Dorothy Crenshaw October 19, 2015 | 08:59:19

The Business Case For Corporate Reputation PR

PR  and corporate communications professionals often advocate for proactive corporate reputation management. We talk up the benefits of having a good reputation, but can you put a value on it?

A bad reputation can be ruinous, of course.  Just look at the Volkswagen diesel emissions scandal.  Its shares tumbled and its chief executive resigned after the corporation’s cheating came to light. Between penalties, repairs, litigation, and lost sales, it could take VW years to steer its business into the right lane.

Bad news makes good headlines, and the punishing cost of a public mistake is one reason why companies view a strong reputation as money in the “trust” bank.  They know that ongoing management of the corporate or brand image can protect it in the event of a crisis, so they invest in risk management. They make sure that preparations are made for any and every harmful scenario, and they wisely review the crisis plan regularly.

But the best reason to invest in proactive reputation management shouldn’t be the fear of a corporate scandal.

Reputation is more than a defensive tool. A strong reputation is a significant corporate asset, not just a good thing to have in a crisis. In fact, it turns out there is actually a quantifiable reward or reputation dividend for companies who invest in their own reputation management.

We know that “low-trust” companies experience a negativity bias, meaning that a negative story or message will have a greater impact than a positive one—roughly four times more in one study.  But the flip side also applies. “High-trust” companies are affected by a negative message only half as severely as they are by a positive one.

Some studies have actually tried to quantify the value of a good reputation. According to Reputation Dividend, the corporate reputations of S&P 500 companies make up close to $3.7 trillion in value, or 21 percent of total market capitalization.  The analysis suggests that a 5% improvement in the strength of an S&P 500 company’s reputation would yield a market capitalization growth of 1.5%. That translates to a value of roughly $550 million for an average company on the S&P list.

This chart from Andrea Bonime-Blanc summarizes the positive case for a well-managed corporate reputation, as distinct from the negative one.

The reputation “bonus” is about more than just the strength of a corporate reputation.  Today it involves the promotion of particular attributes informed by a company, its category, competitive set, economic environment, and culture.  Reputation management is moving from nurturing the perception of general attributes like product quality and customer service to more pinpointed ones  like commitment to innovation, talent development, work ethic, or creativity.

It’s clear that the right reputation is more than a defensive tool.  There’s a strong business case to be made that the intangible asset of a corporate reputation translates into outcomes and earnings that are very tangible indeed.

This post was written and originally published for MENGonline.