Here’s why company reputation matters

Professor Stephen Brammer from the Birmingham Business School says up to 50% of market value is at stake.

When you buy a product, do you consider the reputation of the company selling it? Surveys show that people often do. It is no wonder then that the “business” of reputation building and management is flourishing.

Professor Stephen Brammer, Birmingham Business School faculty director at the University of Birmingham in the UK, says a quarter to a half of the market value of the world’s leading corporations can be attributed to reputation. Intangible benefits of a firm’s reputation help build consumer trust and confidence, as well as attract employees and investors, he says.

Brammer, whose research explores firm-stakeholder relationship and its impact on company performance and reputation, says reputation has become a big business, resulting in the emergence of a “growing cadre of professional corporate reputation officers.” Indeed, there is much to be done.

Reputation challenges
“Banking fraud, PPI mis-selling, supply-chain issues such as the horse and fox meat scandals, sweatshops in the fashion industry, and product recalls in the automotive sector have undermined public trust in business in recent years and stakeholders are increasingly seeking assurance that firms are effectively led and managed,” notes Brammer.

He said this is further complicated by the proliferation of activist groups, as well as new technologies. While social media has become a venue to get consumer feedback, it has also become a tool or new platform where discontented stakeholders are able to share their dissatisfaction.

Managing reputation is challenging work and particular issues remain underappreciated. The persistent fallout from the global financial crisis, fraud, money laundering and other problems have resulted in a negative view of the banking sector while product recalls have always plagued the automotive industry.

“Beyond industry, country of origin has recently emerged as an important reputational driver – geopolitical conflict over uninhabited islands northeast of Taiwan has led to severe consequences for Japanese companies doing business in China, many of which have experienced reductions in sales volumes,” Brammer says.

Within Asian economies, the pressure to retain a good reputation is worse because building trusting relationships is a key driver of business success.

Reputation in Asia
Brammer says Asian companies lag their western counterparts when it comes to developing and managing reputational capital. “Poor reputation management approaches at Toyota, Huawei, Kingfisher Airlines, and Olympus have been argued to have cost each company billions of dollars in lost sales and market value,” he says.

Such problems warrant a closer look and troubleshooting by Asia’s CEOs and business managers, perhaps requiring a re-education on the key aspects of managing reputation, among others.

Brammer is among the pool of scholars tapped by the SIM Global Education (SIM GE) to teach business programs in the country. This July, he will be teaching in Birmingham Business School’s MSc International Business programme (International Business Strategy module) that is offered in Singapore via SIM GE. He believes that much is to be done to improve prevailing management approaches in Asia.

“The Asian context can present significant reputational challenges. For example, Apple’s continuing labour issue at Foxconn and Pegatron, the impact of the Rana Plaza disaster on the reputations of global textile brands, and public health concerns raised in relation to food and pharmaceutical production in China,” he notes.

Such examples show traditional strategies in reputation management, says Brammer. Characterised by denial and a refusal to engage stakeholders, these approaches generally fail, especially for firms that lack visibility and control.

Rebuilding reputations
But all is not lost. While reputation is naturally “hard won and easily lost,” according to Brammer, it may be rebuilt by addressing challenges. He says firms must start to understand and study key aspects to reputation management.

“They need to understand that their reputations are multiple and that particular stakeholder constituencies have distinct wants and expectations such that firms need to identify these, and prioritise their responses so as to satisfy them,” he adds.

Brammer says stakeholders also often base their perceptions on capabilities or capacities (making good products, offering good service, being financially sound) and character traits of the firm (integrity, ethics, trustworthiness). “This implies that companies need to pay attention to establishing their track record in relation to both these aspects of reputation,” he explains.