Stakeholders encourage companies to be more and more transparent. Those organisations, which cannot build trust relationships with its stakeholders, become more prone to reputational risks. Those organisations that cannot build full trust are vulnerable to criticism and pressure of stakeholders. The choice between the strategy based on negligence or the one based on trust is essential and can become vital for gaining competitive advantage in the world that needs institutions it can rely on in the long run.

1. Insights
Strategy Documents
I08 / 2011
Reputation
Four business strategies
for protecting corporate
reputation
Stakeholders increasingly expect companies to deliver greater transparency.
Those organizations that cannot reinforce the trust of their stakeholders will be
ever more vulnerable to reputational risks.
Public relations no longer suffice to protect a and honesty about the quality of companies’ products
company’s reputation. Large and small companies and services or their financial performance.
alike lay their reputation on the line on a daily
basis. It matters not how their income is performing
or whether the launch of a new product has
Reputation Strategies
Bearing in mind this approach, what can companies
been a resounding success. Their reputation can
do to protect their reputation? How can they
nose-dive at any moment at the drop of a hat and
subsequently falter for many years due to several manage their brands to enhance their strategic
operational risks: improper conduct by executives, value? Professor Paul Argenti from the Tuck School
financial irregularities or social networking attacks, of Business and the consultants James Lytton-
to name just a few examples. Hitchins and Richard Verity suggest that we should
begin by identifying the type of reputation strategy
our company pursues, and so in their article “The
The recent setbacks affecting certain corporations
good, the bad and the trustworthy” they present a
such as BP, Toyota or Goldman Sachs have
classification that considers four types of reputation
highlighted the fact that addressing reputational
strategy. These range from reckless negligence
risks requires more than just investing or increasing
to deceptive virtue, benign competence and
expenditure in crisis management (investing in
trustworthiness as a competitive advantage. The
pressure groups, advertising, public relations), as
way companies have developed these strategies in
stakeholders’ current expectations have raised the
level of criticism on business performance. recent years is detailed forthwith.
According to the Trust Barometer 2010 survey, Reckless negligence
conducted by the PR firm Edelman, when reaching The companies that opt for this strategy do little or
their decisions consumers are increasingly taking nothing to enhance their management capabilities,
into account the practices of corporate transparency under the assumption that this leads to a reduction
Document drawn up by Corporate Excellence - Centre for Reputation Leadership citing, among other sources, the speeches by Paul A.
Argenti, James Lytton-Hitchins and Richard Verity at the 15th International Conference on Corporate Reputation, Brand, Identity and
Competitiveness held in New Orleans, May 2011.

2. Four business in expenditure and cost-saving. This means that Types of reputation strategy
strategies for any action undertaken is valid as long as prices are
protecting corporate
reputation kept low, customers are satisfied and shareholder 1. Reckless negligence
expectations for the quarter are met. According
to the authors, we might find that between 25% 2. Deceptive virtue
and 30% of the companies in the industrialised
nations and in emerging markets have opted for this 3. Benign competence
strategy, with some food companies that ignore the
growing concerns about obesity and health falling 4. Trustworthiness as competitive advantage
within this category, without realising that they are
one misfortune away from irreversible damage to Source: The good, the Bad and the Trustworthy; 2011.
their reputation.
multiple stakeholders. Being a reputation-driven
Deceptive virtue
company is a painstaking endeavour, in which
This strategy involves a company putting its best
the company needs to pay as much attention to
face forward through public relations, rebranding,
maintaining transparency while at the same time
corporate philanthropy, sustainability programmes
living up to its public promises at all times.
and the espousal of high-quality business practices,
building itself a reputation for being farsighted and
responsible, even when it is not. As long as the “Stakeholders are ever
company is well managed, competent, and reasonably
lucky, this strategy works. But if its actual core values more critical of corporate
and business practices do not match the image it
presents to the world, it is taking a huge gamble.
performance”
The US supermarket chain Wal-Mart is a good
Few companies have adopted this narcissistic
example of a company that has made significant
strategy, such as tobacco companies in the 1960s,
pharmaceutical companies in the 1990s, and large progress toward trustworthiness. Based on
corporations in 2000, including Enron and, more environmental sustainability, the company is
recently, some of the world’s biggest banks. managing to change consumers’ buying habits.
Furthermore, it is transforming its operations
According to the authors, the changing environment through supply chain transparency, increased
in recent years has shown that these two strategies fuel efficiency in its vehicles, greater energy
are untenable over time, as they leave companies efficiency in its stores and waste minimization.
too exposed to competitors and litigation and may As a result, Wal-Mart is achieving its three
lead to the loss of their operating license. sustainability objectives: operating solely with
renewable energy, creating zero waste and, finally,
selling environmentally sustainable products.
Benign competence
Accordingly, it has sold more than 350 million
Following this strategy, a company sets out to
energy efficient compact fluorescent light bulbs in
be efficient and effective, placing emphasis on
the United States.
the responsible management of its reputation. It
complies with regulations and makes adequate
investments in building its capabilities for health, The five strategic pillars
safety and environmental management, as well as of trustworthiness
in corporate communications. For Argenti, the quest for trustworthiness is not an
altruistic practice, but rather yet another option for
Under this strategy, reputation is not the centre of those companies that need to find their place in the
the business, nor should it be, although investment market guided by the management of their corporate
may be made in systems that monitor this risk. reputation. This does not mean that a company has to
The focus is on delivering quality products and
be flawless to be worthy of trust. Instead, companies
services and fulfilling the company’s obligations to
must gain the commitment of all employees to fix
customers and shareholders. Perhaps 50% percent
broken business practices that no longer reinforce
of companies fall into this category.
the business strategy, and offer a realistic plan to
deliver on its promises in the future.
Trustworthiness as a
competitive advantage A strategy of benign competence is an easier and more
This strategy provides reputation management suitable path for many companies, whereas a strategy
with a critical capability within an organization. based on trust is harder to implement; as companies
This capability distinguishes a company from the choosing this course will probably need to change
competition, attracts both employees and customers, deeply embedded habits and instil new capabilities.
and earns it an enviable reputation among its If companies manage to make these changes,
Insights 2

