Corporate Reputation and its Importance for Business Success
A European Perspective and its Implication for Public Relations Consultancies
Masterarbeit 2002 161 Seiten
1.1 The dissertation topic
“In today’s world where ideas are increasingly displacing the physical in the production of economic value, competition for reputation becomes a significant driving force” Alan Greenspan, Chairman US Federal Reserve
Ignored for a long time, intangible assets are now gaining increased attention. In the last decade, especially in the United States, company managers to a greater extent recognized that intangible assets may provide companies with an even more stable basis for competitive advantage than developed patents and technologies. Hence, companies started to invest in corporate Public Relations (PR) activities to communicate good corporate behaviour, gain good will and to improve the public perception of their corporate reputation.
However, companies’ communication managers still show inconsistent attention to the actions necessary to maintain corporate reputation. PR consultants are often forced to explain and prove the positive contribution of PR expenditures to the company’s financial performance. Therefore, PR consultancies need to both examine clients’ expectations and to develop toolkits that prove the effectiveness of Public Relations in clear financial terms.
In the last years, managing corporate reputation as a valuable asset became a central management issue for European companies as well. The major objective of this dissertation is to identify European communication managers’ expectations and opinions about corporate reputation, its management and contribution to business success.
The Corporate Reputation Practice of Weber Shandwick, the world’s leading PR consultancy, hosted this research to gain a better understanding of clients’ and prospects’ needs. The aim of this research project is to identify strategies that will help Weber Shandwick to further improve its services and to better respond to clients’ expectations. The results for Weber Shandwick as a specific case can then be generalized for the benefit of other PR consultancies.
Why the topic is worth being investigated
In the health-conscious, environmentally aware and social-oriented decade of the 1990’s, and even more in the new century, as Fombrun (1996) emphasises, companies involved in the so-called sinful industries such as tobacco, liquor and gaming; businesses that deliberately pollute the environment or exploit their employees, struggle hard to defend their reputations to investors and creditors as well as prospect employees and customers. A current example of the far-reaching consequence of a damaged reputation is the well-known Enron scandal, especially with regard to its auditor Arthur Andersen.
December 2nd, 2001 – Enron files for bankruptcy in one of the US’s biggest ever corporate failures. In just a little over fifteen years, Enron grew into one of the largest US companies. It embraced new technologies, established new methods of trading in energy and seemed to be a shining example of successful corporate America. But the company’s success was based on artificially inflated profits, dubious accounting practices, and perhaps fraud.
January, 2002 - Enron’s auditor Arthur Andersen admitted that employees had disposed of Enron’s documents. Immediately, Enron fired and blamed Andersen for destroying documents wanted by the government investigators. In the following months, Andersen suffered from a massive loss in clients due to the damage in reputation.
In June 2002, Andersen was found guilty of obstructing justice by shredding evidence relating to the Enron scandal. Andersen agreed to cease auditing public companies by the end of August 2002. The Enron scandal helped to bring one of the world’s leading accounting firms to its knees by irreparably damaging its reputation.
This example illustrates how strategic erroneous decisions and dubious corporate behaviour can damage a reputation and might lead to business death soon. A company’s mission must therefore be to ensure a consistent, desirable and transparent reputation among internal and external key stakeholders such as employees, customers, investors, suppliers and shareholders, regulators, legislators, media, the industry and public.
The research undertaken for this dissertation intends to examine the opinions towards corporate reputation among European communication managers of leading companies. Main objectives of the research are to investigate how communication managers perceive the value of corporate reputation and the importance of building, communicating and enhancing a corporate reputation supported by corporate PR activities. In addition, approaches for measuring PR effectiveness for reputation management will be examined.
1.2 Weber Shandwick Worldwide
This piece of research is hosted by the London office of Weber Shandwick Worldwide, although the analysis is based on a pan-European research.
