The recent spate of corporate scandals and executive misdeeds, including backdating, pretexting, embezzling, anonymous blogging and other unsavory activities, has brought the “reputation imperative” to the top of the agenda for business leaders. This renewed emphasis on protecting and enhancing corporate reputation is both reflected in — and fueled by — the growing number of reputation rankings published in the popular business press.
To be sure, a company should make every effort to safeguard and improve its corporate reputation. Society is placing an increasing importance on business ethics, and stakeholders are more prepared than ever before to hold corporations accountable for their actions. What’s more, a favorable reputation plays an important role in attracting the best talent, suppliers and investment. Numerous studies have demonstrated the importance that employees place on working for a company that they can be proud of. Suppliers recognize that they can lower their contractual hazards by working with partners they can trust. And financial analysts now include reputation metrics among their investment criteria.
But many executives often speak about corporate reputation and brand as if they are one and the same. They are not, and confusing the two can be costly. Focusing on reputation at the expense of brand can lead to product offerings that languish in the market. On the other hand, concentrating on brand and neglecting reputation can be equally dangerous, resulting in a lower stock price, difficulties in attracting top talent and even product boycotts.
Relevancy, Differentiation and Legitimacy
Simply put, brand is a “customercentric” concept that focuses on what a product, service or company has promised to its customers and what that commitment means to them. Reputation is a “companycentric” concept that focuses on the credibility and respect that an organization has among a broad set of constituencies, including employees, investors, regulators, journalists and local communities — as well as customers. In other words, brand is about relevancy and differentiation (with respect to the customer), and reputation is about legitimacy (of the organization with respect to a wide range of stakeholder groups, including but not limited to customers).
A strong brand helps communicate that the company and its offerings are relevant and uniquely able to meet customer needs. A solid reputation is desirable because all businesses ultimately depend (either directly or indirectly) on the goodwill of the governments and communities in which they operate.