Investor engagement

Rebuilding reputation and restoring trust

In his introduction to the new Code, Paul George, Executive Director of Corporate Governance and Reporting at the Financial Reporting Council (FRC), highlights ‘high-profile business failures such as BHS and Carillion’ as key factors in eroding public trust, and the pressing need to restore it: ‘Today’s publication of a new shorter, sharper Code raises the bar for UK businesses – and they need to make sure they are up to the challenge,’ he writes.

Perceptions of how listed companies are being run colour their reputation, both collectively and individually, and shape our trust in them; and this can have a direct impact on their value.

Certainly, there is no shortage of examples of companies whose reputation – and value – have been substantially eroded by actions that have fallen short of the standards of conduct expected of UK listed companies, from accounting issues at Tesco to IT disasters at TSB and alleged personal misconduct at WPP.

It is no surprise, then, that the subject of corporate reputation, how it is formed and how it can be rebuilt is one that has attracted a good deal of interest in recent years. Testament to this is the fact that the Oxford Centre for Corporate Reputation celebrates its 10th anniversary this year.

The Centre’s founder, Rupert Younger, has recently co-authored a book, entitled ‘The Reputation Game’, which seeks to define reputation. With a lengthy career in communications, and as co-founder of financial public relations consultancy, Finsbury, Younger will have had plenty of first-hand experience of chief executives complaining that their company does not enjoy the reputation (and value) that it deserves, whereas others enjoy a more favourable reputation than they warrant.

To explain the reasons for this, he and fellow author David Waller break down the concept of reputation into three constituent parts: behaviours, networks and narratives. They refer to these as the three ‘dice’ in the reputation ‘game’.

They suggest that reputations begin with our actions, travel through our networks and are presented in the form of narratives, whether on Facebook, Instagram or Twitter, or through annual reports, blogs and websites.

Where reputation has been damaged, Younger and Waller suggest that change is required in each of these three areas. First, a company (or an individual) has to change the way it behaves – and actually change, rather than just talk about doing so. Second, it needs to build a new set of networks – where possible – with people who are not as familiar with the organisation and are therefore more likely to be open to it. Third, an organisation needs to start to change its narrative in the form of the messages it conveys about itself. There is a further insight that they provide into reputation, which is helpful in explaining more about both the impact of reputation and how to look at repairing it.

Reputations, they suggest, have two critical dimensions: capability (what a company is perceived as being able to do and perceptions about its ability and competence) and character (perceptions about how it conducts its operations). Thus, VW, having admitted to providing misleading information on emissions, has a reputational character problem, but the fact that its sales of new cars remain buoyant indicates that it is not suffering a capability problem. Ryanair, however, faces a more difficult reputational challenge. With a good deal of negative attention around controversial commentary by its CEO, Michael O’Leary, the company could be seen to have a character problem. Compounding this, its inability to effectively manage the pilots it employs – on strike again in October 2018 – indicates a capability problem.

Together, these have impacted the company’s reputation and, indeed, its share price. In our digital age, characterised by ever increasing volumes of information and speeds of communication, the task of managing reputation is, arguably, more difficult than ever before. And while we cannot be in control of our reputation, because this lies in the hands of others and how they perceive us, understanding how reputation works, and what levers can be used to rebuild it, is valuable in shaping the way we communicate. Underpinning this, the strongest possible corporate governance structure will raise the bar for all listed companies’ conduct and their reputations.

The FRC describes corporate governance in the UK as ‘the international gold standard’, but in launching the new Code, it was quick to highlight that there still remain opportunities to ‘raise standards further and restore trust’. With even higher levels of scrutiny under the new Code around issues such as remuneration – an area specifically flagged up as being a potential reputational risk for companies – discussion around corporate reputation and its impact on a company’s value looks set to continue.

At Luminous, we have the capabilities to help shape a new narrative for companies seeking to rebuild their reputation and to present that narrative effectively through key corporate communications channels, both in print and online. If you would like to discuss how to enhance or optimise your narrative, please get in touch.

[email protected]

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