Weber Shandwick, represented in over 130 major cities in North and Latin America, Europe, Middle East, Africa and Asia Pacific, is the World’s leading full-service PR consultancy that offers expertise in all areas of communication. As a member of the Interpublic Group of Companies, a $7 billion advertising and marketing conglomerate including McCann-Erickson Worldgroup and FCB GROUP, Weber Shandwick has access to a vast array of resources across a multitude of marketing disciplines. Its core services span a dozen practice areas such as: Business-to-Business Services, Consumer, Corporate Branding, Reputation Management, Crisis Management, Energy, Entertainment, Financial and Professional Services, Healthcare, Investor Relations, Public Affairs and Government Relations, Technology, Travel and Lifestyle.
As Weber Shandwick consultants report, requests in corporate reputation management services from European clients have increased rapidly and simultaneously with the need for evaluating PR effectiveness.
This piece of research aims to further investigate the importance of reputation management for the European market. With a pan-European company survey European communication managers’ opinions on the subject of corporate reputation will be analysed. The findings aim to help Weber Shandwick gaining a better understanding of both clients’ and prospects’ opinions on corporate reputation and its importance for business success.
1.3 Structure of the dissertation
The main part of the dissertation is divided into five sections which will be briefly introduced:
In this section, academic literature related to corporate communications and reputation, Public Relations (PR) and its measurement will be critically reviewed. Contemporary models and theoretical frameworks will be discussed and a hypothesis for the analytical section of the dissertation will be developed.
First, Marketing communications and the relation with corporate communications and Public Relations will be discussed in order to get an insight into the primary subject of the dissertation: Public Relations.
Having clarified the broad connection of PR and Marketing, the relation of corporate communications and Public Relations will be further examined. The concept of corporate reputation management will be introduced and the main factors shaping the corporate reputation will be identified.
Due to the fact that companies increasingly demand PR agencies to prove the effectiveness in clear financial terms, both practitioners and academics try to develop approaches to measure PR effectiveness. A variety of possible tools for measuring the impact will be discussed.
Finally, the hypothesis examined by a questionnaire survey, will be developed.
The methodology section critically examines a range of research approaches and techniques. Strengths and limitations will be rigorously investigated in order to select the strategy most appropriate for this piece of research. For the research, a deductive approach is taken, which aims to investigate European communication managers’ opinion on corporate reputation, a topic which is already important in the US. In order to gather sufficient information on managers’ perceptions a questionnaire survey will be conducted. The results of the survey will then be further examined and evaluated.
For the analytical section – based on a pan-European company survey – communication managers’ opinions on corporate reputation and corporate PR measurement will be gathered. The survey will be sent to 700 of Europe’s leading companies; the results will be aggregated and statistically evaluated using Microsoft Excel. Aim of the statistical analysis is to derive generalizations from the responses given.
Conclusion and implication of findings for Weber Shandwick
In this chapter, the results of the analysis will be discussed and evaluated in order to clarify the nature of PR objectives companies usually set and to gain insight into manager perceptions of the importance of reputation management for business success. In addition, the necessity for financial proof of PR effectiveness will be discussed.
Finally, this section highlights the implications for Weber Shandwick as a PR consultancy. The findings might help Weber Shandwick to further improve its reputation management services supported by gained market insights.
To conclude, this research project aims at developing an understanding of the European point of view on the topic of corporate reputation. The sub-objectives of the research intend to investigate the following topics:
- The role of corporate PR in the marketing communications mix
- The definition of ‘corporate reputation’ and examination of the factors shaping a company’s reputation
- The role of corporate Public Relations in building corporate reputation
- The impact of good reputation on financial performance and the importance of reputation management
- Reasons for choosing a particular PR consultancy
- The need for measuring PR effectiveness and identification of tools already used by the surveyed companies
The following chapter explores the theoretical background of marketing communications with regard to corporate reputation. In addition, the relationship of corporate PR and corporate reputation and current approaches of measuring PR effectiveness will be discussed.
2. Literature Review
The following discussion explores the topic of corporate reputation by reviewing the main academic literature relevant to the concepts of corporate communications, Public Relations and reputation management.
To gain a first insight into the subject of corporate communications and reputation management the relationship between marketing, marketing communications, and Public Relations will be explored.
