Governance Perspective Now is the time to build your reputation
We cannot think of a time where reputation has been more important. We have a climate emergency, a global pandemic and a second lockdown, a looming financial crisis and Brexit to contend with. At best, this is forcing leaders and their organisations to shift their business models, at worst, it is causing the demise of businesses and industries and wreaking havoc with people’s livelihoods and mental health. All of our reputations are at stake.
What is reputation?
Reputation is not what one person thinks and nor is it defined by one news story, good or bad. It is a broader perception made by different stakeholders, including employees, investors, regulators, the media, interest groups and the wider public, to name a few. When gauging an organisation’s reputation, different stakeholders will assess their past activities as well as their potential to provide value to them in the future.
We define reputation as the aggregate perceptions of an organisation made by different stakeholders, based on their evaluations of the past capabilities and character of the organisation, and their assessment of its ability to provide future contributions.
Who cares about reputation?
An obvious question is why should businesses care about their reputation when they are focused on survival? This survival mode mentality can create all kinds of self-centred and undesirable behaviours, from people hoarding toilet rolls in supermarkets to individuals bending government guidelines to suit their lives, to increased fraudulent activity among business, which has triggered a new government and Crimestoppers COVID fraud hotline.
With the second UK lockdown, there will be more temptations to commit fraud in the short-term to overcome financial short-falls, but this risk taking will compromise the long-term reputation of both individual and organisational perpetrators, which is not easy to recover once lost, as explained by Jeffrey A. Sonnenfeld and Andrew J. Ward in their book, Firing Back.
The brief answer to why businesses should care about reputation is that a short-term disregard for their reputation can cause others to rethink how they perceive them and what kind of relationship they want with them in the future.
Character, Capability and Contribution
When reflecting on how reputation can be important, it is useful distinguish between three forms of reputation that have been identified from the academic literature. First, your character, which is how others perceive your ethical and moral code of conduct based on your past actions. Second, your capability, which is how others perceive your past performance (Mishina et al., 2012). Third, your contribution which is how others gauge your ability to provide future value (Arora et al., 2019).
The current pandemic is challenging the operations and performance of most organisations (their capability). We know from the fraud and misconduct literature (Harvey and Arora, 2020) that when leaders and organisations are facing significant threats then this does not necessarily mean they will commit professional misconduct, but it does increase the risk profile of unethical conduct (character).
When your capability is compromised then your character can save your reputation up to a point (think Camila Batmanghelidjh and Kids Company). When your character is compromised then your capability can save you up to a point (think Mike Ashley and Sports Direct). However, when your capability and character are compromised then what reputation do you have left? If your past actions are suddenly associated with negative activity then this compromises the perception among different stakeholders that you can provide value to them in the future (contribution). This is why rebuilding reputation can be so challenging, which has been found recently from research on white collar inmates who are seeking to rebuild their lives following major reputation loss (Arora and Harvey, 2019).
One way to avoid compromising your reputation is through collaboration. Some start-up firms have done this very effectively where they have moved from essentially no reputation to a building a positive reputation in a short period of time. Two ways of doing this is by either ‘borrowing’ or by ‘endowing’ reputation (Petkova, 2012). Borrowing reputation is when organisations collaborate with other organisations to help build their reputation, whereas endowing reputation is when organisations work with other people (e.g. founders) to help build their reputation.
There have been all kinds of partnerships that have emerged during the first lockdown and there will be further opportunities to collaborate to create value for organisations and the different stakeholders they serve such as investors and commissioners. This also presents an opportunity to signal that you are not only open for business, but have the agility to pivot the business into new and exciting areas. Of course, who you collaborate with and what you are offering will have implications for how you are perceived so reflecting on the character and capability of those partners and the products and/or services you are offering will have implications on how others perceive your ability to contribute in the future.
In summary, reputation is of critical importance and how we project ourselves when the chips are down has a strong impression on how others perceive us. Most of us are currently in react mode: scrambling to meet deadlines, responding to requests, keeping-up with changing guidelines, cutting costs and seeking revenue streams. We find ourselves spending much of our time in meetings, sending e-mails and speaking on Zoom and Teams calls. But we are not dedicating enough of our time or providing the right environment to slow down, think and reflect about the long term implications of our decisions and behaviours. In the recent words of Margaret Hefferman in the Harvard Business Review, we need to ask: “What are we here for?” One answer to this question is to build our reputations.
William S. Harvey, University of Exeter Business School
Arora, N. and Harvey, W.S. (2019). Down and Out? Leaders Recovering from Reputation and Identity Loss in a United States Federal Prison. Academy of Management Global Proceedings.
Harvey, W.S. and Arora, N. (2020). How the impact of Covid-19 could cause an epidemic of misconduct. Board Agenda. https://boardagenda.com/2020/08/03/how-covid-19-could-cause-pandemic-misconduct/
Mishina, Y., Block, E. S., & Mannor, M. J. (2012). The path dependence of organizational reputation: How social judgment influences assessments of capability and character. Strategic Management Journal, 33(5), 459-477.
Petkova, A.P. (2012). From the ground up: Building young firms’ reputations. In Barnett, M.L. and Pollock, T.G. (eds.) The Oxford Handbook of Corporate Reputation. Oxford University Press, Oxford, 383-401.
Waller, D., & Younger, R. (2017). The reputation game: The art of changing how people see you. One World Publications, London.