Organizational reputation is a valuable asset, across the S&P 500 members it contributes 28% of market cap worth a collective $11.9 trillion, but it is too often undervalued in decision-making. While capital, product quality, operational efficiency, and innovation are easily tracked and measured, the intangible asset of reputation holds the power to shape long-term success and value creation, enhance internal and external stakeholder engagement, and solidify trust and confidence.
A strong reputation attracts customers and clients, talent, revenue and investment. It also acts as a shield during times of crisis. Conversely, a poor or damaged reputation can result in significant financial and operational setbacks, often taking years to rebuild. A study by Deloitte found that 41% of companies that had experienced a negative reputation event lost revenue. Aon found that, between 1982 and 2022, when companies poorly handled a reputational crisis, they lost nearly $3 trillion in shareholder value over the post-event year. One year later, 53% of companies that experience a crisis have not seen their share price return to pre-crisis levels.
Proactive communication strategies are a cornerstone of reputation management. By consistently engaging stakeholders, anticipating challenges, and communicating transparently, organizations can build trust, foster loyalty, and position themselves as industry leaders. This article explores the importance of maintaining a strong reputation and the pivotal role proactive communications play in achieving this goal.
The Importance of an Organization’s Reputation
1. A Strong Reputation is a Magnet
A positive reputation is magnetic and draws people to it. Customers are more likely to choose brands they trust, employees gravitate toward organizations with a positive culture, strategic partners want to be associated with those brands, and investors prefer to back companies with demonstrated integrity and stability.
For instance, organizations like Apple and Patagonia enjoy customer loyalty that extends beyond product offerings. Without a doubt, their products are of a consistent high quality. However, beyond that product quality, these companies’ reputations for innovation, environmental stewardship, consistent customer experience, and social responsibility create an emotional connection with stakeholders. Importantly, Apple and Patagonia also ensure that their actions regularly meet if not exceed the expectations of their stakeholders. Such goodwill not only drives revenue but also generates resilience during economic downturns.
2. A Strong Reputation is a Shield
Crises can escalate within hours and go global in under a day. Companies with strong reputations benefit from a bank of goodwill built over time that can cushion the impact of such events. Stakeholders are more likely to give the benefit of the doubt to organizations that have consistently demonstrated reliability and behavior that aligns with their values. According to Ipsos, when people trust a company, 92% will give that company the benefit of the doubt during a crisis, while conversely, if the company is distrusted, 81% would be inclined to believe negative commentary about the company.
In 2016 Samsung faced a crisis when its Galaxy Note 7 devices began catching fire, ultimately leading airlines globally to ban the phones and Samsung to recall more than 2 million of the devices. Samsung was not immediately able to say what was causing the issue, but due to its strong reputation, product quality and loyal customers, it was given extra leeway and time. Importantly, Samsung didn’t just say it was looking into the root cause, it invested heavily in the process – building a new test lab, hiring several hundred researchers, creating a battery advisory group and developing an eight-point batter safety system. While the recall was costly, Samsung didn’t just survived, it came out stronger successfully launching the successor Galaxy Note 8 to record sales the next year.
3. A Strong Reputation is a Competitive Advantage
Organizations with exceptional reputations can command premium pricing, face lower costs of capital, see reduced employee turnover, and attract top talent. In competitive markets, reputation often becomes the deciding factor when products and services are otherwise comparable. Reputation also influences partnerships and collaborations, as companies prefer to align with trustworthy peers.
Consumer or public trust grants organizations their “social license to operate.” This informal yet crucial approval from society ensures that businesses can pursue their objectives without facing significant public resistance. Organizations with poor reputations may encounter regulatory scrutiny, community opposition, and public boycotts, all of which can stymie growth and create an opening for a competitor to steal market share, share of voice and share of wallet.
All one has to do is look at how trust and sentiment has shifted against Boeing over the last several years starting with the back-to-back crashes of its 737 Max aircrafts in 2018 and 2019, to the in-air blowout of an Alaska Airlines door plug, through to the challenges returning astronauts on its Starliner spacecraft. Boeing, once the epitome of American technical ability and quality, has faced years of litigation, Congressional hearings, regulator investigations, and customer challenges, leading to a situation where, according to Morning Consult, net trust stands at just 9%.
Proactive Communications: The Backbone of Reputation Management
“It takes 20 years to build a reputation and five minutes to ruin it.” – Warren Buffett
While trust and reputation building is a long game that takes time, any gains can be tarnished in an instant. Investing in and committing to proactive communications serve as both a builder and protector of reputation.
1. Building Credibility Through Consistency
Proactive communication establishes credibility by consistently reinforcing an organization’s mission, vision and values. Stakeholders are more likely to trust a brand that communicates openly and consistently. This requires a strategic approach that aligns messaging across all platforms—social media, press releases, customer service, and internal communications—and to all stakeholders. This allows an organization to ensure it understands its stakeholders and their evolving expectations and prevent any perception gaps that can grow into reputational risks.