Having examined these connections, the concept of corporate reputation management will be further investigated. The main factors shaping the corporate reputation will be investigated and discussed.
Finally, measurability of corporate PR and current approaches used to measure the effectiveness of PR will be considered.
2.1 The relationship between the marketing communications function, corporate communications and Public Relations
Today’s successful companies such as Microsoft, BP or DaimlerChrysler have one thing in common: their success is founded upon strong customer focus and exceptional commitment to marketing. Kotler et al. (2001) argue that these successful companies share an absolute dedication to sensing, serving and satisfying the needs of their customers in well-defined target markets.
Marketing, more than any other business function, deals with customers who are an essential component of a marketing system. The American Marketing Association (AMA) defines marketing as:
“…the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational objectives.” Cited in Belch et al. (2001)
The AMA definition highlights exchange as a central concept in marketing. As Belch et al. (2001) point out, for a possible exchange, two or more parties must have goods or services of value to one another, a desire and ability to offer these goods or services to the other party, and a way to communicate with each other. To provide consistency and maximize communications impact, all elements of the marketing mix including price, product, distribution and promotion must be integrated.
Smith et al. (2002) emphasise that it is worth remembering that all of the above mentioned elements of the marketing mix fulfil a certain communicative role.
For example, a product or service, which is of poor quality, communicates much more to the buyer than probably any amount of promotion is capable of. In addition, high prices send different messages to the buyer than low prices , since price is often used an indicator of quality. The distribution channel also communicates a certain value to buyers. Smith et al. (2002) argue that for example, goods which are exclusively available at a small number of selected stores indicate higher quality than items available at an average department store.
Finally, the marketing communications or promotional function plays an important role in the exchange process by informing customers of a company’s products or services and of the company itself and convincing them of their ability to satisfy their needs and wants.
According to Smith et al. (2002) the marketing communications mix involves all instruments by means of which the company communicates with its target groups and stakeholders to promote its products or the company as a whole. Figure 2.1 illustrates the elements of the marketing communications mix.
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FIGURE 2.1: The marketing communications tools
This piece of research focuses on one particular tool within the marketing communications mix: Public Relations, specifically within the context of corporate Public Relations and corporate communications.
Although widely used, there is no universally valid definition of the term ‘corporate communications’ and the communication disciplines it comprises. Several approaches that aim at explaining the relationship between corporate communications and marketing communications exist.
Four of these approaches will be further discussed in order to provide an understanding of the approach taken for this piece of research.
An important contribution to the discussion on defining corporate communications was made by Van Riel and Nessmann in 1995. They both argue that corporate communications encompasses three forms of communication:
- Management communication, which is the way mostly senior managers communicate with internal and external target groups.
- Marketing communication, which includes most of the promotional tools shown in figure 2.1.
- Organizational communication, which is related to the management of relationships with different internal and/or external stakeholder groups via Public Relations. PR activities include investor relations, public affairs, community relations, employee relations etc.
Nessmann’s (1995) and Van Riel’s (1995) view, often referred to as the Pan-European approach, defines corporate communications as the generic communications function of a company which incorporates other functions such as marketing communications and organizational communication to which PR belongs.
Dolphin (1999) points out that Nessmann’s and Van Riel’s definition is still the core of the debate on finding a single, coherent definition of corporate communications. However, Nessmann cited in Dolphin (1999) highlights that as long as the individual disciplines of Corporate Communications, Corporate Identity, Corporate Culture, Social Communications and Public Relations have not been defined precisely in theoretical terms – to avoid interdisciplinary overlap – the collective expression ‘Corporate Communications’ can only be seen as a temporary aid rather than a long term solution.
Although, often strictly separated from the Pan-European view, the American view surprisingly is not that different to the European one. Goodman (2000) defines corporate communications, depending on the size of the company, as incorporating the following disciplines: PR, investor relations, media relations, employee relations, training and employee development, marketing and management communication.
As Goodman (2000) has identified, many organizations also include philanthropic activities, crisis communication and advertising activities into their corporate communications function.
