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November 2007
For the last eight years, Reputation Institute, a New York City-based consultancy and research firm, has surveyed consumers to determine which companies around the world have the best reputations. The determination is based on seven factors that contribute to a firm's reputation: products and services, innovation, workplace, governance, citizenship, leadership, and performance.
This year, for the first time, voters counted citizenship as having the strongest effect on reputation.
 Charles Fombrun, CEO of the Reputation Institute, will talk about the relationship between corporate citizenship and corporate reputation in his keynote speech at The Center’s 2008 International Corporate Citizenship Conference to be held in Boston on April 6-8.
A leading global expert on reputation, Fombrun regularly counsels companies about reputation management and developed the RepTrak™ System, a strategic tool used to track corporate reputations in 30 countries. He is the author of six books, including the best-selling Reputation: Realizing Value from the Corporate Image and more recently, Fame and Fortune: How Successful Companies Build Winning Reputations and Essentials of Corporate Communication.
We spoke with Fombrun to get a preview of his conference presentation.
THE CENTER: How do you define citizenship?
FOMBRUN: The RepTrak™ model that I developed with the Reputation Institute asks stakeholders whether they perceive a company as environmentally responsible, as supporting good causes, and as having a positive influence on society. A good corporate citizen is a company that gets high praise on these three attributes.
THE CENTER: Citizenship is often an umbrella for so many other elements such as quality products, or good working conditions. How do you tell the difference?
FOMBRUN: People are often guilty of abusing words like citizenship, identity, brand, or reputation. Unfortunately, this creates confusion, and we start sounding like the proverbial blind men describing the different parts of the elephant they touch.
In its broadest sense, we could argue that a company has a duty to meet all of its stakeholders' needs, and therefore to provide quality products, good working conditions – and all this while making a healthy profit for investors. However, I favor a narrower view of the term citizenship that equates it to the core responsibilities a company has to contribute positively to society. It makes citizenship only one of the components of a broader construct we call reputation that is only conferred on a company when it successfully fulfills the expectations of all of its stakeholders.
THE CENTER: How does citizenship influence reputation?
FOMBRUN: By reputation I mean the degree to which people like, trust, and admire a company. This turns out to be a strong construct based on studies we've conducted across 29 countries. Statistically speaking, citizenship is only one of seven factors that contribute to building reputation. Other components we've found to be influential include the company's financial performance, the quality of its product and services, as well as positive perceptions of its innovativeness, working conditions, governance, and leadership.
THE CENTER: For the first time, voters this year counted citizenship as having the greatest effect on reputation. Why do you think this is true?
FOMBRUN: There has been a quantum shift in public expectations about companies. It's partly a result of the growing power companies have amassed, and partly the result of the widely-publicized scandals they've subjected us to, whether due to leadership lapses, to mismanagement, or to product crises. Companies with good reputations are those who managed to keep their heads above water and out of the limelight. And being perceived as good citizens has helped many companies to avoid the mishaps of Enron, Adelphia, Ahold, Vivendi and other notable companies in the last few years.
THE CENTER: What are the implications for companies?
FOMBRUN: The main implication is that companies can help themselves with consumers by building stronger communication platforms focused around their citizenship initiatives. For example, giant retailer Target's recent communications have heavily emphasized their philanthropic actions. Not only is Target giving, but it's telling people about it, thereby hoping to improve the good feeling that they will have about choosing Target when they go out shopping. By linking their corporate brand to their community-based philanthropic initiatives, they stand to improve public perceptions of their relevance and responsibility – and increase profits.
THE CENTER: What are the implications for corporate citizenship executives?
FOMBRUN: Citizenship is increasingly a key part of doing business – it helps market the company. A good reputation elicits supportive behaviors from all kinds of people – that is, they prefer to work for, buy from, and invest in companies they like, trust, and admire. It means that citizenship deserves a role in both strategy formulation and implementation, and a place at the table with other senior executives involved in positioning the company with investors, regulators, and communities. Citizenship is a key part of building sustainability in the practices the company pursues both locally and internationally.
THE CENTER: Who are some of the companies at the top of your and other reputation lists, and why?
FOMBRUN: American consumers have the highest regard for companies like Kraft, UPS, FedEx, and Johnson & Johnson. Danish consumers like LEGO, Swedes favor retailer IKEA, and Italians applaud pasta-maker Barilla. Although rationales vary, consumers generally favor companies that have succeeded in tying their corporate identities to the national psyche, while remaining good citizens locally and regionally. They are perceived favorably on all of the reputation dimensions – and have not been plagued by any scandals. A good formula to prescribe!
THE CENTER: None of the top five corporate citizens are U.S. companies. Why do you think that is?
