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The reputation economy as emerging trend This year has coined a new concept, economy of reputation1, an idea which aspires to offer an alternative to business leaders to redesign the market economy system that has led us to the current crisis. Against this alternative would be only the option to see how Governments and regulators take on themselves this task2.

The reputation economy is born when reputation emerges in the business world slightly over ten years ago, from the reputation crises which carried the disappearance of large enterprises and companies leading positions in their respective rankings (Tyco, Worldcom, Enron, Arthur Andersen, Ahold, Parmalat, etc.).

However the concept of reputation economy only begins to emerge when understood beyond

the specifi c context and short-term crises. The reputation economy basis arise from the reaction of some of the major Spanish companies associated informally constituting the fi rst group of this nature in the world. Their goal was to understand, to measure and to manage corporate reputation. These companies have continued to move forward together and now set up a laboratory of ideas called Corporate Excellence, Centre for Reputation Leadership 3.

In 2005 conducted extensive qualitative and quantitative research in Spain and the eight Latin America major countries in collaboration with Professor Fombrun4 and his team of Reputation Institute of Spain and New York, in order to better understand the reputation and its link with the consumer behavior. Their purpose was to create a new measurement method, called RepTrak, which

The word emergency, according to the diccionario de la Real Academia Española, comes from the Latin emergens, emergentis and has two meanings: 1) action and effect of surface and 2) event, accident that happens unexpectedly. In these notes we will see how the two meanings of emergency can be applied to the reputation and particularly to the broader concept of economy of the reputation.

The economy emergency of corporate reputation

Reputation

Strategy DocumentsA01 / 2011

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1. This term has been presented at the fi fteenth Conference International Conference on Corporate Reputation, brand, identity and competitiveness in Rio de Janeiro in May 2011.

2. Barton, D. Capitalism for the Long Term, Harvard Business Review, March 2011.3. Corporate Excellence, Centre for Reputation Leadership is a laboratory of ideas to promote the management of intangible assets such as strategic value to business excellence.

It is the result of the merger of the Forum of corporate reputation (fRC) and the Instituto de Análisis de los Intangibles (IAI). http://www.corporateexcellence.org4. Charles Fombrun Emeritus Professor at the NYU Stern and Chairman of Reputation Institute created, along with Naomi Gardberg and Joy Sever, in November 1999

the Reputation Quotient RQ method, the fi rst instrument of measure of reputation. Charles Fombrun published in 1996 a book which became “best seller” analyzing the relationship between corporate reputation and the value of the companies: Reputation: Realizing Value from the Corporate Image (Harvard Business School Press).

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is being consolidated in the world, from the public presentation in 20065.

What has been learned in these ten years demonstrates clearly the relevance of the economy of the reputation for the future and for companies and institutions sustainability, for both to protect the enterprises value in reputational crises for to increase it steadily over time. Reputation, understood in this way, is a competitive advantage, is a lasting differentiation6 and relevant, is a shield against crises and is a value creation lever of short-term and long-term.

We are entering a new economy cycle, where the reputation is the territory for which enterprises institutions and countries compete and will compete, The evidences so guarantee it, come from both academia and business practice.

‘Reputation is competitive advantage, is lasting and relevant differentiation, is a shield against crises and is a value creation lever of short-term and long-term’

The starting point was to understand that the reputation is a positive feeling that integrates three enormously relevant vectors: reputation is admiration, is high esteem and is confidence7 that people feel towards another person, company, institution, country, etc.

As expected, that positive feeling it results in positive behaviors8 by the major stakeholders of companies and institutions. Thus, we now know that reputation attracts consumers, capital, talent, facilitates internationalization and growth

(alliances and licenses to operate) and allows to align the interests and wishes of the entire organization to achieve business goals9 (employees commitment, leadership management, rupture of departmental silos, etc.).

The good reputation generates opinion leaders and reduces the number and intensity of the detractors10. This positive behavior has today become a determining factor for the future of companies and institutions in the information age, connectivity, and social networks 11.

The reputation and therefore confidence, admiration and esteem is not a black box. Can be decomposed into a series of dimensions that can be managed both to protect their value as to be used as levers of sustainable growth: the supply of products and services, financial results, innovation, work environment, integrity, quality of management and social commitment12.

This management allows also destroy interdepartmental silos that paralyze organizations13 for work all together and in aligned manner to achieve the business and reputation goals.

The reputation economy as an emergencyToday the need to move forward and implement widespread the reputation economy, in the business and institutional fabric, is a real emergency14.

If the good reputation is admiration, high esteem and confidence, today companies, institutions, and in general the market economy as a whole need to urgently recover and strengthen its reputation15 and start working under the criteria and indicators of value creation for long-term reputation economy.

Explanations about the origins and causes of this crisis16 which is casting doubt on the market

The economy emergency of corporate reputation

5. Companies that were part of the Corporate Reputation Forum in 2005 were an adaptation of Reputation Quotient to better understand the concept of reputation from the point of view of the stakeholders and to identify the 7 dimensions underpinning the reputation and measured their relative importance. RepTrakes, name of the research tool developed by the Reputation Insitute and the corporate reputation Forum. Charles Fombrun launched in May 2006 in New York at the opening session of the Tenth International Conference on Corporate Reputation, brand, identity and competitiveness.

6. People are only willing to recommend to their nearest environment products and services of the companies perceived as different as and therefore better than the others. In a world of products and services more homogeneous, which are copied and marketed at a lower price by emerging economies, the differentiation acquires strategic value. Differentiation is not supported in the product or service but the reputation of the company that protects them. Citizens want to know who is behind a product or service. Various studies show how products perceptions influence less (40%) in the overall assessment that make companies consumers, what most counts in perception about corporate branding, i.e. on the company itself (60% of weight).