Similar to the pan-European view, Goodman (2000) subordinates marketing communications and management communications under the generic term corporate communications.
Hutton (1996) established a third view on the relationship of corporate communications to marketing communications. As he argues, corporate communications can be regarded as the overlap of marketing communication (excluding PR) and Public Relations activities which promote the company as a whole.
Hutton (1996) considers corporate communications not as a communications function in its own right but as an integrated mix of other communication activities working together to communicate with a corporation’s internal and external stakeholders.
Figure 2.2 visualises Hutton’s approach, where the overlap between marketing, marketing communications and PR encompasses corporate communications activities.
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FIGURE 2.2: The marketing mix and integrated marketing communications
As the above figure reveals, Hutton (1996) regards Public Relations as a communications function, separated from marketing communications. The overlap between marketing communications and PR represents the disciplines of corporate communications.
All three views discussed previously consider corporate communications as the generic term for any communication process of a company to which Public Relations as a discipline belongs. Moreover, for Van Riel, Nessmann and Hutton marketing communications is separated from Public Relations.
Many marketing practitioners such as Kotler, Trout or De Pelsmacker represent a fourth view. For de Pelsmacker et al. (2001) Public Relations – communicating the company as a whole or its products and services – is a sub-function of the marketing communications mix. Corporate communications belongs to the PR discipline but does also encompass other activities from the marketing communications mix such as advertising.
For this piece of research, which is based on the following discussion of recent literature on corporate Public Relations and the concept of reputation management, the fourth approach represented by De Pelsmacker et al. (2001) was adopted. This view requires marketing not to only be seen as developing concepts for pricing, promoting and distributing a company’s goods and services but also the company as a whole – marketing of the corporate brand. Corporate communications is therefore one tool within the given marketing communications mix which mainly enables the company to promote itself rather than its products. A company’s products however will often benefit from good promotion of the corporate brand.
2.2 Principles of Public Relations
Having identified the extent of the relationship between marketing communications, corporate communications and Public Relations, the following section will focus on the specific communications tool corporate Public Relations.
Corporate Public Relations needs to be separated from product PR. Product PR, also known as ‘Marketing PR’ (Taylor, 2002) is concerned with PR activities promoting a specific product, whereas corporate PR focuses on promoting the company as a whole. In general, PR refers to corporate PR.
The institute of Public Relations (IPR), the UK’s leading professional body for PR defines Public Relations as follows:
“Public Relations is about reputation - the result of what you do, what you say and what others say about you. Public Relations is the discipline which builds and maintains reputation, with the aim of earning understanding and support and influencing opinion and behaviour. It is the planned and sustained effort to establish and maintain goodwill and mutual understanding between an organisation and its publics. “(www.ipr.org.uk)
In recent years, the importance of corporate PR has grown rapidly and PR specialists are faced with two major developments affecting today’s business communication processes: the Internet and globalization of markets.
The following discussion explores the impact of both the Internet and globalization on the PR industry, the advantages and also the major challenges a PR practitioner has to face.
2.2.1 Public Relation practices promoting the corporate brand
As discussed earlier, corporate Public Relations is a communications tool that is used to promote the goodwill of a company as a whole. It is the projection of the personality of the company, the management of reputation (De Pelsmacker et al., 2001).
The following section focuses on those PR practices which deal with the core audiences of a company: the public, investors, the media and employees.
Although many people use the term Public Affairs synonymously for Public Relations, the two communication disciplines are not the same. Morley (1998) defines Public Affairs as that part of the communications activity which is directed towards government representatives at local, national and supra-national level.
As Morley (1998) argues these representatives may be elected legislators or civil servants whose translation of laws into a host of regulations can often have more impact on a corporation than the laws themselves.
De Pelsmacker et al. (2001) broaden the definition of Public Affairs and include the management of relations with the general public. As they argue, good contacts with the general public and the local communities are an important part of the Public Affairs activity. The handling of the sinking of the Brent Spar oil platform and the Exxon Valdez disaster are well known examples of events that require consistent corporate PR activity to re-establish faith and good will with the general public, local communities or pressure groups such as Greenpeace.
