How Do Companies Earn Top Marks for Reputation?
January 01, 1970 by Mark Dunn
Our latest expert Q&A features Stephen Hahn-Griffiths, executive partner and chief research officer at the Reputation Institute. The organisation is best known for producing its annual RepTrak, which ranks 7,000 companies around the world according to their reputation. Each company is given a score out of 100 which is based on more than 170,000 ratings from interviews with members of the public in the world’s 15 largest economies, including USA, Brazil, Australia, France, Germany and the UK. Speaking from the Reputation Institute’s headquarters in Massachusetts, USA, Mr. Hahn-Griffiths tells LexisNexis that a reputation for ethical business has never been more important to a company’s success.
What factors affect a company’s reputation?
Companies’ reputations are fundamentally defined by the degree to which they can garner support. This partly comes from the emotional affinity someone has for a company and partly from people’s understanding of what a company does and what it stands for.
Have there been any changes over time in what affects a company’s reputation?
The data from RepTrak in 2017 shows a significant change towards a company’s reputation being defined by its approach to corporate social responsibility—that’s a combination of good governance and good citizenship. We found that those two things combined are actually more important for a company’s reputation than what people think of its products and services. That’s a profound change that the company behind the product is more
important in defining its reputation than what product it manufactures. It shows the importance of doing the right thing, of having honesty, openness, integrity and a commitment to making the world a better place to live. Most companies in the top 100 of our ranking are defined by those measures more than anything else.
What do the top performing companies in RepTrak do best, and what can others learn from them?
If you look at the top 10 in 2017—we are talking about companies like Lego, Google, Sony, Rolex and Walt Disney—they all operate with honesty and integrity and they stand for things that matter to people around the world, such as diversity and inclusiveness, environmental sustainability and education. Their companies have become associated with issues and causes which makes their reputation stronger because they are known to be doing the right thing.
How do these companies benefit from this ethical approach to business?
More and more we are seeing that reputation moves markets. There is a strong correlation between the market capital valuation of a business and its ability to create a good reputation. The past few years have shown the power of reputation to change the world; it had a hand to play in Brexit, in the election of Donald Trump, in the emergence of the #MeToo movement. The reputation of CEOs around the world is now being scrutinised because of cases of inappropriate sexual behaviour.
We are seeing the emergence of the dawn of the reputation economy—reputation is now the currency on which everything else will depend. On a company level it drives whether people say good things about you. On a personal level it defines your job, your career, and your next move in life. Reputation is all around us and it is driving human behaviour.
LEGO Group came top of the 2017 rankings. What did they do particularly well?
LEGO is a highly purposeful company. It is committed to fostering learning through play and creating new solutions for the planet. It truly employs CSR from top to bottom; it does not just pay lip service to it. It focuses on educators as an important stakeholder and the importance of relationships between children and their parents, and creates programmes which follow from these principles.
What factors caused companies to perform poorly in the RepTrak index?
Companies did badly if they failed to show they were trying to make the world a better place. There have been high-profile examples of malfeasance in the past two years—look at Volkswagen, who allowed a cheat device to be incorporated into new cars being made. This happened because of poor judgement and a lack of governance in their corporate infrastructure.
This became a global story and it has severely impacted Volkswagen’s reputation. In the court of public opinion, any company that is unethical will be punished. It is hard to gain a good reputation if people do not believe you are trustworthy and that all you care about is making money.
It is now much harder to sell Volkswagen, and this also impacted other brands in the Volkswagen Group like Audi and Porsche. In markets around the world, Volkswagen now has to more strongly incentivise people to buy its vehicles; it has to create terms that will engage people. It makes it harder for Volkswagen to attract investment and to attract the best talent in the world. They are going to find it a lot harder to build a case to say that it has a thriving, sustainable business. Of course it’s not the end of the world for Volkswagen but it’s going to be a lot harder to be successful because of this reputational problem. So reputation can be an accelerator or decelerator to your business, if you choose to do the wrong thing it’s a decelerator.
Are there any big movers in recent years?
Disney’s reputation had some ups and downs in 2017, but overall perceptions of Disney have improved from four years ago. It has done this by paying a lot of attention to building a strong CSR agenda and its leadership has raised the profile of CSR. It has done this across the business and it has taken all dimensions of reputation very seriously. It was ranked third in the world in our 2017 index, so it has regained more of its magic than we have seen for a long while.
How can a company earn trust of investors, customers and third parties?
