Abstract:
The concept of corporate reputation has received considerable attention in the last
few decades from both researchers and company executives alike, amid indications
that having a good corporate reputation ultimately improves financial performance in
companies. It is now widely acknowledged that companies that are viewed as
reputable tend to gain more trust from their stakeholders, become more competitive
and sustainable and are able to improve financial performance. However, despite this
apparent recognition, corporate reputation remains largely ignored by executives and
is often not regarded as highly as the other assets of a company. It also does not
feature prominently in financial accounting. The heightened research interest in
corporate reputation over the past few decades has coincided with an increase in
cases of corporate misconduct and disasters globally, the consequences of which
have included the serious loss of company reputations. This, in turn, has affected the
financial performance and sustainability of these companies. The field of corporate
reputation is still evolving and the exact nature of its association with financial
performance is being investigated in various disciplines (Fombrun, 2012; Chun,
2005). There is also mounting evidence suggesting that it has become an important
intangible factor for companies.
This study addresses three separate but related core research objectives. Firstly, it
seeks to determine, using South African data, whether or not a company’s reputation
and its financial performance influence each other. Secondly, it explores the
perspectives of South African company executives of corporate reputation in order to
understand how they regard the concept in relation to financial performance. This
should provide some insights into why corporate reputation remains largely
overlooked as a resource that can be harnessed to improve financial performance.
Thirdly, the study develops a strategic framework to guide researchers and
executives in the management of corporate reputation.
Adopting a mixed-method approach in the collection and analysis of data, this
research was approached in three phases. The first phase focused on determining whether or not corporate reputation and financial performance influence each other.
This was done through a regression analysis of archival data that included reputation
rankings of South African companies, as well as, certain financial performance
metrics. The purpose of this analysis was to test the strength of the relationship in
either direction between corporate reputation and financial performance. The second
phase of the research consisted of a structured survey on how South African company
executives view corporate reputation and its relationship to financial performance.
This was followed by the third phase, which included interviews with South African
company executives to further explore their perspectives on the topic.
In the first instance, the results revealed a generally weak-to-moderate negative
association between corporate reputation and financial performance in either
direction of the relationship. This indicated the existence of a relationship between
the two variables, even though this was not very strong. Significantly, this finding
confirms that the two variables influence each other but also suggests that the
influence is not as strong as was expected in the study.
In the second instance, with regard to the opinions that South African company
executives have of corporate reputation and financial performance, a key finding was
that the executives generally recognised corporate reputation as an important factor
in the competitiveness and financial performance of their companies. Likewise,
financial performance was also recognised and confirmed as a key driver of corporate
reputation. However, despite this recognition, the results showed clearly that most
executives grappled in practice with the management of corporate reputation in their
companies. This suggests that a gap exists between how the executives view
corporate reputation and their knowledge to manage it in practice. Some of the
executives who participated in the one-on-one interviews attributed this gap to the
lack of a proper grasp of the concept itself, including how to measure and put a
financial value on it. What is interesting is that, despite years of research on the
topic, there are indications that executives still feel that they do not know how to
manage this phenomenon. In the third instance, the strategic framework for managing corporate reputation and
understanding how it relates to financial performance, as proposed in this study, is
an attempt to address this gap. It is a pragmatic lens through which executives and
researchers can manage corporate reputation effectively in ways that improve
financial performance. A key implication of this study is that management executives
can, in fact, improve the financial performance of their companies by focusing on
enhancing their corporate reputations, and improving financial performance to build
stronger reputations.