3. Four business Strategic pillars of trustworthiness
strategies for advantage, distinguishing the company’s
protecting corporate practices and overall capabilities from those of
reputation its competitors.
Facilitate
dynamic
strategy
development Foster 4. Harness social media to strengthen relationships.
Integrate the key Companies must empower their employees
rigorous crisis behaviours
management for a one- with the tools that facilitate dialogues with
policies Trust company
culture stakeholders to better understand their
interests and pre-empt any problems that
Harness might arise. During the 2008–09 recession,
social media Nurture
to strengthen reputational Ford Motor Company took advantage of its
relationships capital website and social media platforms to launch
live conversations among suppliers, dealers and
customers. These actions helped the company
Source: Paul A. Argenti, James Lytton-Hitchins & Richard
Verity, 2011 to more readily overcome the problems caused
by the crisis when compared to its rivals General
Motors and Chrysler.
they will have the chance to create a sustainable
5. Integrate rigorous crisis management policies.
strategy for growth that could beat the competition
Rapid response capabilities at local, regional and
regardless of industry conditions. According to these
global levels are critical. There are four rules for
authors, there are five strategic pillars for becoming a
protecting reputation:
trustworthy, reputation-driven company. Companies
should consider the following:
– Frame the problem.
– Execute a practical plan that offers
1. Facilitate dynamic strategy development
concrete steps to rebuild confidence
and execution. Trustworthy companies must among those directly affected.
develop strategies based on deep insight into – Tell the truth.
the needs and perceptions of their stakeholders. – Transform the crisis into strategic
They should develop nimble systems to enable opportunities to build reputational capital.
employees to participate in dialogue to resolve
and pre-empt potential threats or problems. One
example of this is Avon Products, which has
created a so-called 360-degree communications “Organizations that cannot
programme that has placed the company closer reinforce trust within
to its customers throughout the world.
their internal management
2. Foster the key behaviours for a one-company are increasingly more
culture. Implementing a market-driven strategy
requires companies to build a globally integrated vulnerable to risks”
culture that benefits their employees. The
transformation of Philips over the last decade Conclusions
from an electronics firm into a much more diverse Organizations that fail to develop trustworthiness
healthcare, lighting and lifestyle company is completely are vulnerable to significant criticism
a good example of this management. Having from their environment and stakeholders. The
established a coherent business portfolio, the choice between a strategy based on neglect and
company launched two major communication one built on trustworthiness is essential and may
campaigns called “One Philips” (to revitalize the well become vital for the competitive advantage of
company’s identity internally) and “Sense and organizations in a world looking for institutions it
Simplicity” (to reposition its brand). can count on for the long haul.
3. Nurture reputational capital. Internal business
practices must institutionalize the alignment
of the company’s reputation with its actual
behaviour. This typically involves closing any
gaps that may exist between corporate identity
and image. To recognize these gaps, companies
must maintain early-warning systems to keep
them continually informed of reputational
risks. Nurturing reputational capital requires
rethinking corporate social responsibility
programmes as vehicles for competitive
Insights 3

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of strong brands, with good reputation and able to compete in the global market. Its mission is to be the driver which leads and consolidates
the professional management of reputation as a strategic resource that guides and creates value for companies throughout the world.
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