Linking Corporate Reputation to Business Value

Who would have thought that a university professor would be the first presenter at the April 27-28, 2006 Corporate Reputation Summit to offer practical, real-world advice for showing the business value of communications? Of course, Paul Argenti is far from a stereotypical, all-theory academic.

Argenti has invested a great deal of time, energy and thought into the practical aspects of corporate reputation, and he shared many insights gained through research and interactions with top corporate leaders. He is a professor at the Tuck School of Business at Dartmouth, where he prepares students to become real contributors to business. Communicators need to hear the same message, Argenti said to the reputation summit participants.

"Don't say or imply that 'We're different,' or 'Communications is an art' when you talk with executives," Argenti said. "The executives will just think you're crazy. You're not different. You need to measure and strategize." He showed the following quote from Bill Margaritas, senior vice president worldwide communications and IR at FedEx:

You can’t manage what you can’t measure. Everyone’s looking for a seat at the table, and they ought to be looking at measurement for getting to the table and staying there.”

Companies need to manage their reputations, Argenti said, because studies show that well-regarded organizations generally:

• Command premium prices
• Pay lower prices
• Entice top recruits
• Experience greater loyalty
• Have more stable revenues
• Face fewer risks of crisis
• Are given greater latitude by constituents
• Have higher market valuation and stock prices
• Have greater loyalty of investors and thus smaller stock price volatility

Communications professionals are under pressure from their top management to prove the value of what they do, because many are not linking what they do to the company's bottom line, and they have not established benchmarks for the communication function, Argenti said. Senior executives want to know how best to allocate communication assets, how communications supports risk management, and how communications at the corporate level can be structured and integrated with other business functions like marketing, sales, legal affairs and corporate development, he added.

Technology allows us now to measure communication value and link it to business results through the use of sophisticated statistical analysis, he said. This statistical analysis allows companies to spot the communication activities that are contributing to business results. "Business value measures the sum of a company's components and evaluates a company's worth to relevant constituents" including revenue, profit, sales volume, share price, customer retention and employee retention, Argenti stated in his presentation.

"The biggest mistake many companies are making today is that they're not paying attention to the impact of intangibles to the company reputation," he said. "If you look at the top companies in the U.S. and all companies on our planet with strong reputations, the people in charge care a lot about their reputation, and how it gets communicated to the world."

Anywhere from 35% to 80% of a company's value depends on intangibles, rather than tangible assets like property, plants and equipment, Argenti said. Intangibles include:

• Brand
• Work quality
• Corporate social responsibility
• Customer loyalty
• Strategy execution
• Alliances
• Innovation/IP
• Communications

Argenti used the following quote from Pete Peterson, chairman of Blackstone Group, which captures the essence of the importance of intangibles:

What matters is what the public thinks, and the public trust is what's really crashed.