Interview in Lusail Newspaper - investing in reputation throughout the economic cycle

32 months ago

An interview I gave to leading Qatar business daily www.lusailnews.qa, published this weekend (26/27 August).

What do you mean by reputation management, and how is it linked to an organisation’s success…?

Reputation is a fundamental asset to any organisation – major listed businesses recognise ‘intangible’ assets such as brands and goodwill on their balance sheets, just as they would the value of ‘tangible’ assets such as plant, machinery, factories or oil refineries.

Interbrand’s Best Global brands index for 2015 estimates the value of the world’s top 100 global brands-  with Apple, Google, Coca-Cola, Microsoft, IBM and Toyota topping the list – as  $1.7 trillion.

Reputation is a more complex, subtle asset – how do you qualify or quantify the value of trust? – but clearly it differentiates the great companies from the good, and good companies from the merely average. Great companies instead invest in growing their brands and reputations – winning companies invest actively in ‘reputation transformation’, rather than more passive ‘reputation management’. The value of Apple’s brand grew by over 40% last year… which in turn had a direct impact on its bottom line and share price.

While the value of a reputation is more difficult to quantify than a physical asset, it doesn’t mean it is any less vital, or that it doesn’t exist. Companies with great reputations get access to the best graduate talent, without paying a premium to the market; they have greater consumer (and therefore) political trust, and face less threat of political or regulatory intervention; and they enjoy better access to capital at more preferable rates, and reduced risk and insurance premiums. The reverse is true: take the example of the tobacco industry, which was found to have systematically misled consumers and politicians, over decades… those companies may never recover their reputation, and as a result their costs of doing business are exponentially higher than for businesses such as Apple or Google.

The same is true for nation states and nation brands- the ‘softer’ factors like reputation have a bearing on the relative appeal of a country to tourists, or skilled white collar expat labour, and the cost at which countries can acquire them.

Do you think the reputation management model exists in Qatar? Is it related to PR or a different field?

Qatar is a young country, whose economy is developing rapidly despite the recent slowdown. For a developing economy, Qatar’s understanding of the  importance of reputation is well developed. At its simplest, a reputation is the degree to which you are trusted to deliver on your promises – as a business, or a government. The value of trust – and personal reputation- is culturally ingrained in Arab societies, means the value of corporate reputation should be well understood.

As a country, Qatar has been smart in choosing areas of soft cultural power, from sport, to culture and museums, to education, to establish itself as a differentiated nation brand with global audiences. That said, Qatar did not perhaps anticipate the media and political backlash from more developed countries that its sudden arrival on the global stage- whether in winning the rights to host the 2022 FIFA™ World Cup, or in investing in global arts markets- has brought.  Qatar has often had to learn the value of reputation in the glare of the global media spotlight.

Public relations (PR) is one aspect of a company’s reputation. When it is handled well, ‘PR’ should be researching audiences, listening to their concerns, engaging with those audiences on their terms, and persuading them across a number of different channels – from news media, to social media, stakeholder and government relations, and employee engagement. In this way, PR and ‘earned media’ (as opposed to ‘paid for’ media, and advertising) can have a transformative impact on protecting and growing a company’s reputation. Genuine audience-insight led strategic communications can and should demand a seat at the top table of management discussions, as a driver of value creation for businesses.

When it less effective, Public Relations is in ‘broadcast mode’ – pushing out press releases that gain media coverage but do not engage consumers or have any impact on changing their minds and behaviour. Too often, in developing markets like Qatar, PR practitioners do as their clients or managers tell them, rather than acting as true consultants to the business, challenging assumptions and received wisdoms, and creating value. If the Public Relations industry has failed to argue the case for its own usefulness, it is no wonder its value has been overlooked on occasion by business and political leaders.

Do you think private sector companies are interested in reputation more than the government sector or vice versa?

I think it’s too simple a distinction to make – there are private sector companies who invest in their reputations and reap the rewards, and those that don’t. Equally, there are government ministries which have a good reputation, and those that don’t.  How reputation is measured will change from the private sector – where reputation’s contribution to the bottom line is measured in metrics like customer trust, customer retention, market share, average customer spend and, ultimately, share price. In government, reputations are measured in terms of public trust and favourability, and the sense whether political leaders are doing a good job. In Western democracies this judgment is measured empirically every four or five years at the ballot box; in Arab societies, the judgment is less stark and more nuanced, in terms of the sentiment of conversations in the majlis.

To their credit, HH the Emir Sheikh Tamim bin Hamad bin Khalifa Al Thani, and the government of the State of Qatar have recognised the need to have a co-ordinated approach to Qatar’s global reputation through the creation of the Government Communications Office.

In the current economic situation, is reputation a priority investment or a cost?

