Is reputation really like a bank account?

Just about every communication professional has used or heard the expression that reputation is like a bank account.  You build it up in good times and draw from it when things go wrong. But is this attractive notion really as valid as it seems?

Risk guru Peter Sandman says it’s simplistic to accept that events which improve your reputation are deposits, events that damage your reputation are withdrawals, and that the objective is to maintain a healthy balance of “reputational capital.”

The snag is that the metaphor assumes everything is equal – that withdrawals and deposits are in common currency. If you deposit $1,000 worth of reputational credits and then withdraw the same amount in reputational damage (or vice versa) your reputation is somehow back at neutral.

In other words, it assumes that if a company does a whole lot of bad stuff, then doing an equal amount of good stuff will restore its reputation. However it doesn’t work like that.  Sandman argues that “good reputation” and “bad reputation” should be seen as separate variables which exist at the same time. Therefore, he says, if your positives are high and your negatives are low, you have a good reputation.  If your positives are low and your negatives are high, you have a bad reputation.

Yet do the public see it like that?  The problem here lies in assuming that good actions and bad actions are measured in the same currency. It has been proved over and again that years of positive reputation can be destroyed in days or weeks by unacceptable or improper behaviour. Just ask Warren Buffet. And there’s another problem too. When organisations behave badly and then keep repeating the same mistake, the reputational withdrawals are not just dollar for dollar, but multiply with accumulated penalty interest. In fact American academic Harlan Loeb describes what he calls reputational debt as “non-negotiable ballast” which can’t be traded or hedged and which can persist for decades.

So what is the right priority? The reality is that a bad reputation distinguishes an organization from the rest of the pack a lot more than a good reputation does. Reporters, customers and commentators are far more likely to focus on the bad stuff you’ve done rather than the good performance you have been working on. So organizations are best advised to expend effort in avoiding or repairing a bad reputation rather than trying to create a good one.  Any organization which sets out on a programme to build reputation has likely forgotten that old adage that branding is what you say about yourself, reputation is what other people say about you.

The bank account metaphor also suggests that badly behaved organizations can “buy back” reputation with some high profile good citizenship. But it just aint so. When failed Australian tycoon Alan Bond died last year, some of his supporters tried to mitigate his record corporate collapse by emphasising that he helped Australia win the America’s Cup yachting trophy. It made a good story of reputational redemption, but it meant nothing to the investors who had lost millions. They knew the real meaning of an empty bank account. And for them it was no metaphor.


About managingoutcomes

Issue and crisis management expert
This entry was posted in Issue Management, Reputation risk and tagged , , , . Bookmark the permalink.

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