Corporate Reputation: Managing Opportunities and Threats
Corporate reputation has become a “hot” topic in the past few years given the evidence linking a favorable corporate reputation and various intangible and tangible benefits, the high profile corporate scandals that have come to dominate the media, and the generally low opinion the general public has of corporations and business (Backhaus and Tikoo, 2004; Balmer and Greyser, 2003; Davies and Miles, 1997; Davies et al., 2003; Dowling, 2001). Recent financial crises have juxtaposed “Wall Street” and “Main Street.” Entire industries have suffered reputation loss (e.g., automotive, financial services) and the misadventures of one firm has spilled over to affect the reputations of other firms, termed “reputation spill-over” (Schwartz and Gibb, 1999; Williams and Barrett, 2000).
According to Ernst and Young, the investment community believes that between 30 and 50 percent of a company’s value is intangible, based mostly on corporate reputation. Others have placed the value of such intangibles at 70 percent.
What is a corporate reputation? A corporate reputation is a function of the perceptions and attitudes toward it held by individual members of a particular stakeholder group. A corporate reputation rests on assessments made by individuals outside the organization (Highhouse et al., 2009; Schwaiger, 2004; Wartwick, 2002).
Fombrun (1996, p.37) defines corporate reputation as “the overall estimation in which a particular company is held by its various constituents”. Zyglidoupoulos (2001, p.418) defines it “as the set of knowledge and emotions held by various stakeholder groups concerning aspect of a firm and its activities.” Corporate reputations have many aspects (e.g., are multidimensional) and vary with different stakeholder groups (e.g., are stakeholder specific). Corporate identity results from assessments by insiders to an organization, though insiders can be aware of how outsiders perceive their organization and the attitudes outsiders hold towards it (Bartel et al., 2007; Bouchikhi and Kimberly,.2008; Deephouse and Carter, 2005). A corporate reputation is the composite or overall assessment by groups of individuals of an organization that goes beyond assessments of particular features or qualities (Shenkar and Yuchtman-Yaar, 1997). Corporate reputations also make it possible to compare organizations (Dowling, 2004). While very useful, assessments of corporate reputation and corporate identity are still imperfect.
Earle (2009) draws a distinction between trust in an organization and confidence in an organization. Trust is based on shared values such as morality, benevolence, integrity, inferred traits and intentions, fairness and caring. Trust is relational. Confidence is based on past performance and experience with an organization. Competence, ability, experience and standards.
Does corporate reputation matter? Studies of the Fortune 500 companies have shown that the most “admired” companies have much higher price:earnings ratios (about 12 percent higher) than do the less “admired” companies, a $5 billion increase in market capitalization for the typical Fortune 500 company. Thus company reputation is associated with a company’s financial performance (Dube, 2009;.Preston and O’Bannon, 1997; Fombrun, 2001; Roberts and Dowling, 1997, 2002; Schuler and Cording, 2006; Tadelis, 1999; Waddock and Graves, 1997). People also prefer to do business with companies they “like” (Bromiley, 2000; Dollinger et al., 1999; Carmeli et al., 2006; Pollock and Rindova, 2003; Shapiro, 1983; Yoon et al., 1993). Employees stay longer and work harder for companies that are liked. Individuals prefer to work in firms having good reputations (Greening and Turban, 2000; Lievens and Highhouse, 2003; Lievens et al., 2001; Martin, 2009a, 2009b; Turban and Greening, 1997). Seventy-three percent of MBA graduates indicated that a company’s reputation was “extremely import” or “very important” in their selection of potential employers. Corporate branding helps an organization attract qualified people in “the war for talent” and retain them (Backhaus et al., 2002; Martin and Hetrick, 2006; Martin
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