There is a crisis of trust around the world, which has accelerated with the rise of 'fake news,’ and it is directed at people that run our countries and our companies. But while we know that trust trades at a premium, companies must do more than just tell us they can be trusted. Trust is something you earn over time, inch by inch, through every interaction and experience people have with the company. It is really hard to earn trust and even harder to win it back once you have lost it. Reputation is a highly dynamic form of measurement which can go up or down in a heartbeat.
How important is the CEO to a company’s reputation?
Another trend of recent years is a rise in what I would call CEO activism. There is now an expectation that a company’s CEO will take a public position on societal issues. They can no longer brush off politics as something that is not their concern—society expects the CEO to speak out on issues like immigration, female empowerment, the right to education, and public policy. If a company is not viewed as supporting diversity and inclusiveness, for example, it is judged badly. So CEOs need to come out and say, for example, “We do not believe there should be sexual harassment in the workplace.” The CEO is the lightning rod for how a company is viewed and needs to take a stand on things that matter. This is happening in Europe, and we will see it as a big rising trend around the world in years to come.
Which CEOs have done this well?
A good example is Jørgen Knudstorp [former CEO, now executive chairman] at LEGO, who is basically living and breathing the LEGO brand and its commitment to social responsibility. In the tech industry there is Microsoft’s Satya Nadella, who is seen as a caring, quiet, almost zen-like person. He has helped Microsoft to change from one of the most hated companies in the world to a company to one that embraces empathy for humanity. They are examples of different kinds of CEOs who are willing to take a stand on big issues and support best ethical practice—and this has helped their companies to make a buck or two along the way!
Have investor and customer expectations of companies changed?
Yes, the way companies are judged has evolved. People still expect companies to be fiscally responsible and well-managed, but they are increasingly judged on their moral responsibility—are they doing the right thing when nobody else is looking? If they can show this, they will earn the benefit of the doubt from customers and investors.
Today, investors and customers expect companies to behave ethically when nobody is looking and to put social responsibility above their bottom line. Investors want to know that companies have a licence to operate, they will not come under the scrutiny of regulators, and they are able to freely conduct their business affairs. This all comes down to them having a good reputation.
Do you have any examples of how this has changed the way an industry operates?
If you look at the global carbonated soft drink business, there is increasing scrutiny on how these companies impact on weight management and oral and dental hygiene, and it begs the question whether these businesses are sustainable in the long-term. The smart companies like Coca Cola realised a long time ago that they could make more money in the longer term from non-carbonated drinks like bottled water. This lets them have less harm on the environment but also do the right thing. Then there are companies which are thinking about more sustainable forms of packaging rather than non-recyclable materials which go into landfill. The same is true of technology companies and banks—they have to take social and environmental factors into consideration.
How can a company turn its reputation around?
Firstly, our data shows that it is as much about the CEO as the company. CEOs are being put on a pedestal in many ways and publicly scrutinised like never before. A CEO’s demeanour and their compensation package will impact the reputation of the firm.
Secondly, companies can improve their reputation if they are purpose-driven. This means they stand for something that transcends what products they make. It’s about having a value system and an ethical barometer on which to make decisions, and making sure their commitment to these values is not just rhetoric. It is making sure their judgements in business align with their purpose. For example, certain companies were recently put under scrutiny because of their alignment with pro-gun groups following some terrible incident in schools in the US. Many companies came out publicly and said we should make it harder to sell guns; they made a mindful choice and their reputation has improved.
How can companies recover from an ethical transgression?
It really does vary by industry and type of company. We have found every company has some form of transgression or misdemeanour, but it is how a company responds that determines the depth and length of hurt that it causes. Often when a reputational crisis hits, a company goes into opacity mode or denial mode. When a pilot from Germanwings deliberately crashed a plane in 2015, there was some denial at Lufthansa in accepting Germanwings’ links to their company. A big trend is that how a company handles the issue is more important for its reputation than the issue itself.
Companies must be transparent, accept responsibility rather than making excuses for what happened, and then lay out their plans for how to resolve the issue and make sure it does not happen again. Companies that do this are forgiven much more quickly than those who try to spin the story and pivot and hide.
1. Dig deeper: read our blog post on how LEGO earned the top spot on RepTrak 2017.
2. Check out past Q&As with Patrick Moulette, Head of the Anti-Corruption Division at the OECD and Simon Baptist of the Economist Intelligence Unit on this blog.
3. Share this blog with your colleagues on LinkedIn to keep the conversation going.