Reputation

Since 1980, the study of 'corporate reputation' has attracted growing scholarly attention from economics, sociology, and management.[6] The concept of reputation has undergone substantial evolution in the academic literature over the past several decades.[6][7][8] Terminology such as reputation, branding, image and identity is often used interchangeably in both the popular press and—until recently—in the academic literature, as well.

The academic literature has generally settled on a small cluster of perspectives on "what reputation is" in a company context.

Economists use game-theory to describe corporate reputations as strategic signals that companies use to convey to markets some of their qualities and abilities.[9] Sociologists view corporate reputation as descriptions of the relative status that companies occupy in an institutional field of rivals and stakeholders.[10] Management scholars describe corporate reputations in one of two main ways,[7] including:

• the broad view: as an aggregation of perceptions that form as audiences judge the behaviors of companies.[11]
  • This is often evaluated by broad ranking measures of the company as a whole, such as the Fortune Most Admired Companies rankings[12][13]
• the specific view: as an assessment, by some specific audience, of the company's ability to perform or behave in a certain way.[14][15] These are split into two broad categories: (a) outcome/capability reputation and (b) behavior/character reputation,[16] which is intended to capture both the economic and sociological forms of reputation.[16][17]
  • (a) outcome/capability reputation: this reputation type involves an assessment of how well the company performs on a certain dimension. The most common examples of these is performing well financially[18] or providing high quality products or services.[19][20] All of these dimensions can be objectively ordered, such as better/worse financial performance (as evaluated by objective, market-based measures of financial performance) or better/worse product quality (as evaluated by a collection of users).[19]
  • (b) behavior/character reputation: this reputation type is said to arise when a company is recognized as consistently behaving in a certain way,[21][22] in a manner that is relatively devoid of objectively identifiable performance. For instance, a company might prioritize investment in innovation, the improvement of its operational efficiency, or sourcing from local suppliers.[23][24]

In practice, corporate reputations are revealed by the relative rankings of companies created and propagated by information intermediaries.[25] For example, business magazines and newspapers such as Fortune, Forbes, Business Week, Financial Times, and The Wall Street Journal regularly publish lists of the best places to work, the best business schools, or the most innovative companies. These rankings are explicit orderings of corporate reputations, and the relative positions of companies on these rankings are a reflection of the relative performance of companies on different cognitive attributes. Corporate reputations are found to influence the attractiveness of ranked companies as suppliers of products, as prospective employers, and as investments.[26] For those reasons, companies themselves have become increasingly involved with the practice of reputation management.

Like any social construct, reputation is similar to (i.e., convergent with) certain concepts and different (i.e., discriminant) from others. Reputation can be compared to other "social evaluation" or "social judgment" constructs. For instance, reputation is said to be convergent with adjacent concepts like corporate image, identity, celebrity, status, legitimacy, social approval (likability), and visibility (prominence), but discriminant from related constructs like stigma and infamy.[6][27] Reputation is often considered to be a pragmatic evaluation - actors determine whether the target of the evaluation can be seen as useful to them.[28]

Until recently, the relationships with these adjacent constructs were merely theoretical; that is, they were not formally tested or empirically validated[29] for their "nomological relationships" with these other, related constructs.

• Conceptual relationships: In 2012, the Oxford Handbook of Corporate Reputation[6] was released to provide some clarity to the increasingly fragmented field of social evaluation constructs, all of which had been referred to (either implicitly or explicitly) under an umbrella of "reputation" concepts. In 2020, the introductory part of The Power of Being Divisive: Understanding Negative Evaluations,[27] develops a framework to disentangle a variety of concepts in the field of social evaluations - in particular making the point that negative and positive evaluations can be on different continua, and social actors can be both positively and negatively evaluated at the same time. In this opus and in the Oxford handbook, scholars made incremental efforts to distinguish between handfuls of these constructs, such as:
  • reputation vs. celebrity [12]
  • reputation vs. status [30][31]
  • reputation vs. legitimacy vs. status [32]
  • reputation vs. social approval [33]
  • reputation vs. stigma [34]
  • reputation vs. status vs. celebrity vs. stigma [35]
• Empirical relationships: In 2020, Bitektine and colleagues[36] conducted the first major construct validation study to: (a) create scales for the constructs of reputation, cognitive legitimacy, sociopolitical legitimacy, and status, and (b) empirically distinguish between them by undertaking a multiple studies involving several confirmatory factor analyses.
  • This construct validation effort addressed the "broad view" of reputation as a company-level evaluation (not an evaluation for specific attributes).[11] The scale items for reputation that resulted from this effort, as evaluated by an audience of respondents representing the general public, included: "The reputation of this company is excellent", "[this] is a reputable company", and "[this] is a dependable company".[36]
  • There still exists no construct validation effort for the "specific view" of reputation (i.e., that reputation is best understood as a specific audience's view of the company with respect to a specific attribute [15]).

