Reputational Capital

As defined by the literature, reputational capital signifies the value created by a firm’s image in a stakeholder’s mind because of their interaction with the organization. Many researchers have related reputational capital to positive outcomes in firms, such as customer’s intention to buy a service, attraction for employees and employee’s strong identification with the organizations. According to Peloza, CSR can contribute as a reputation building tool for an organization. They define a CSR–CSP relationship to show the value of CSR that provides incremental gains by increasing the organization’s goodwill and reputation to turn it into insured corporate image.

Strong corporate reputations help organizations to win the war of talent and foster employee retention. Corporate reputation unites all the stakeholders of the organization, as increased corporate reputation increases customer confidence in services, which effects the buying decisions. According to Schwaiger, companies with strong reputations have better access to capital markets that lowers the capital cost.

Good corporate reputations serve as a guarantee for high-performing workers. Hamori concluded that an organization’s reputational capital can be an indicator of its ability to attract talented employees, and also reputable companies can attract investors more easily.

One important issue that most of these businesses often ignore or overlook to their peril is their reputational capital. What is reputational capital? According to Charles J. Fombrun in his book, Reputation: Realizing Value from the Corporate Image, it is “that portion of the excess market value that can be attributed to the perception of the firm” especially in the marketplace. Simply put, it is an organisation’s identity, brand, history, good name and works, values and ethical standards and attributes, to name a few. The most important fact about an organisation’s reputational capital is that, it takes years to build but can be easily damaged in a flash. Apart from its fragility, it can never be bought, it is earned.

In dollar terms, a business’ reputational capital can be worth millions. For example, the reputational capital of Coca Cola is estimated to be at $52-billion, that of Gillette at $12-billion, Eastman Kodak $11-billion, and Wrigley’s $4billion. The reputational capital of others like Apple is put at 80.2% of its $58-billion market value and Starbucks is 88% of its $27.8-billion market value. It therefore goes without saying that a business’ reputational capital, if not managed with care, can have serious consequences for the organisation. It also means that, reputational capital has a great deal of influence on the decisions of prospective investors, customers and even employees. Businesses, or their products, with a bad reputation are avoided like a plague. But most important of all, reputational capital becomes an important differentiation factor and indeed a competitive advantage for businesses operating in today’s hypercompetitive global marketplace.

There are different drivers which encourages reputational capital. First, it depends on the kind of relationships that businesses have with their customers and stakeholders. This relationship is built on mutual trust, based on brutal honesty. It is also based on the commitment to deliver what is promised to these customers and stakeholders even when times are tough. Finally, whatever service is promised or rendered must be to their satisfaction. The effort here is to try to satisfy majority of these customers and stakeholders. Indeed, it is about the business ‘walking its talk’, so to speak but as well as going the extra distance to satisfy its customers and stakeholders. Another important driver is the ability of the business to create that emotional appeal. It is when customers go gaga and when stakeholders swear by a business or its products. For some stakeholders, it has to do with a business’ financial performance. For others, it is how the business performs in its CSR or their environmental credentials.

Finally, a business’ reputational capital is also driven by the kind of leadership that helms the organisation, their vision and values. For example, Ratan Tata being one of the most respected leaders increases the value of Tata as a brand.

Thus reputational capital is more than just the focus on the bottom line, it is about the perception of the company in the marketplace, its values and ethical standards and attributes. Indeed, it is those intangible assets it has. Thus, reputational capital is one of the important determinants and a source of competitive advantage in today’s hypercompetitive market. Companies should therefore undertake regular reputation audits to gauge their reputation in the marketplace. Above all, they should treat their critics as unofficial advisers because their criticism, positive or negative, enables businesses to see their blind spots and thus presenting an opportunity to rectify them.