A prime example is Costco. Since its founding, Costco has remained true to its core values. These values guide all of its decisions both big – taking a stand against anti-DEI efforts, and small – continuing the tradition of a $1.50 hot dog combo. These two actions demonstrate the positive feedback loop that develops between trust, reputation and loyalty. Building loyalty takes sustained effort (not changing the combo price since the 1980s) and enables an organization to be bold in a way that is in keeping with its track record and stakeholder expectations. This has led to Costco having more than 90% retention of employees and membership renewals.
2. Engaging Stakeholders Before Issues Arise
Organizations that proactively engage stakeholders are better positioned to address concerns before they escalate. Regular dialogue with customers, employees, investors, and community members fosters trust and loyalty. It also provides valuable insights into emerging trends and potential risks. Waiting to engage your stakeholders until you “need” them risks any ask you make of them being clouded by the perception that you are only engaging because you need something from them. That relationship is then transactional and less “sticky” instead of emotional and built on trust.
Microsoft’s active engagement with regulators and the public on issues like data privacy and artificial intelligence has positioned the company as a thought leader in tech ethics. By addressing concerns proactively, for example through establishing and publishing its Responsible AI Commitment, Microsoft not only protects its reputation but also influences industry standards.
3. Transparency and Authenticity
In an era where authenticity is the expectation, proactive communication ensures transparency in an organization’s actions and intentions. When mistakes occur—and they inevitably will—honest acknowledgment and timely updates can prevent reputational fallout and further build trust and loyalty.
Take Chipotle. In 2015, the company faced a series of e. coli outbreaks that led to customers getting sick across the country. For a company whose whole brand is based on fresh food, this hit right at the heart of their business. Early in 2016, Chipotle made the decision to close all stores nationwide to conduct food safety training for all employees. The company also took to all forms of media to explain what happened, its plan to address the issue(s) and to apologize to the public – from the CEO on national TV to full-page ads in leading publications from coast to coast.
4. Preparing for Crisis
It isn’t if, but when – according to PwC, almost 70% of businesses experienced a crisis over the preceding five years and 76% said their most serious crisis had a medium-to-high impact, disrupting critical business processes and services. A proactive communication strategy includes robust crisis management planning. Simulated crisis drills, pre-approved templatized materials, and clear chains of command with defined roles and responsibilities enable organizations to respond swiftly and effectively. There is an inherent tension between speed and accuracy when communicating during the infancy of a crisis or evolving issue. The faster and more transparently an organization addresses a crisis, the less likely it is to sustain lasting reputational damage. However, that must be balanced against the lack of clarity and certainty typically available during the critical moments of an organization’s initial communication to its stakeholders.
Practical Steps for Proactive Communication
To realize the benefits of proactive communications for building, enhancing and repairing reputation, organizations should:
- Develop a Comprehensive Crisis Communication Plan. A detailed strategy, or playbook, should outline objectives, target audiences, key messages, and preferred channels, as well as the processes for regularly monitoring conversation and notification, escalation and response during a crisis. Regularly update the plan to reflect changing market dynamics and stakeholder expectations.
- Invest in Community Engagement. Before you need it! Build relationships with local community leaders, advocacy groups, and industry organizations. Demonstrate genuine care for stakeholders’ interests and make the effort to establish strong bonds during good times. Waiting until you have an “ask” for your potential advocates changes the relationship to one that is more transactional, less genuine and viewed skeptically.
- Foster a Culture of Transparency. Encourage open communication at all organizational levels. Leaders should model transparency, creating a culture where employees feel empowered to share ideas and concerns, and where they aren’t concerned about being punished for raising those concerns. Those individuals, the frontline of every organization are your most trusted voices outside the organization and should feel equipped and “bought in” to be advocates.
- Leverage Data and Analytics. Monitor sentiment – internally and externally – through tools like social listening, surveys, and media analysis. Use these insights to identify emerging issues and adjust messaging in real time or to plan for potential risks before they become an active crisis.
- Train Leaders. Equip leaders with the skills to deliver messages effectively, with appropriate energy or empathy and to tell the same clear, consistent and concise story. Regular training ensures readiness for both routine and high-pressure interactions with any key stakeholder.
An organization’s reputation is more than an intangible asset. It is a strategic priority and should be treated as one. A strong reputation attracts opportunities, mitigates risks, and sustains competitive advantage. Proactive communication is the linchpin that ensures trust and reputational strength. By building credibility, engaging stakeholders, practicing transparency, and preparing for crises, organizations can safeguard their reputation.
Ultimately, reputation management is not a one-time effort but an ongoing commitment. An organization must continually nurture its relationship to support a positive reputation. This puts reputational credits in the bank of goodwill that can be cashed in during periods of reputational crisis.
Organizations that prioritize proactive communication will not only weather challenges but also thrive in the face of change and crisis.