Myriad reputation studies from the 1980s to the 2000s demonstrated that a company's reputation was positively related to various performance measures, such as financial success and profitability.[37][11] However, more recent work demonstrated that reputation can be both "a benefit and a burden",[38] suggesting that "the bigger you are, the harder you (might) fall" with respect to reputation.[19]

Relatedly, researchers have theorized and/or demonstrated that a company's reputation could also influence the decisions and perceptions of its managers;[39] in some cases, reputation can promote the use of risk-reduction strategies by managers as they seek to preserve the reputation they have cultivated.[39] In other cases, researchers argue that reputation can embolden managers to take risks in areas unrelated to their reputation, since stakeholders may be focused on the reputation itself and inattentive to other areas of the company.[40][41]

Many organizations create public relations and corporate communication departments dedicated to assisting companies with reputation management. In addition, many public relations and consulting firms claim expertise in reputation management. The growth of the public relations industry has largely been due to the rising demand for companies to establish credibility and reputation.[42] Incidents which damage a company's reputation for honesty or safety may cause serious damage to finances. For example, in 1999 Coca-Cola lost $60 million (by its own estimate) after schoolchildren reported suffering from symptoms like headaches, nausea and shivering after drinking its products.[43]

Although most companies see reputation management as a central part of a CEO's role, managing reputation involves a set of ongoing activities that are best managed when they are delegated to a specific individual in the organization. This is why some companies have created the position of chief reputation officer (CRO). A growing number of people in the business world now have the word "reputation" in their titles –including Dow Chemical, SABMiller, Coca-Cola, Allstate, Repsol YPF, Weber Shandwick, and GlaxoSmithKline (although no longer). Hoover's shows a list of such officers.

Social media like Twitter, Linked In, and Facebook have made it increasingly important for companies to monitor their online reputations in order to anticipate and respond to criticisms of their actions. There are two main routes that customers can take when complaining about companies -individual-direct response or broadcast-based response. For a company, it takes a lot of time and effort to address individual-direct responses. One study showed that "...72% of customers expect a reply within one hour."[44] In order to best recover from negative complaints on social media, it is important for a company to prove its authenticity by providing more specific answers directly to its critics.

A corporate reputation can be managed, accumulated and traded in for trust, legitimization of a position of power and social recognition, and people are prepared to pay a premium price for goods and services offered, which in turn generates higher customer loyalty, a stronger willingness from shareholders to hold on to shares in times of crisis, and greater likelihood to invest in the company's stock.[45] Therefore, reputation is one of the most valuable forms of "capital" of a company. "Delivering functional and social expectations of the public on the one hand and manage to build a unique identity on the other hand creates trust and this trust builds the informal framework of a company. This framework provides "return in cooperation" and produces reputation capital. A positive reputation will secure a company or organisation long-term competitive advantages. The higher a company's reputation capital, the lower the costs of supervising and exercising control."[46]

According to stakeholder theory, corporations should be managed for the benefit of all their "stakeholders," not just their shareholders. Stakeholders of a company include any individual or group that can influence or is influenced by a company's practices.[47] The stakeholders of a company can be suppliers, consumers, employees, shareholders, financial community, government, and media. Companies must properly manage the relationships between stakeholder groups and they must consider the interest(s) of each stakeholder group carefully. Therefore, it becomes essential to integrate public relations into corporate governance to manage the relationships between these stakeholders which will enhance the organization's reputation. Corporations or institutions which behave ethically and govern in a good manner build reputational capital which is a competitive advantage. A good reputation enhances profitability because it attracts customers to products, investors to securities and employees to its jobs.[26] A company's reputation is an intangible asset and a source of competitive advantage against rivals because the company will be viewed as more reliable, credible, trustworthy and responsible to its employees, customers, shareholders and financial markets.

In addition, according to MORI's survey of about 200 managers in the private sector, 99% responded that the management of corporate reputation is very (83%) or fairly (16%) important. Reputation is a reflection of companies’ culture and identity. Also, it is the outcome of managers' efforts to prove their success and excellence. It is sustained through acting reliably, credibly, trustworthily and responsibly in the market. It can be sustained through consistent communication activities both internally and externally with key stakeholder groups. This directly influences a public company's stock prices in the financial market. Therefore, this reputation makes a reputational capital that becomes a strategic asset and advantage for that company. As a consequence, public relations must be used in order to establish long lasting relationships with the stakeholders, which will enhance the reputation of the company.[48]

Reputation models can be placed in a broader framework that distinguishes reputation from its underlying causes and from its consequences. This approach is important to clarify the meaning of reputation.

