The reputation of a company is a public perception of the company and how it operates. This includes public opinions about the company's products or services or how the company treats its employees. A reputation can be positive or negative, and it can change over time. For example, a popular news story about a company can change its reputation, but so can word of mouth among the company's customers.
Since a company's reputation is controlled by consumer perceptions, it may not always reflect how the company operates. It is important for the company to manage its reputation to reflect the business accurately. Given this lack of common standards, even sophisticated companies have only a confusing idea of how to manage reputational risk. Contingency plans for crisis management are as close as most large and medium-sized companies approach reputational risk management.
Part of the difference between the book value and market value of companies is due to corporate reputation. Although the figures in the following two reports measure different variables, they highlight the fact that corporate reputation contributes very significantly to the market capitalization of public companies. The reputation of small and medium-sized enterprises and privately owned firms, NGOs, as well as government agencies, government business enterprises and institutes of higher education cannot be measured so easily because they do not have a daily share price to control. Reputation measures, such as those published by Fortune magazine, Fortune Most Admired Companies (FMAC), and the Reputation Quotient (RQ), published by the Reputation Institute, include some examples of this current of thought.
Regulators, industry groups, consultants and individual companies have developed elaborate guidelines over the years for assessing and managing risks in a wide range of areas, from commodity prices to control systems and supply chains, political instability and natural disasters. Reputation X specializes in online review management, brand sentiment, content removal and reputation protection for businesses and individuals around the world. By accurately identifying their position vis-à-vis their various stakeholders, vis-à-vis competitors and among their peers, companies can assess the reputational risks and opportunities they face in the immediate and long-term future. This process will help managers better assess existing and potential threats to the reputation of their companies and decide whether to accept a particular risk or take steps to prevent or mitigate it.
Some of the well-known companies that have fallen into this reputation trap are Wells Fargo bank, Sears, Uber, Johnson& Johnson and Volkswagen. In addition, companies with a strong positive reputation attract better talent and are perceived to provide more value in their products and services, often allowing them to collect a premium. However, most companies do an inadequate job of managing their reputation in general and risks to their reputation in particular.