Moreover, Public Affairs activities are entrusted with establishing contacts and relationships with different lobbies such as non-governmental organisations (NGO’s), trade organisations, environmental organisations or pressure groups of different kinds. Many PR consultancies have established a new consultancy discipline which solely focuses on relationships with these non-governmental stakeholders. This discipline is known by the umbrella name ‘corporate social responsibility’. The importance of social responsibility for a company will be further discussed in chapter 2.3.1.
To conclude, Public Affairs can be regarded as the communication activity which is entrusted with establishing good relationships with different kinds of a corporation’s external stakeholders on a governmental or public community level.
Rapidly growing individual wealth in many countries has multiplied the number of individual share owners. Unit trusts and mutual funds have attracted many private investors, allowing them to participate in baskets of stocks of every kind (Jolly, 2001).
Increased prosperity and wider share ownership has led to extreme growth in the financial services industry. Millions of people whose previous contact with financial issues had been through a bank account and insurance policies were no longer satisfied to leave their financial future in the hands of the out-dated bank consultant. And this high number of private shareholders increasingly demands to know more about the company they invest money in. The popularization of private share ownership and the need of companies to communicate to these shareholders helped IR to grow rapidly (Morley, 1998).
The PR Week defines Investor Relations as “a corporate marketing activity. Yet the goal of IR is to combine the disciplines of communications and finance to accurately portray a company’s prospects from an investment standpoint.”
According to Dolphin (1999), IR specialists communicate with the following financial audiences: analysts, financial journalists, institutional investors, merchant banks, private investors and stockbrokers. These audiences can be categorized into two main target groups – the shareholders and those who might influence shareholder decisions.
Morley (1998) identified the following tasks which belong to the responsibilities of an Investor Relations specialist:
- Production of the annual report, the most important corporate document produced by any public company, which has to act as a brochure, resource guide and promotional tool for 12 months.
- Preparation of periodic interim reports which declare financial results.
- Conference calls to important analysts who follow the company’s shares and to the media, within hours of the issue of financial results.
- Writing speeches the CEO and/or CFO will deliver to financial audiences and arrangement of one-to-one interviews with key journalists.
- Organizing annual general meetings with shareholders and investors to present the financial results of the business year and attract new investors.
All these tasks have to be combined into an effective mix in order to communicate the financial stance of a company to its ‘financial’ audience.
In cooperation with Impulse Research PR Week conducted a study among leading PR consultancies in 2001. The study examined the primary IR responsibilities, shown in the below figure.
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FIGURE 2.3: Primary Investor Relations activities
In addition to shareholder demands regulations for increasing disclosure of company financials helps the discipline of Public Relations which focuses on Investor Relations to grow rapidly. IR assists companies to communicate a favourable picture of the organizations especially to its financial stakeholders.
Doplhin (1999) and Heath et al. (2001) regard media as the most important intermediate public and most critical public for a professional communicator. Developing and maintaining good contacts with radio, television and the press is very important. As a PR Week survey conducted in 2002 among US corporations reveals, media relations is the PR tool most money was spent on (see Figure 2.4).
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FIGURE 2.4: US PR expenditures 2001 and 2002
All the objectives to be met by end publics are also important in media PR: to inform, build favourable attitudes, create a positive image and a reservoir of good will, and to ensure continuous coverage of marketing-related news.
A company should therefore put PR effort in establishing good relations with media which hopefully results in positive comments during the introduction of a product and can create goodwill for the company’s activities, generate publicity for a range of organisational events, activities and sponsorship programmes (Smith et al., 2002).
In the past years internal communications have been the Cinderella of a company’s communication activities and not a means of harnessing the creative energies and enthusiasm of staff (Jolly, 2001). Employees are a company’s valuable resource, which, once empowered might play a vital role in the pursuit of competitive advantage (Dowling, 2001).
