Building an organisation’s reputation starts with the leader

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A good reputation, in simple terms, means having a good name. Reputation is an evaluation of an organisation’s attractiveness to stakeholders over time. For the organisational leader reputation is very important but also difficult to achieve, because leaders cannot merely make the decision that their organisation has a good reputation. It is formed by stakeholders and therefore reputations are hard to manage.

There has been a sharp focus on reputation, resulting mainly from reputation losses in recent years. Here, the example of Steinhoff, probably South Africa’s largest and most expensive corporate fraud that led to huge reputational damage, comes to mind. This ‘falling from grace’, accompanied by a free-fall of Steinhoff’s share price, was brought about by the leadership of the company. This shows that personal reputation cannot be separated from organisational reputation.

In a recent case, Spur’s reputational damage was brought about by racial issues, whereas the damage to Toyota’s and Ford’s reputations was caused by recalls of automobile models. In some cases – such as the worldwide economic crisis of the late 2000s – reputational damage can be fatal.

The transparent world we live in (media and social media) is another reason for the sharp focus on reputation. Misbehaviour of individuals – especially high-level individuals such as organisational leaders – is picked up immediately, spreads like a wildfire and impacts on the reputation of companies. When an organisation’s reputation has been damaged, the recovery could be very difficult, long-term and uncertain.

Reputation is built on trust and when trust is broken, people these days have many options to express their discontent. They could stop supporting a company – or its leadership. Lately, because we come in contact with total strangers via social media, trust has become more important than ever.

People watch an organisation’s behaviour before they buy products and services from it. Research shows that 60% of buying decisions is influenced by how companies are perceived and 40% by the products themselves. A study among consumers and senior executives in two developed and two developing markets confirmed that consumers make purchase decisions based on organisational reputation. 70% avoid buying a product if they don’t like the company behind the product.

A good reputation has become a strategic asset. Organisations with favourable reputations receive greater support from customers and other stakeholders. Organisations with good reputations have the luxury to charge a price premium for products and services, and their customers are more loyal.

A recent global survey on reputation risk, conducted by Forbes Insights, revealed that 88% of executives are focusing on reputation risk as a key strategic issue. Boards of directors and senior executives are concerned about the consequences that reputational issues could have. It also showed that senior-level executives themselves are responsible for reputational risk (in 36% of the cases reputation was the CEO’s responsibility and in 14% cases the board took responsibility). Among the main risks that were identified was misconduct of key people, like CEOs.

There can be little doubt that an unfavourable reputation can be harmful and even fatal. Steinhoff’s share price rose quickly from less than R20 in December 2008 to R91.80 in March 2016. Questions kept mounting amidst a lack of transparency. The share price declined to R55.81 on 1 December 2017 and seven days later it was at R6. Steinhoff’s quick decline illustrates the vulnerability of a company that loses its reputation and thus also its market value.

Leadership is an important factor that contributes to the reputation of a company. This includes the leadership of the CEO in the company.

 

Dr Marietjie Theron-Wepener is a senior lecturer in Reputation, Marketing and Communication at the University of Stellenbosch Business School (USB) in Cape Town, South Africa.