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Shared Value & Corporate Reputation

Today, the BBC News website posted several short vignettes about companies who’ve had a pretty tough year in reputational terms. This caught my eye, as I’ve been thinking quite a lot recently about what corporate reputation means and how it relates to shared value creation, on which subject FSG co-founders Michael Porter and Mark Kramer have penned an article in the latest Harvard Business Review (full download available here).

In the CSR world, the idea of corporate reputation as a driver of social engagement, whether through products and services or donations of time and money, is ubiquitous. But it’s a challenging idea from a shared value perspective. The Oxford Said Business School’s Centre for Corporate Reputation describes reputation as “a relational construct that corporations can influence, but not control” – by definition, created and owned by groups of people outside the walls of the firm. Yet, one of the big “a-ha”s about shared value creation is that it means companies taking the initiative and deciding what is important based on their own strategy, capabilities and context, rather than allowing priorities to be defined largely by external stakeholders who may not have a good sense of any of those things. That doesn’t sit so well with the reputation-based approach to CSR where one of the main corporate goals is to improve the esteem in which the company is held by a given set of stakeholders.

Another wrinkle with the idea that I run into as I think about it is that reputation seems to have a complicated relationship to corporate behavior and to CSR in particular. The BBC piece talks about several companies that have had a pretty rough 2010 in PR terms: Toyota and its serial recalls; Rolls-Royce and its malfunctioning jet engines; and, of course, BP and its disastrous oil spill in the Gulf of Mexico. It focuses on the communications mis-steps at each company, and how their poorly judged reactions made a bad situation worse. However, as the BBC article concedes when it notes that Toyota’s sales do not seem to have unduly suffered, reputation – and why it matters – is much more than just how a company communicates. Apple illustrates the same point with social engagement – the company barely has any presence in philanthropy, CSR or related fields, and yet has topped the Fortune Most Admired Companies ranking three years running.

Thinking about it intuitively for a minute, this makes sense to me. While I’ve also heard all the jokes about runaway Lexuses (Lexi?), when I think of Toyota, I also think of the Prius, and of the 30-year-old and more hard-as-nails vehicles still doing service as taxis and pickups long after all of its competitors have gone to the crusher. Toyota didn’t help itself with the series of recalls, or its handling of them, but its reputation is made of more than that.  Likewise, what I love about Apple is products with cool design that just “work” – if I’m really honest, the fact that they seem less engaged than, say, Sony, doesn’t make me like them any less, even though as a professional in this field, I sometimes feel like it should. Rather than being driven by any one activity – or even a handful of activities – reputation seems more likely to be a product of everything a company does, including what it does without the aim of influencing people’s opinion of itself.

Which brings us back to the new Porter/Kramer article in HBR. In a number of places, they talk about improving opinion of business among different groups not as the goal of social engagement, but as a consequence of actions designed to achieve other social and business goals. The article variously notes the need for labor unions, regulators, NGOs and policymakers to engage with business differently, by recognizing corporations’ capacity to be powerful drivers of social progress and to compete on that basis. Crucially, these groups are also “part-owners” of a company’s reputation – their recognition of a new role for companies in society changes their opinions of those companies almost by default. Companies that create shared value do thing in order to get them done rather than in order to be seen to be contributing – yet by not focusing on their reputation, they can influence it more than they could by focusing on it.

The new article is a great read, and can be downloaded for free from HBR’s website until the middle of 2011.

Happy holidays from all at FSG.