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Stockholders vs Stakeholders - Balance is Key.

by Deon Binneman, REPUCOMM, Johannesburg, South Africa

If Reputation is an organisation's biggest asset and greatest risk, why aren't you managing it like other assets and risks?

I believe that the purpose of CSI, Corporate Governance and other strategies is to enhance the reputation of the organisation in the eyes of the stakeholder.

Why? Think about it for a moment people invest in companies with a good reputation. If a company does not have good governance it won't have a good reputation.

Certain studies have shown that reputation can be as much as 55% of a company's share price (intangibles). Thus the link must become clear. There is a very real business case for managing reputation and its inherent risks.

Reputation is derived from the way stakeholders perceive the organisation.

Thus a stakeholder performance model becomes a strategy for an organisation that realises that there is value in relationships that needs to be unlocked.

Corporate Reputation has a number of drivers that is very useful to understand:

- Emotional Appeal

- Products and Services

- Vision & Leadership

- Social responsibility

- Workplace Environment

- Financial Performance

These are the drivers used in the Harris-Fombrun's Quotient and forms the basis for the research conducted every year by the Fortune magazine for the World's Most Admired Company survey. Overall reputation score is affected by performance in these areas. Hence some companies will be good in certain areas than in others.

My idea of reputational risks minimisation is to work with clients in each of these driver areas - to identify potential gaps and suggest how to close them. What we are finding is that different stakeholders view certain of these drivers more important than others. Managers can focus on only some of these areas, I concur and that is the danger. As Warren Buffet, one of the world's richest men and investors said to employees when he took over Salomon Brothers, a financial house in 1991:"If you lose money for the firm by bad decisions, I will be very understanding. If you lose reputation for the firm, I will be ruthless."

It is thus about Stakeholder relationships and ensuring that you understand the needs of ALL the stakeholders and can communicate and build a relationship with them.

Every decision that an organisation must make has four broad sets of implications. The obvious three sets of implications are operational, financial and legal.

The fourth set of implications is generally ignored, delegated or included in the process only on the basis of the "gut instinct" of one of the participants. This fourth set of implications is reputational.

The reputational implications of a business decision can be defined as those that impact the way in which an organization is regarded by those with whom it interacts, including shareholders, customers and employees, as well as suppliers, government regulators, the media and even competitors (and any other stakeholder).

This fits in well with the ecology model of organisational effectiveness.

The New Collins Concise English Dictionary defines ecology as:" The study of the relationships between living organisms and their environment, the set of relationships of a particular organism with its environment."

This means that the ecology model is concerned with the organisation's ability to deal with internal and external contingencies, and its ability to manage interrelationships between stakeholders in the context of its environment.

Any organisation is dependent on its stakeholders for support and the strategic importance of any stakeholder depends on how dependent the organisation is upon it. And this relationship can change over a period of time or due to indiscretions.

Managing an organisation's Reputation needs to be far more holistic than just Corporate Governance, and needs to consider the company's relationship with consumers or media within the context of a range of relationships, any of which may, in specific instances, supersede the relationship with shareholders, consumers or media in priority.

Moreover, it considers the impact of all of the company's activities - from the sourcing of materials and choice of suppliers to production processes and transportation and disposal of waste materials - on those relationships, rather than focusing entirely on the brief interface between company and the media.

It means that proper stakeholder analysis must be done and that communication plans and relationship building strategies should be designed based upon carefully designed needs.

According to the King report on corporate governance, directors must assess a company's risk management processes. Here risk is defined as uncertain future events that could influence the achievement of a company's objectives; and these include strategic, operational and financial issues, as well as compliance.

King says:" This broad view of risk facilitates a focus on actively managing risk that should be taken in the pursuit of opportunity, as well as concentrating on protecting the company against unnecessary or avoidable losses...Risk goes to the very essence of a company's ability to meet its objectives and sustain its existence". Should you not also assess Reputational risk? Globally the management of corporate reputation has become a priority item on many progressive companies' agenda lists. In fact recent survey results in Europe shows that a company's reputation is one of the three most pressing issues on any CEO's agenda.


Today's enlightened companies have come to realise that reputation is an asset that needs to be managed, proactively. These companies have realised that the scrutiny under which business operates today, and the amount of information in the hands of consumers and other publics, make reputation a vital asset, and in some industries the most important.

After all, what goes through the mind of a stakeholder, when he sees a company's secrets exposed on an investigative journalism program?

Important decisions by stakeholders are invariably based on trust. Good reputations are built on good actions and policies that earn stakeholder trust. Before there is any communications, there must be reputation substance. Examine your own role as a stakeholder with other organizations and you will realize that trust is at the core of your product choices. We buy what we trust. And when you invest in a share, you buy what you trust.

Companies whose shares are highly regarded offers not only an investment opportunity but it is also because of their reputation to deliver on their promises.

Corporate reputation today is an essential element affecting corporate strategy. Once considered simply goodwill, corporate reputation today can be a facilitator or an inhibitor of corporate progress. Therefore it should be managed proactively. Whether you run a Fruit & Vegetable shop, A FTSE listed company, A Law firm, A Government department, A Hospital or even if you a cricketer you all have one thing in common: you face problems everyday.

Many of these fizzle out, others fester or explode into crisis situations that needlessly damage corporate or business reputations and careers. The problem is that most business owners think of Reputational crises as only high-profile, spectacular ones that can cause catastrophic results, and forget about the ones that like termites weaken and gnaw away at the foundation that underlies the company's success. And, by the time the damage is identified, it is often too late to do anything without lengthy, costly repairs to the cornerstone of the foundation - The businesses' credibility, reputation, loyalty, and trust. (The Ford/Bridgestone tyre debacle being just one example).

For me reputational risk lies in the domain of trust, ethics, and the way companies think.

Deon Binneman
Phone: +27 011 4753515
Fax: 0866129566
Mobile: 083 4254318
Johannesburg, South Africa

Reproduced with permission 20 February 2006 08:35 AM

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