What a Company Stands for Matters More than What It Produces
Written by Rob Jekielek and John Patterson
Corporate reputation matters—in good times and in bad. Looking back at the last nine years (the period since Reputation Institute’s first public release with Forbes), it is very clear that being one of the most reputable companies creates disproportionate financial value. Not only did the most reputable companies maintain their advantage during the financial crisis (in 2014, up 240 percent versus 130 percent for the S&P 500; see figure 1), but they continue to widen the gap as the economy improves.
Figure 1: Financial Performance of Most Reputable Companies in America versus S&P 500 (2006-2014)
How can that be? Isn’t corporate reputation “squishy”? A “nice to have”? Not at all. Fundamentally, investing in corporate reputation (that is, how people think and feel about the company behind the products and services they buy) is about reducing transaction costs. When you think about it that way, the impact of a reputation premium—or discount—should become clearer and more intuitive. Companies that people don’t trust and respect need to spend more time, money, and effort on everything they do, from gaining access to new businesses and markets and fighting or reacting to regulation, to acquiring and retaining both customers (with bigger discounts and more promotions) and top talent (with higher salaries and bigger benefit packages).
When we talk to executives at leading companies, we hear the exact same thing. In our latest annual Reputation Leaders Study (the 2014 edition included perspectives from CEOs, CMOs, and CCOs at 272 of the largest and most influential companies in the world) the biggest impact points they see are around differentiation and the war for talent (see Figure 2). Not surprisingly, collaboration with policy makers, improving crisis management, reducing regulatory risk, and new market entry are also towards the top of the list.
Figure 2: Top ways executives believe corporate reputation impacts their business
If all of that is true, what exactly do we mean when we say “reputation”? And what can companies do about it? First and foremost, let’s try to eliminate the jargon—just say “no” to brand versus reputation. Each of those terms can mean very different things at different organizations, with very different implications. Instead, let’s replace them with two more naturally occurring sets of perceptions that anyone can wrap his or her head around: 1) what people think and feel about your products and/or services; and 2) what people think and feel about the company behind those products and/or services (around what it’s like to work there, how ethical and transparent its behavior is, its impact on society, its leadership, and its financial performance).
With that backdrop, it is no wonder that what your company stands for has become even more important than what it produces. When reviewing the results from our most recent annual study with Forbes, what Americans think and feel about a company is about one and a half times more important to driving support (see figure 3). The difference in the numbers becomes even more staggering if you consider how important each is versus the level of investment most companies put behind each (often ~90 percent versus 10 percent—in the opposite direction).
Figure 3: 2014 US Drivers of Expected Consumer Support
Customers and employees remain primary priorities in building compelling cross-stakeholder positioning. With core Ethisphere issues such as Business Ethics, Compliance, Anti-Corruption, and Sustainability now becoming increasingly relevant across stakeholders, there are many more of them whose perspectives and influences must be addressed to build truly differentiated corporate positioning.
If what your company stands for matters most, how do you use that to create business value?
Success, unfortunately, is not as easy as a new corporate logo or campaign. It takes effort and discipline, but is very achievable. Our advisory work, spanning over the last two decades, has identified four core competencies required for creating business value. They are: Business Rationale, Strategy & Intelligence, Management & Accountability, and Integration. Together they form a prescriptive management framework for identifying priorities, benchmarking best practices, and tracking performance.
Here’s a bit of context on each of the four core competencies, as well as, based on our 2014 Reputation Leader Study, how well established each competency is (see figure 4 for summary):
When it comes to the business rationale, just under half of companies have it well established. Companies leading on this competency do business based on a clear purpose and values, have defined their stakeholder ecosystem (with business impact points identified for each key stakeholder), and have developed a persuasive business case for developing and activating distinctive company positioning.
About 30 percent of companies have cross-stakeholder intelligence & strategy in place. Best practices around this competency include having predictive metrics and KPIs, based on a systematic approach to identifying and understanding cross-stakeholder expectations, opportunities, and risks. That foundation of metrics of insights is then used to build a roadmap for action, as well as a compelling corporate narrative.
Management & accountability is the most difficult competency to master, with only 20 percent of companies having it well covered. Proficiency in this competency is based on cross-functional collaboration on key priorities, as well as executive accountability on cross-stakeholder KPIs.
Integration is the second most developed competency, as it is well established at one-third of companies. Leaders on this competency activate their corporate narrative by embedding it across touch points, have built sustainable ambassador/advocacy programs, and have made transformational investments to support changes in how their company does business, to better support and demonstrate what it stands for.
Figure 4: 2014 Company Performance across Core Reputation Competencies
What does success look like? Corporate Reputation as a Management Discipline at Allstate Insurance Company
The idea of standing for something, as a company, has always been important at Allstate, America’s largest publicly traded property and casualty insurance company. It wasn’t until that idea was really tested, in the aftermath of Hurricane Katrina, that the company truly dedicated itself to understanding and managing what it stood for, across stakeholders, as a management discipline.
The impact of that focus and effort has been particularly apparent over the last few years. During that time, Allstate’s efforts have not only significantly strengthened its key stakeholder relationships, but it has also seen the benefits in its financial results (e.g., more than doubling of Return on Equity and almost tripling of stock price since 2011). It started with a mandate from senior leadership, but came to life through the development of a commercial business case, supported by a cross-stakeholder measurement and governance framework.
This approach has enabled powerful reputation-building initiatives to emerge. Commercially, this holistic way of thinking and tracking performance has enabled the development of unique offerings such as the Good Hands Roadside Assistance and Allstate’s Claim Satisfaction Guarantee. It has also enabled the development of local community programs that clearly demonstrate the good that Allstate does and what it stands for, while differentiating the company and creating commercial relevance. Internally, one of the biggest impact points has been the development of an ambassador program, now with more than 8,000 participants. This passionate group of employees is critical to both customer and community engagement, and issues management.
The formula for success is simple, but analytically based and measurable. In the words of David Woolwine, Director of Reputation Leadership at Allstate:
“For us to invest in a program or initiative, it must meet the following criteria: 1) It must be important to our customers, addressing one of the two or three top concepts that we know drive support; 2) It must also be meaningful and relevant to other stakeholders and influencers; 3) There must be opportunity. The majority of our target audiences must be open to changing their perceptions of us; and 4) It should build on an issue that Allstate already has existing credibility on.”
Building competitive advantage based on what your company stands for, not just on what it produces, is a major, underutilized opportunity. Creating that competitive advantage won’t happen overnight (as in many cases, these efforts run up against traditional functional silos and deeply engrained inside-out thinking), but with the right priorities and persistent effort, success is attainable.
If your organization is just starting to think about the topics and issues raised in this issue of Ethisphere Magazine, the place to begin is by discussing the four competency areas posed in this article with your team or peers. You should be pleasantly surprised that you probably already have much of what you need to get started. There is also a five-minute diagnostic tool available at www.reputationinstitute.com/diagnostic that provides a more comprehensive viewpoint, with immediate topline benchmarking versus leading global organizations.