7. Fombrun, Ch, Ponzi, L;Gardberg, N. Reptrak Pulse: Conceptualizing and Validating a Short-Form Measure of Corporate Reputation. Corpo¬rate Reputation Review, Volume 14 Number 1, 2011.

8. Credibility and confidence that people place in these opinion leaders or detractors are infinitely greater than which it granted to companies and politicians. In the rankings of confidence scientists, physicians, educators, NGOs and the friends and relatives occupy the top in confidence-building.

9. Some data: improving reputation in 5 points (at a rate of 0 to 100 points) it is an increase of 7.3% consumer recommendation. Companies with the best reputation make 72.3% of customers recommend their products and services to friends and family compared to 9.4% of the companies who occupy the last places in the ranking of reputation. The most companies reputable just they have detractors, less than 3% (people who speak badly of them environment) compared to 40% of the detractors, who speak badly of companies with worse reputation.

10. Technological changes that increased the information volume and connectivity have led to the consumer and the citizen transformation; they have become opinion leaders and detractors with an influence power on attitudes and behaviors of growing masses of connected population before standing trial on other people, companies and institutions.

11. Luis Abril Pérez, President of Corporate Excellence, in the interview: El Precio de la Fama, Actualidad Económica 01092011.12. Fombrun, Ch 1996. Villafañe, (2003).13. David Aaker, Spanning Silos, Harvard Business Press, 2008.14. The enterprise without reputation has no credibility: 57% of people will believe negative information after hearing it 1 or 2 times and only 15% will believe positive

information on this company (after hear it 1 or 2 times). For a company with solid reputation, 51% will believe positive information and only 25% will believe negative information about the firm (Edelman Trust Barometer 2011).

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economy survival, are diverse and complex. If we were to simplify and put the focus only on a factor, this would be the excess of short-term in the management of business, fi nance and politics17.

‘To navigate successfully in the new reputation economy companies and institutions need leaders capable of understanding this new environment. this new function might be called the Chief Reputation Offi cer’

The reputation economy is the way for economic recovery; lower marked risk premiums, increased value of the company shares. Creation of long-term value, it is to assume a new enterprise role at the service of the stakeholders, where only the creation of shared and balanced value will enable a sustainable growth and capable of generating social cohesion.

The reputation economy provides the non-fi nancial indicators that all organizations should take in its strategic balance scorecard as complement to the current fi nancial indicators.

Non-fi nancial indicators are signs that measure the health status of the assets and intangible assets resources which are key, some of the most

important are: index of reputation, of corporate branding, of customers satisfaction, of commitment and of Organization’s alignment, of tendency to recommend our company/product18.

Financial indicators tell us about how much money we have earned in the past, these non-fi nancial indicators allow us to quantify how much wealth we will generate in the future

ConclusionTo navigate successfully in the new reputation economy companies and institutions need leaders capable of understanding this new environment, deep connoisseurs of the expectations of all stakeholders19, these leaders recognize that who holds power nowadays are the stakeholders20.

They are leaders who have the vision and the courage suffi cient to transform their organizations to implement them at the service of the stakeholders. Success should be measured as the ability to respond better than competitors to their demands and it is about establishing companies and institutions that are leaders for the good reputation that they hold and maintain.

It is the task to organizations board of directors that needs a new fi gure in their steering committees, with technical know-how and the right profi le to help him/her to manage professionally and specialized the corporate reputation; this new function might be called the Chief Reputation Offi cer21, a strategic importance role22 to navigate successfully in the new reputation economy.

The economy emergency of corporate reputation

15. Nowadays, barely 10% of consumers in United States confi dent in what the companies say, compared to 80% who did it 10 years ago, the latest release of the Barómetro Continuo de Confi anza en España that measures the confi dence of the Spanish ranking places in last posts to large companies, entrepreneurs and banks and savings banks (only surpassed in mistrust by the political class that occupies the last place).

16. Four years ago, the same excessive short-term, lack of leadership, errors in the weighting appropriate risks, corporate governance and policy defi ciencies, lack of integrity and bad practices of some economic operators have generated the United States fi nancial system and the European Union crisis and the recession consequences, unemployment and social disputes that we are suffering.

17. Some data illustrate the short-term trend, in the 1970s the average time of maintenance of an investment position in the United States was 7 years, now it is 7 months; This growing market volatility is multiplied by the speculators investments who hold positions in some cases only for a few seconds (this type of investor represents nowadays in United States nearly 70% of the volume of transactions). On the other hand, managers who fail to deliver the return expected by the market in the short-term are dismissed from companies, so since 1995 the average time that a CEO has maintained his/her position in United States has fallen from 10 years until 6 years currently.

18. Reichheld F.F, The ultimate questions: driving true profi ts and good growth, Harvard Business Press, 2006.19. Kotler, Ph, Marketing 3.0, Lid Editorial, 2011.20. Montañés, P. Here who’s boss, Pearson, 2011.21. http://en.wikipedia.org/wiki/Chief_reputation_offi cer_(CRO)22. Ana Casado Molina’s Doctoral Thesis, Universidad de Málaga 2011, Chief Reputation Offi cer.

©2011, Corporate Excellence - Centre for Reputation Leadership Business foundation created by large companies to professionalize the management of intangible assets and contribute to the development of strong brands, with good reputation and able to compete in the global market. Its mission is to be the driver which leads and consolidates the professional management of reputation as a strategic resource that guides and creates value for companies throughout the world.

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