• Causes of reputation are seen to reside in stakeholder experiences. Stakeholder experiences relate to a company's day-to-day business operations, its branding and marketing and "noise" in the system, such as the media and word of mouth. Further causes of reputation may include the perceived innovativeness of a company, the customers' expectations, the (perceived) quality of the company's goods and services and the subsequent customer satisfaction, all of which differ according to the respective customers' cultural background.[49]
• The consequences of reputation reside in the behaviors (supportive or resistant) that stakeholders demonstrate towards a company. Behaviors such as advocacy, commitment, and cooperation are key positive outcomes of a good reputation. Boycotts[50] and lawsuits are key negative outcomes of a bad reputation.

Organizations frequently make missteps that cause them to lose the positive regard of stakeholders.[51] In the wake of studies addressing the disproportionate penalties that accrue to high reputation firms when they make such missteps,[19] reputation researchers have proposed models to account for both reputation damage and reputation repair, summarizing prior work in disciplines including economics, marketing, accounting, and management.[52]

In the context of brand extension strategies, many companies rely on reputation transfer as a means of transferring the good reputation of a company and its existing products to new markets and new products. Consumers who are already familiar with other products of an established brand, exhibiting customer satisfaction and loyalty, will more easily accept new products of the same brand. In contrast to brand extension, the general concept of reputation transfer also requires the transfer of a company's values and identity to the new products and/or services and the related brands when entering new markets. It is important, however, to pay attention to the image fit between preexisting and new brands, for this factor has been proven to be critical for the success of brand extensions.[53] In contrast to the special case of brand extension, the general concept of reputation transfer also requires the transfer of the values and identity of a company to the new products and/or services and the related brands when entering new markets. A strong image might therefore even hamper the introduction of new product lines if customers do not associate the competences relevant to the new market/category/product line with the existing company or brand. A company's reputation is furthermore influenced by culture, as nationalities differ with regard to how valued specific aspects of the company's brand identity are in the respective national culture (e.g. environmental concerns or work ethics) as well as with regard to popular cultural dimensions (e.g. Hofstede). Subsequently, these differences impact the success of reputation transfer significantly.[54]

Image is a global or averaged evaluation of a given target on the part of an agent. It consists of (a set of) social evaluations about the characteristics of the target. Image as an object of communication is what is exchanged in examples 1 and 2, above. In the second case, we call it third-party image. It may concern a subset of the target's characteristics, i.e., its willingness to comply with socially accepted norms and customs, or its skills (ways), or its definition as pertaining to a precise agent. Indeed, we can define special cases of image, including third-party image, the evaluation that an agent believes a third party has of the target, or even shared image, that is, an evaluation shared by a group. Not even this last is reputation, since it tries to define too precisely the mental status of the group.

Reputation, as distinct from image, is the process and the effect of transmitting a target image. To be more precise, we call reputation transmission a communication of an evaluation without the specification of the evaluator, if not for a group attribution, and only in the default sense discussed before. This covers the case of example 3 above. More precisely, reputation is a believed, social, meta-evaluation; it is built upon three distinct but interrelated objects :

1. a cognitive representation, or more precisely a believed evaluation – this could be somebody's image, but is enough that this consist of a communicated evaluation;
2. a population object, i.e., a propagating believed evaluation; and
3. an objective emergent property at the agent level, i.e., what the agent is believed to be.

In fact, reputation is a highly dynamic phenomenon in two distinct senses: it is subject to change, especially as an effect of corruption, errors, deception, etc.; and it emerges as an effect of a multi-level bidirectional process. Reputation is also how others know and perceive you as an individual.

While image only moves (when transmitted and accepted) from one individual cognition to another, the anonymous character of reputation makes it a more complex phenomenon. Reputation proceeds from the level of individual cognition (when is born, possibly as an image, but not always) to the level of social propagation (at this level, it not necessarily believed as from any specific agent) and from this level back to individual cognition again (when it is accepted).

Moreover, once it gets to the population level, reputation gives rise to a further property at the agent level. It is both what people think about targets and what targets are in the eyes of others. From the very moment an agent is targeted by the community, his or her life will change whether he or she wants it or not or believes it or not. Reputation has become the immaterial, more powerful equivalent of a scarlet letter sewed to one's clothes. It is more powerful because it may not even be perceived by the individual to whom it sticks, and consequently it is out of the individual's power to control and manipulate.

More simply speaking for those who want a working definition of reputation, reputation is the sum of impressions held by a company's stakeholders. In other words, reputation is in the "eyes of the beholder". It need not be just a company's reputation but could be the reputation of an individual, country, brand, political party, industry. But the key point in reputation is not what the leadership insists but what others perceive it to be. For a company, its reputation is how esteemed it is in the eyes of its employees, customers, investors, talent, prospective candidates, competitors, analysts, alumni, regulators and the list goes on.