Morley (1998) emphasises that employees are influenced as much by what they read in the media about their company and its place in its market and by the echo they get from their friends and relatives. The external audiences of a company are in turn greatly influenced, especially at the local and regional level, by the attitude of the employees. If employees are confident and persuaded of the correctness of their company’s position they will convey their attitude with strength to the external audiences (Morley, 1998).
Therefore, fostering bonds with employees should be regarded as a central communications activity of every company. Indeed, most large companies today realize the importance of internal communications to prevent the potential for frequent misunderstanding between management and staff.
A study, conducted by the Federation of European Industrial Editors Associations (FEIEA) in 2001 reveals that European company leaders are starting to realize the importance of internal communications. Especially Portugal, Austria and Germany regard internal communications as very important for business success, see figure 2.5.
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FIGURE 2.5: The importance of internal communications
The previous discussion identified that a company has to deal with a variety of audiences which need or want to be informed about how the company is doing business. Theoretically, the discussed four broad audiences can be divided into numerous sub-audiences which could be targeted. Therefore, referring to PR as dealing with ‘the public’ is rather inappropriate since PR is obviously communicating with a variety of audiences. In order to effectively communicate with these audiences, the company needs to know the different information needs and how to satisfy them properly.
The following section concentrates on two major challenges Public Relation is currently facing.
2.2.2 The changing environment of Public Relations
A Public Relations practitioner’s first priority is to communicate with the key audiences identified previously. Nowadays, the communication process has to be set in the wider context of an ever changing environment of new technology and globalization.
The following section examines the impact of globalization and the Internet on the work of a Public Relations practitioner.
Public Relations in the global context
When thinking about globalization, an occurring irony is the feeling that the globe is simultaneously shrinking as it expands into an enlarging kaleidoscope of people, languages, cultures, governmental structures and economic systems (Heath, 2001). The world is becoming a single market place with fewer languages and currencies the more countries open their markets for international trade.
Although the paradigm is to think of international as occurring in other people’s countries, true globalization is based on the world as a single market place and public policy area with many individual and localized opportunities for the practice of Public Relations (Heath, 2001). According to Morley (1998), becoming a global corporation requires speaking with a global voice but simultaneously has to reflect the cultural and societal norms of the host nation. As Siramesh et al. cited in Heath (2001) suggest, this will create unique PR situations in every society.
The biggest challenge for Public Relation practitioners working on global accounts is therefore to find an effective balance between consistent corporate communication and sufficient local adaptation (Kitchen et al., 2001).
Public Relations in the digital age
Springston cited in Heath (2001) argues that the rapid transformation to digital technology has far-reaching implications for the practice of PR. Holtz, cited in Heath (2001) points out that two fundamental models of communication have been altered by the ability to communicate and access information via computer: who provides information and how audiences get the information they need.
According to Cozier et al. cited in Heath (2001) there is growing evidence that the rapid growth of new technology changes the role of PR. The most significant difference between online and offline PR is notably that in the ‘real world’ PR depends on an intermediary or gatekeeper, typically a journalist.
As Haig (2000) examined, when a company wants to communicate with its audience via the traditional media, “there are two rather unsatisfactory choices:
- Send press releases or other material to a journalist, hoping he or she will take an interest what the company has to say.
- Spend money on advertising space.”
On the Internet, bypassing these options, a company can communicate directly with the target audience via the company Web site, e-mail messages and discussion group contributions.
A survey conducted by IMT Strategies (2000) explored the top impact of the Internet on the PR industry. As the figure below shows, there are clear advantages for a PR specialist such as bypassing media, as mentioned previously. Of course, there are also negative impacts of the Internet on PR, for example the lack of control over messages and the speed of rumours spread online.
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FIGURE 2.6: Top impacts of the Internet on PR
In addition to the previously mentioned, the Internet lends PR other considerable advantages, worked out by Haig (2000):
- Constant communication – The Internet enables communication target audiences 24 hours a day, 7 days a week.
- Instant response - Emerging issues can be detected more quickly than ever before. Springston cited in Heath (2001) argues that an effective online presence of a company for example can aid crisis and risk managers since reporters could be enabled to receive up-to-the-minute information.