FOMBRUN: The data suggest that American consumers are less likely to think of their companies in as good a light as Europeans do. European companies have a stronger history of citizenship than American companies, due in part to a more robust regulatory infrastructure that requires companies to "play by rules" and reduces their autonomy to make business decisions that might damage the social fabric. Mass layoffs are more difficult to contemplate and carry out in Europe than in the U.S. So are mergers and acquisitions. And although there have been corporate scandals and accounting fiascoes around the world, the U.S. has borne the brunt of the bad press – thereby inducing lowered appreciation for the corporate sector as a whole by American consumers.
THE CENTER: What are the top and weakest rated industries in the latest survey?
FOMBRUN: The best-rated industry in the RepTrak™ survey was consumer products, the worst-rated was telecommunications. Consumer products companies are closer than any other to consumers. People's interactions with the industry are a long-standing source of familiarity, relevance, and satisfaction. In contrast, the Telecom sector has spent large sums on branding and advertising their products, and subjecting consumers to frequent recycling of product lines. Think of cell phones – everyone has a story of woe to tell about the products of that sector, and will willingly volunteer that they are frustrated with the services they receive from the industry. Clearly it has a negative halo with the average consumer. This is true internationally, where the industry was historically dominated by national monopolies, and lacked any sense of public engagement. Given their weak starting point, the industry can benefit significantly from improving perceptions of its citizenship and reputation.
THE CENTER: We all understand that reputation affects publicly held and consumer companies, but what about the others: privately held, service companies, B-2-B, etc. Why should they care?
FOMBRUN: Reputation is not a consumer concept – it applies to all companies and institutions. A B2B company interacts with a network of customers, investors, suppliers, and regulators. It must therefore care about building, maintaining, and defending its reputation with these specialized institutional groups. To a B2B company, therefore, public views of the company often appear to matter less.
But that may be wrong to assume. After all, the stakeholders of B2B companies are themselves influenced by consumers' perceptions of the B2B company they are doing business with – and can pressure them. Oil companies have had to face that head-on – they are heavily in the consumer eye, despite the fact that most of their income derives from interactions with governments and large corporate suppliers. Another case in point is contractor Halliburton, who earned the world's lowest reputation score in Reputation Institute's 2007 survey. Although Halliburton has no direct involvement or dependence on the public, its business is based on government-awarded contracts. Politicians are influenced by voters, and so indirectly, at least, a B2B company might want to pay closer attention to its reputation with consumers.
THE CENTER: Major scandals aside, how quickly can a company's reputation go up or down?
FOMBRUN: It's hard to generalize about ups and downs. It depends on so many factors, including the size of the market the company is working in, the speed with which it is implementing its strategy, the public visibility of its product or service.
In the U.S., the closest I would come to a number is to say that it takes three years to build a national reputation – as an example I'm thinking here of Google, the biggest business success story of recent years. It went from unknown to widely known and respected in about three years.
At the other extreme, however, companies with strong reputations can destroy them much faster – but even that can be overstated. Short term crises can take a big hit in the media, but often the underlying reputation can bounce back. That will depend in part on how extreme the misdeeds are. Executive misbehavior will often lead to lowered regard for the company, but its reputation will often bounce back quickly once the executives leave the company and remedial actions are taken. In contrast, crises that reveal deep-seated and enduring problems with the company's offerings and culture are more likely to have rapid and enduring reputational effects.
THE CENTER: Once a company has taken a hit on its reputation, what are some of the ways it can bring it back up?
FOMBRUN: Returning from the brink of a reputation crisis requires sincerity, authenticity and transparency. In order to return a company to public favor, managers have to communicate profusely with their stakeholders and through the media. Dell is an example: In 2007, the company widely acknowledged that it was facing some serious accounting problems, and publicly announced that it would tighten its financial controls to prevent future financial irregularities; the company also fired, reassigned or fined some of its employees as a result of its internal investigation. The negative effects on the company's reputation were minimized. Similarly, Jet-Blue's "mea culpa tour" following the storms that led the company to leave passengers stranded around the country signaled the company's willingness to acknowledge that the problem was systemic, and turned a negative situation into a positive campaign in favor of a passenger's "bill-of-rights."
THE CENTER: What is the effect of corporate reputation on employees?
FOMBRUN: A company's reputation has a powerful effect on employees. And that's a crucial issue since employees have to be ambassadors of the company to outsiders. Reputation induces pride and motivates people to work even harder to meet the expectations people have of them. In most of the companies I've worked with, I've argued that reputations come from within, and so have to be built from the inside out. In my view, no company can sustain a reputation that employees don't believe in.
THE CENTER: Thank you. We look forward to hearing more at our conference in April.
» Learn more about The Center's 2008 International Corporate Citizenship Conference to be held in Boston on April 6-8.
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