Corporate Governance – Reputation is Critical

Increasingly, companies are being held to their actions by their stakeholders. As staff, suppliers and the community are equipped to communicate and research companies online, they are empowering to inform and become informed about any brand. There are many recent online reputation blunders ranging from the false reports of Steve Job’s heart attack through to the recent United Airlines Breaks Guitars (losing the companies $4 billion as reported by TechCrunch and $180 million respectively as reported by The UK Times). These provide more than enough food for thought and the power which stakeholders have over companies is increasingly becoming self-evident.

Chapter eight of the most recent version of the King III report details six core principles on managing stakeholder relationships. Four of these points relate directly to the management of reputation and a means of managing the gap between perception and the company’s performance.

Principle 8.1: The board should appreciate that stakeholders’ perceptions affect a company’s reputation.

There are over 500 000 new content producers joining daily (through Social Media giants such as Facebook, LinkedIn, MySpace, Twitter and blogs alone). This combined with news, company comparison and consumer review sites appearing all over the Internet ensures stakeholders are increasingly informed and empower. So much so that the European Tourism Board ascertained that Web2.0 impacted the purchasing decisions of over $10 billion worth of travel alone. This is in direct agreement for the chapter’s assertion that “stakeholders interests and expectations, even if not considered warranted or legitimate, should be dealt with and cannot be ignored”. Furthermore, Edelman’s Engaging the New Influences Summit of June 2009’s key takeaways assert that, “what you say and what you do must align”. No small shakes considering that the same company found, in 2007, that 93% of journalists use the Internet for research. This forms an intrinsic link between stakeholders online and media offline.

Principle 8.2: The board should delegate to management to proactively deal with stakeholders relationships.

Stakeholders are increasingly more judgmental of their referral networks. Corporate CEO/MD trust dropped by 10% in 2007 (to 17%) while “somebody like me” improved in trust to 56%. A similar study conducted in 2007 by Neilson ‘Trust in Advertising’ Report, found that 78% of individuals trust the recommendations of other consumers. With Online Reputation Management tools, such as BrandsEye, it’s possible to track online conversations and engage consumers in an incredibly personal environment. Delegating this responsibility to management empowers the company to flatten communication responsibilities - empowering employees to build a relationship with stakeholders thereby improving trust levels, impact and influence.

Principle 8.5: Transparent and effective communication with stakeholders is essential for building and maintaining their trust and confidence.

The age old maxim that “people buy from people they trust” still holds very true. The recent Ask Africa report stated that, “The link between reputation, trust and CEOs are clear, considering that winning companies have winning CEOs and executives”. The trend of complete transparency to your stakeholders (as has been successful with Dell’s Idea Storm and General Motors’ new business strategy among many others) demonstrates a need for companies to re-earn the trust of their consumers. The use of online stakeholders as an ongoing research sample and unrelenting reputation tracking and engagement provide companies with high level strategic inputs, proactive brand integration. Ultimately this provides an opportunity to build an honest relationship with stakeholders. Critically, stakeholders can find any information they desire online and companies which embrace transparency claim first mover advantage and stay ahead of this curve.

Principle 8.6: The brand should ensure disputes are resolved as effectively, efficiently and expeditiously as possible.

The Internet is a brave new world for many corporates and traditional actions can have very unexpected consequences. In the beginning of 2009, the case of QVC vs. Blogger resulted in an unexpected outcome for Quality Vacation Club. When their actions in response to a blog post (where they attempted to sue the blogger for R461 000) was met with over 100 articles and post of similar influence and sentiment. Monitoring (and being empowered to engage) the online environment is critical.

Warren Buffet said it succinctly, “It takes 20 years to build a reputation, and 5 minutes to ruin it. If you think about that, you will do things differently.”Online stakeholders tend to gravitate to a champion of the cause and resolving the problem before this champion rises up is a sure-fire way to save face and keep the share price on a stable footing – for this ongoing monitoring is required.

Ultimately, the measurement and subsequent management of online reputation provides the key insights to know where, when and how to manage a brand’s corporate reputation. If ORM is correctly used to drive communication in both an online and offline environment the company can be certain that their reputation is in check, stakeholder’s perception are being managed. Ultimately ensuring the company is narrowing the gap between perception and performance to ensure sustainability.