- Global audience – Geographical limitations are virtually eliminated since a company is able to communicate via its Web site and e-mail correspondence with audiences all over the world 24 hours a day.
- Audience knowledge – Due to fact that the Internet is interactive the PR practitioner can receive constant feedback from a company’s audiences.
- Two-way communication – A major PR goal is two-way communication between an organization and its target audience since it helps to build strong and mutually beneficial relationships.
- Cost efficiency – While PR in the ‘real world’ is considered more cost effective than advertising, PR on the Internet is even more cost-effective since there are no stationery or printing costs involved (Haig, 2001).
As can be derived from the above advantages for PR, communicating with the target audience via the Internet can be a powerful tool within the PR communication mix.
What has to be born in mind is the fact that communicating through a corporate Web site can only be effective if other PR tools encourage the audience to actually use the Web site as a way of communication and information source. Unless offline PR is able to attract people to visit the corporate Web site, this communication tool is of rather low usefulness.
As the discussion reveals, in the context of new technology and globalization, corporate PR aims to promote a company as a whole to establish relationships with its key audiences and to gain good will and develop a certain corporate reputation.
2.3 The concept of corporate reputation and the role of Public Relations
The definition of Public Relations discussed in the previous chapter implies that PR helps to build and maintain a company’s reputation. The impact of a damaged reputation on a company was briefly discussed with reference to the Andersen/Enron example in the first chapter. In many ways the Andersen case is more interesting than Enron’s spectacular fall from grace, when it comes to an analysis of reputational dynamics. Andersen has been the auditing industry’s leader for over 80 years and the company has enormous ‘reputational capital’ and is now on the brink of extinction, bought up by the remaining four major auditors.
To conclude, reputation obviously plays a certain role in business success and can be destroyed easily. But what exactly is corporate reputation and how could it be maintained and enhanced?
The following section focuses on the concept of corporate reputation and the role of Public Relations in maintaining a favourable corporate reputation.
2.3.1 Corporate reputation defined
The subject of corporate reputation has attracted interest among marketing academics and practitioners for the last four decades (Gotsi et al., 2001). Although the term reputation is widely used, there are different views on its meaning, depending on disciplinary perspectives.
In a cross-disciplinary literature review Fombrun and Rindova (1998) identified six distinct literatures that are converging in their emphasis on corporate reputations as key features of companies and their environment. These six views are: economic view, organizational view, sociological view, accounting view, strategist view and the integrated view.
The economic view - According to this view consumers rely on a firm’s reputations since they have less information than managers about a firm’s commitment to delivering favourable product features. In addition, corporate reputation increases investor confidence that managers will act in ways that are reputation-consistent.
The organizational view - Organizational scholars see corporate reputation as rooted in the experiences of employees. A company’s culture and identity shape a firm’s business practices as well as the kinds of relationships that managers establish with key stakeholders.
The sociological view - To sociologists, reputations are indicators of legitimacy: they are aggregated assessments of a firm’s performance relative to expectations and norms in an industry.
The accounting view – Accounting researchers argue that current accounting practice induces a mismatch in the allocation of costs to revenues and thereby misleads observers about the earning capabilities of the company. Instead, many accounting researchers demand more effort to develop better measures of how investments in branding, training and research build important stocks of intangible assets which are presently not recorded in financial statements.
The strategic view - Finally, the strategist view emphasises good reputation as a competitive advantage over key competitors in a specific market.
For this piece of research, the integrated view, bringing together the different views, will be examined in more detail, represented by Fombrun and Rindova (1998) and Dowling (2001).
Consultants, managers, and many academics use the terms corporate identity, corporate image and corporate reputation interchangeably. As Dowling (2001) suggests it is important to distinguish these three concepts. He points out that managers often think if they change a company’s corporate identity symbols this will improve the image and reputation people hold of the company - a common but often fatal mistake.
Figure 2.7 illustrates the relationship between corporate identity, corporate image and corporate reputation, which will be further examined.
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FIGURE 2.7: From identity to reputation
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