What's in a Name? Everything.
Compass On Business Feature

With an ever-increasing focus on maximizing shareholder value, managing corporate reputation risk has become a hot-button issue. Dramatic examples of how it was handled well—such as Dell's recent immediate recall of thousands of defective laptop batteries—or poorly—think Enron and Arthur Andersen—are what frame the issue.

Consider this: More than eight in 10 U.S. executives surveyed by the Economist Intelligence Unit, a London-based research and consulting firm, believe that threats to their companies' corporate reputations are greater today than they were five years ago. However, some experts question how seriously those at the top take those threats.

"Most executives underestimate the potential consequences to reputational damage," says James S. O'Rourke, IV, a professor of management at the University of Notre Dame. "Ask Kevin Rollins (president and CEO of the aforementioned Dell, Inc.) what he thinks today. He's scrambling to keep Dell off the business pages and to recover the good name the company once had." Its speedy recall of defective batteries is one way Dell is improving its image.

That said, while the SEC inquiry questioning the integrity of Dell's income recognition and other accounting practices and charges of ERISA violations may not be on the scale of the Enron or MCI/WorldCom scandals, the hit to Dell's corporate reputation is potentially serious. "Dell needs a strong image in the eyes of consumers to feed the top line, in the eyes of employees to keep from losing good people who fear for the company's future, and in the eyes of investors for obvious reasons," O'Rourke says.

Reputations at Risk Daily
When it comes to managing corporate reputation, the devil is in the details. "Regardless of what business you are in—banking, steel, coffee, whatever—your reputation is like integrity: you either have it or you don't," says George Boltwood, senior executive vice president of Corporate Banking at Compass Bank.

According to Boltwood, companies put their corporate reputation on the line every day they open their doors, and it can be enhanced or damaged first and foremost by the people representing them.

Protecting a corporate reputation starts with a commitment to doing the right thing. That means hiring the best people, entrusting them with the company's assets, sending them out into the marketplace, and trusting them to do what they promised. "It's simple things at the core level—basic blocking and tackling," Boltwood says. "It only takes one weak link in the chain to damage your reputation."

Following are suggestions culled from a variety of expert sources that can help an organization craft a proactive corporate reputation risk-management program tailored to its individual needs and circumstances:

• Identify the core reputation risks your company faces.
• Identify the underlying causes of potential risk events.
• Categorize potential threats to corporate reputation relative to potential threats in other areas of the company's business, and identify relationships among underlying causes (if they exist).
• Assess the potential for negative impact on short- and long-term financial performance and brand or franchise value.
• Stress awareness of the importance of managing corporate reputation at all levels of the organization.
• Make sure appropriate control activities (approvals, authorizations, verifications, performance reviews, security, clear definition of duties, etc.) are in place at every level.
• Have contingency response plans in place to deal with the threats most likely to materialize.
• Constantly monitor the performance of your corporate reputation risk management program and reevaluate as necessary.

Because all companies are "human" organizations, weak links are bound to crop up from time to time, occasionally with the potential to cause serious damage. That being the case, companies should have a plan in place to manage their reputations before a crisis occurs.

Opinions expressed are those of the author(s) and do not necessarily represent the opinions of Compass Bank.

July 2007