I would argue that companies cannot afford not to invest in their reputations. While tangible assets like oil refineries, factories and construction projects can be ‘mothballed’ or delayed to start again in future, reputation is a more fragile asset. You can’t turn the tap of reputation on and off again at short notice. To use another metaphor, it has been said, that reputation arrives on foot and leaves on horseback.

Clearly in cost constrained times, companies need to look hard at their spend and resources – from operating costs like marketing and people, to capital investments. However, if a company cuts too deep in terms of its investment in reputation, it risks losing out to more innovative competitors during the subsequent economic upswing – and spending more in the long run to reacquire customers and the best employees and talent. Proprietary research from Blue Rubicon and Oxford Metrica looked at the impact of reputation on share price over a ten year period, by isolating incidents where listed Fortune 500 businesses had experience a major share price correction (minus 5%) owing to a major reputational incident. Those businesses that were seen as ‘reputation recoverers’ and who handled a crisis well not only regained their share price prior to the crisis, but also enjoyed a subsequent reputational premium of 8% of company valuation compared to their industry peers when subsequently announcing positive news.  If you apply that premium to the current share price of Alphabet/Google- the world’s most valuable publicly traded company – that represents a $40bn premium compared to the company’s peers and competitors.

Put another way, reputation is a ‘reservoir’ to be stewarded responsibly in times of economic growth, and drawn on during times of economic challenges.

What are the factors affecting a company’s reputation, and its position in the market?

There is no ‘magic bullet’ when it comes to reputation. However, we find when working with the leaders of successful global brands and businesses that those companies that ‘win’ are the ones which have a clear sense of common purpose, set at the top of the organisation and articulated clearly throughout the ranks in a consistent ‘narrative’.

Winning organisations are also led by trusted leaders – judgment, even from the most hard headed analysts and investors, will be subjective and emotional as well as rational. Do I trust this management team to deliver their strategy, when I look them in the ‘whites of their eyes’? Some of that is in the numbers themselves, some of it relates to communication and ‘performance’. Effective leaders do not need to be ‘showmen and women’, but they should be effective communicators who are trusted to deliver by employees, customers, shareholders and other stakeholders. Conversely, those businesses which cannot communicate a clear strategy in a compelling way suffer a ‘dull discount’ to their share price, relative to the market. It will be interesting to observe how the mooted partial flotation of Saudi Aramco is received by regional and international investors in this regard.

Is it only big companies who invest in reputation? Or should SMEs invest in brand reputation? How will this pay them back in the future?

Brand and reputation is not the preserve of large organisations- although they may have more formal structures of marketing departments, and/or corporate affairs and communications functions, to deal with this. Charismatic business leaders and entrepreneurs understand the value of reputation, and make this part of their company’s ‘DNA’ from the outset. Bill Gates at Microsoft, Steve Jobs at Apple, and Sergey Brin and Larry Page at Alphabet / Google all understood this from day one, as they founded their companies in their garages or across their kitchen tables. The start ups of today are the corporate giants of tomorrow – with the speed at which challenger brands emerge accelerated by the development of technology and computing power. Who had heard of Google twenty years ago? The Google of tomorrow is being formed in a garage (or a schoolroom) today, and no doubt its founders will understand the power of reputation and brands better than their peers – particularly in a fast moving world of social media where the speed at which reputations are either established or broken is accelerated exponentially.

Clearly, business in Qatar and the Arab world is at a different stage of development, as the economy diversifies in line with the Qatar National Vision, to move beyond oil and gas and support more entrepreneurialism and private sector development. But the evidence is that this is happening – with notable successes from within the Qatar Entrepreneurs Organisation. Government can play its part through more supportive, light touch regulation and the acceleration of free enterprise zones.

As MD of a reputation management consultancy, how do you think companies can keep investing in reputation in times of economic crisis / slowdown?

I don’t think investing in reputation is an option, or a ‘nice to have’; reputations are hard won, and can be a core asset for companies.  Times of economic slowdown do force necessary periods of reflection and strategic review: for many companies, much of their current communication, particularly advertising, may be ill directed and ineffective. Now is the time to stop, take stock and analyse which aspects of communication work and which do not. And to not be frightened to challenge established ways of working, and communicating. Social media has collapsed the costs of production and distribution of information, and of creating awareness, acquiring customers, and generating positive word of mouth and reputation. Smart, transformative campaigning that grows reputation and ‘brand equity’, and creates shareholder value needn’t cost more than traditional marketing approaches. But it does require up-front investment in smart, fresh, strategic communications thinking.

Neil Daugherty is managing director, Blue Rubicon Qatar. Blue Rubicon is a leading global strategic communications and public relations consultancy, with offices in Doha, London, Dubai, Singapore and the USA, which specialises in transforming reputations to create shareholder value

 

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