated? In what way? To what extent?
A good choice should be based on communicating actual practices supporting corporate social responsibility (CSR) principles rather than publicizing them for the sake of publicity, without foundation.
There is growing evidence to show that a commitment to CSR can add significantly to reputation, levels of general trust and consequently to gaining or retaining business. UK telecommunications firm BT estimates that a third of its corporate reputation is driven by its socially responsible business endeavours. The Co-operative Bank in the UK reports that it owes 31% of its business directly to its good reputation in corporate responsibility.
Kevin Beeston, executive chairman of Serco, agrees. CSR can be a competitive advantage in helping to create the right corporate ethos. He says: “I see CSR as a real competitive differentiation. I really do, and I say this all the time. One of the things that is changing in our world of contracting for government services is the ability to deliver an entrepreneurial public service ethos. In turn, diversity and other aspects of CSR are becoming factors that the public sector is taking into account. We’ve got good evidence of the way that we run the business and integrate into the community, and this is a real differentiator for us.”
The reputation quotient (RQ) developed by Charles Fombrun of New York University, encapsulates the idea that corporate reputation can be distilled into five simple principles:
* distinctiveness, i.e., example among stakeholders, for products and services,
* focus, e.g., the promotion of a single core theme,
* consistency in actions and communications,
* identity, i.e., basing identity on espoused principles rather than on advertising or “spin”, and
* transparency, i.e., by disclosing more information and by engaging in dialogue with stakeholders.
There is a strong correlation between Fombrun’s principles and the key elements of CSR, such as the ability to respond to stakeholder interests, consistency between claim and action, and the need for transparency in business practices.
Certainly, relationships are often key to securing the “licence to operate”–whether at the level of formal permission to carry out business that is given by governmental authorities or at the less tangible level of acceptance and support for aspects of business operations by local communities and other key stakeholders.
As general levels of trust in business are low, strategies that support and build trust may carry a premium. As John Sunderland, CEO of Cadbury Schweppes plc, says, “Corporate reputations are fragile animals if internal behaviours and values are not explicit, recognized and lived.”
Jaquelina Jimena is a business journalist and advisor in CSR issues, based in Mendoza, Argentina, and can be reached at [email protected]