Financial Performance Makes Only a Small Impact on Corporate Reputation [New Research]

Most corporate executives appreciate that a company’s financial performance impacts its reputation. Many, however, overrate the influence of financial performance on corporate reputation.

Somewhat surprisingly, financial performance drives only 12.9% of a company’s reputation, according to research from Reputation Institute. Financial results can impact corporate reputation more significantly depending on specific stakeholders, companies, markets or industries, but, overall, financial performance is not a controlling factor in corporate reputation.

Global RepTrak, Reputation Institute’s data analytics platform, measures the following seven drivers of corporate reputation: products and services, innovation, workplace, governance, citizenship, leadership, and financial performance. Each of the multiple elements affect how stakeholders, including consumers, feel about the company: whether they trust the company, admire it and have an emotional connection to it. Paid, earned, and owned media impressions and their direct contact with the company all affect their perception of the company and mold its reputation.

How stakeholders feel about the company drives their actions, including their willingness to purchase, advocate for, defend, work for, or invest in the company. For an organization to establish and maintain a superior corporate reputation, the media impressions and contacts with the company must create reputation assurances, enabling stakeholders to better understand the corporation and connect emotionally.

Not Just about Profit

“How stakeholders perceive a company’s financial performance is instrumental in building the company’s reputation and ultimately helps maintain the business while driving its economy, talent acquisition and retention efforts, customer loyalty, and so much more,” writes Jenny Cho at the Reputation Institute. “When it comes to reputation, stakeholders don’t expect high performance only for the sake of profitability – they want to know that a company is capable of running an efficient, high-scale enterprise.”

Excellent financial performance indicates a stable company that’s growing, a quality of a strong reputation. Although most stakeholders understand why corporations focus on achieving superior financial performance, they also expect companies to leverage their leadership for social good and effectively tell their stories not just about financial performance but also about corporate social responsibility.

Companies such as Amazon and Walt Disney outperform other corporations when it comes to financial performance. They also inspire the trust of consumers, Cho says. Consumers believe their interactions with these companies will be professional and efficient.

Some companies have achieved strong reputations despite poor financial performance. Tesla has reported dismal financial results, but the innovative design of its electric automobiles has earned it a solid reputation among automobile aficionados who can afford its high-priced cars. Purchasers are attracted to its design, performance and environmental positioning.

Other companies have growing businesses despite poor reputations. Uber has reported huge losses and experienced PR crises because of its corporate workplace culture. Nonetheless, millions of consumers continue to use its innovative ride hailing app and digital food ordering and delivery services because of low cost and convenience. Still its dubious reputation has stymied Uber’s growth. Its problems have created an opportunity for competitor Lyft to gain market share.

Response to PR Crisis Impacts Reputation

How an organization reacts during a PR crisis greatly impacts its reputation.

According to a 2017 Weber Shandwick study, 85% of consumers form opinions about companies based on how they react during crises. How an organization responds to issues and crises is more important to public perception than what the media says (76%), what employees say (76%) and what the company says about itself – whether that is on its website (68%), what its leaders say (61%) or its advertising (61%).

The research also finds that promoting how good or healthy a company’s products are for individual consumers may be the best reputation management strategy. That is more important to consumers than how much company products improve the collective good, such as improving society or the environment. Emphasizing the positive effect of a product or service on the individual now seems to be the preferred focus for PR and marketing communications.

The “Good for Me” Factor

Weber Shandwick calls it the “good for me factor.” The research reveals a need for more personalized corporate narratives, it says.

“Such narratives today are most relevant when they relate directly to individual consumers’ well-being in addition to a company’s commitment to tackling broad societal issues,” states Andy Polansky, Weber Shandwick CEO. “Communications, marketing and R&D need to be more integrated than ever to achieve this new reputation paradigm.”

Weber Shandwick advises that in addition to communicating functional utility and basic quality, product marketing and PR must address customers’ well-being – whether that is in the form of health, safety or simply being “good for you.” The research shows that companies with highly esteemed reputations are much more likely than less reputable organizations to promote the “good for me” factor about their products and/or services.

Relying solely on stellar financial results to build a good corporate reputation seldom works well. Companies must also embrace and communicate a cohesive set of admirable workplace and social values.

Bottom Line: Corporate reputation depends on much more than financial performance. Company communications and product marketing should create reputation assurances based on corporate social responsibility and product qualities that are “good for me.”