Making capital value of reputation
FACE TO FACE / Reputation management is more about
creating capital and generating value for the company and
is not an exercise in cost-cutting says Prof Charles J Fombrun to
Subrahmanyan Viswanath
ONE of the pre-eminent authority in the field of Reputation Management, Charles
J Fombrun, Founder and Executive Director of Reputation Institute, a private
research organisation synonymous with path-breaking developments in measurement,
analysis and management of Corporate Reputation through the tool called —
Reputation Quotient. A system for valuing Reputation that is widely used by
corporates around the world. Fombrun, who is also Professor of Management at
Stern School of Business of New York University, and the author of the much
acclaimed book — Reputation: Realising Value from the Corporate Image, who was
in Bangalore last week as part of his “Reputation Matters” talks series
organised by imagequity, spoke to Deccan Herald on the concept. Excerpts:
DH: How closely is Reputation Management linked with company’s financial
performance? Is it only cost-centric or does it also add to the bottomline and
shareholder value creation?
CF: I figure it this way. If you start
with that idea, a company has certain value in terms of its market
capitalisation. And where does that come from. Quite a bit is physical capital
alone. The value that is on the books, if you take all assets and liquidate
them, you have a certain value. That turns out to be, on an average, about 40 to
45 per cent of the value in the books of the companies. Rest of that value is
intangible. It consists in part of Intellectual Capital, Human Capital and
Reputation Capital. So that’s the part we are saying is so important to manage
better.
Corporates, over the years, have learnt quite a bit on how to manage Human
Capital better, although they have not yet achieved perfection. But the second
component where equity comes to play is principally depends on the customers. It
is a well recognised fact reputation and recognition facts go beyond values of
relationships you have established with all the stakeholder groups put in and in
general your credibility and that is what something how much it is worth is the
general question. We estimate it to be around 10 to 15 per cent.
Reputation Management per se is not focused on cost-cutting but value management
and how you try to manage that part of the value that’s not otherwise being
managed. You can see it go away when you a crisis looms. For instance, what
disappears in time of crisis is the company’s Reputation Capital.
DH: How can corporates strive to safeguard their reputation at such times of
immense crisis?
CF: Well (chuckling) you safeguard the
Reputation before the crisis. That is when you have something in the Reputation
Bank hopefully. Part of what you do in Reputation Building is in that when you
do recognise a crisis it does not hurt you as much and you recover faster.
That’s the evidence we have learnt from our empirica studies. All crisis will
have a cost initially about 10 per cent. And if you see companies did something
beforehand they recovered faster because they handled the crisis better and
their Reputation gives them a cushion and where the ones that do not handle they
will drift for quite a long time. Companies that handle the crisis better take
control of the situation and they recover faster.
DH: How important is consensus building among the various constituents within
the corporates this achieve this? CF: Part of the problem with why Reputation
are not being well managed is most companies are built upon very segmented or
fragmented groups with separate departments so the responses are dispersed and
that does not come together very well. So it holds up that you are sending very
chaotic message about yourselves and part of the need to do in Reputation
Management is to generate and find the way to generate consistency in most of
your activities and messaging. It is about creating an alignment in the way in
which you relate to all your stakeholders — public, employees, customers and
doing it consistently. The thing is to see the company is saying and expressing
it the same way.
What are your core values. What do you believe in and do. What you do is
important. Each company should make sure it has understood what’s its values
are then look at the ways to express it — be it advertising, public relations,
investor relations, which creates values and an environment about itself that
builds Reputation.
DH: How transparent can management be with the various stakeholders as it
strives to safeguard its Reputation from flagging?
CF: It is increasingly crucial that
companies be transparent. In the past the track record has not been as good as
it is today. The notion was to hide behind the gates and walls around you making
it impossible to be easily reached. Company behaved in a way that was distant
from the shareholders. However, today, things are rapidly changing and above
all, technology is making sure you do not hide or be dishonest anymore and hide
under the veil of secrecy. Earlier this only led to great deal of assumption
that you
are not forthcoming because you have something to hide and are not able to
relate very honestly.
Honestly, instead of sheltering and hiding behind protected walls and silos and
departments and buffers you have to get to everyone and need to create a close
and honest communication about what’s going on in the company. You cannot say
No Comment and dismiss queries about what is going on in your company. You must
be able to say what you think about it whether its true or not true. There is no
need, or nothing, to be disingenuous about it.
DH: How do corporates reflect their spending on Reputation Management in the
books?
CF: You can have shadow capital. In
your income statement it is an expense as is most of the advertising, public
relations, training expenses that go away and do not build any capital value and
do not appear in the balance sheet. So you can have shadow accounting for all
those things that go to build Reputation and it should be parallel to the
balance sheet. However, you do not put value on this expense as you do not put
value to people who do not appear in your books but we can do shadow accounting
to show how much we are spending on the people. What you see as a result of that
spend in the form of rate of return is through productivity and other matrices
to measure and bring them to the table to monitor it.
DH: You have spoken of having a Chief Reputation Officer (CRO)? You have put him
on part with CFO, CIO, COO et al. Can you elaborate?
CF: Well, I did advocate that sometime
back that companies should create the a separate position of CRO. But, in
hindsight, I am now less inclined to today to recommend it. I think that the CRO
role can be effectively handled, and is in fact, the CEO’s himself.
Fundamentally, we should not create a second role responsible solely for
Reputation Management which I now believe is the job and function of the CEO
himself. In fact Reputation concerns three key dimensions of both CEO and the
corporate itself : What you are. What you do and What you say. All three
together. Monitoring who you are, your mission, your value and what you believe
in constantly, question and reinforcing it is the job of the CEO besides
focusing on how and what we do. Monitoring, rating and compensating are the
three centrepieces of the CEO.
Having a separate CRO is not advisable because it separates Reputation
Management from other functions. I do not think you need to create separate
function, for after all, Reputation Management is all about the various function
— media relations, PR, advertising leadership, all put together. It’s about
integrating it and this pretty much finely falls into the lap of the CEO much
better than as a separate entity of its own. Since the Reputation Management job
is to communicate, do and see that it happens, and being, seeing and doing are
all the three roles that the CEO’s office ultimately does it pretty much fits
in there.