Can a Good Corporate Reputation Be Unprofitable?

This week the Wall Street Journal featured an article about risk to corporate reputations that cited a survey in which 80 percent of CEOs said this was their top concern. The writer concluded, however, “Reputational management is still too often something that companies feel they should do rather than something that they want to do. A good reputation is hard to quantify and may actually get in the way of delivering short-term profits or cutting costs.”

Reasonable people could disagree about how a corporate reputation should be quantified.  But when faced with surveys showing increased or decreased approval of the company, most would agree on the direction in which reputation is heading.   That alone is a valuable piece of information for a CEO to consider.

I don’t believe that a good reputation can interfere with positive short-term corporate results or with cost-cutting. The author seems to be implying that a company may need to produce poor products or act in a way that is unethical or inhumane in order to make a short-term profit. Since the reputational fallout from this kind of corporate behavior can have a negative effect on long-term profits, corporate managers who believe it pays to sacrifice reputation in order to make a short-term profit are very short-sighted.  

Cost-cutting such as staff downsizing doesn’t necessarily harm reputation if done in a logical and sensitive way.  Even though employees may fear and resent the effects of layoffs, in recent years they’ve seen other companies going out of business.  They’re aware that cost-cutting, even layoffs, may be necessary for survival.  

However, the author is right that many corporations don’t like to deal with reputation management.  I believe the reason most corporate managers are uncomfortable with this part of their business is because there are no formulas for success or for solving problems.  Each decision that has to be made is a judgment call, and those related to reputation sometimes have to be made immediately. For example, when there’s a crisis, there’s no time to appoint a task force to study the issue and make recommendations. The direction has to be decided at the top, and the boss’s decisions can be criticized later if things go wrong.   

This is where corporate PR counselors, whose sole focus is reputation, can be extremely valuable. They are trained to look at the issues from all sides and analyze the way different actions will be perceived by key audiences. 

Foreign companies in the U.S. and start-ups, the types of clients we specialize in serving at Bridge Global Strategies, are particularly prone to neglecting corporate PR. Start-ups generally put public relations emphasis on their products rather than the corporation. Understandably, they need to build revenue quickly in order to survive. Foreign companies frequently don’t understand the need for corporate PR in the U.S. and they, too, often focus their communications efforts totally on sales.  But if corporate reputation is damaged, customers won’t buy, no matter how much sales promotion a company does.

As reluctant as many companies are to spend the time and money on corporate PR, the cost of ongoing reputation management counseling is trivial compared to the cost of a damaged corporate reputation, or the effects of being entangled in serious crises.

 Lucy Siegel

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