Risk Management

How High Is Your RQ?

Financial sobriety has become a key element of a company's "reputation quotient," a new survey suggests.
David KatzApril 6, 2010

The presence of a steady hand at finance has become a key driver of how the public feels about a given company, suggest the findings of a new Harris Interactive survey of corporate visibility, released on Monday. Indeed, if the research is indicative, reputational risk management has entered the Warren Buffett era.

That’s reflected in the fact that Buffett’s company, Berkshire Hathaway, received the highest score — a so-called reputation quotient (RQ) of 82.33 out of a possible 100 — of the 60 “most visible” companies identified in Harris’s 2009 survey, which polled 29,000 members of the U.S. general public. (See the table at the end of this story for the complete results.) Among the elements of Berkshire’s high RQ was the company’s perceived ability to produce excellent financial results without practicing reckless risk management, according to Robert Fronk, a senior vice president at Harris Interactive.

Such values have superseded the more-immediate concerns on display in Harris’s 2008 study, Fronk believes, when companies that “provide value” and “a sense of comfort” garnered top reputation ratings. “We found that right in the depths of recession there was this sense of evaluating companies more on the basis of, ‘What are you doing for me now? Are you cognizant of my personal situation, and are you managing your business to make life more affordable for me?’” says Fronk.

But a focus on financial performance can cut both ways. Harris and other research outfits have cited a “backlash” effect, in which poll participants express negative feelings about companies known to make a lot of money. Based on the verbal answers to the Harris survey, people understand “that companies actually need to be profitable to be successful,” says Fronk. “But the question is, how did they get [to profitability]?” he adds.

For example, survey respondents see that Goldman Sachs, like Berkshire, is a profitable company. But Goldman placed 56th on the list with an RQ of 51.36, “right near an RQ score that in the past has indicated a lack of viability as an ongoing entity,” says Fronk, who adds he doesn’t intend to brand the bank that way. On every dimension, including financial performance, Goldman’s RQ lagged far behind Berkshire’s (see graph below).

Berkshire vs Goldman

How come? “We saw the words ‘greed,’ ‘recklessness,’ and ‘personal profitability over other business priorities’ very clearly in our comments for those in the bottom 10 of our companies versus the top 10 companies,” says Fronk. It didn’t help that Goldman borrowed $10 billion from the federal Troubled Asset Relief Program; indeed, 9 of the bottom 10 companies received billions of dollars in taxpayer assistance during the downturn.

Also in the bottom 10 were two sputtering automakers, General Motors and Chrysler. But three others — Honda, Toyota, and Ford — fared well in the survey, which was conducted between December 29, 2009, and February 15, 2010. Toyota’s RQ of just under 80, which is considered an “excellent” reputation, may seem surprising, since it was recorded during a period that straddled one of the biggest scandals in automotive history. But Fronk says Toyota’s score held up because the automaker has built up considerable “reputation equity” over many years.

That equity could be eroding, however. The survey was only half complete when the scandal broke, enabling Harris to gauge its effect on the company’s RQ among several groups. Most discernible, Fronk says, was “a far more dramatic” falloff among women (from 82 to 77) than men (from 79 to 76). Previously, Toyota cars “were very much a choice of females for their practicality and safety,” but the scandal “could create a gender problem” for the automaker, says Fronk.

Meanwhile, Ford’s RQ soared 11 points from 2008, the largest single-year improvement in the past nine years of the survey. Ford’s score of about 70 places it among companies with a “good” reputation. Noting that the company ranked high in 2009 for putting out a consistent public message and being transparent, Fronk also points out that the company was praised by at least one survey respondent for not taking federal bailout money, unlike GM and Chrysler.

Overall, Fronk says, the survey carries an important message for CFOs: put more effort into sprucing up the reputation of your company and managing its risks than into promoting individual products. For example, two holding companies, Berkshire Hathaway and S.C. Johnson, placed in the top five. Fronk sees this as an indication that brightly positioned products matter less to consumers than a company whose name you can trust.

In this regard, a company’s Website should give more play to the company itself and less play to “flashy” product promos, advises Fronk. “Maybe talking about the company first and products second is more effective than talking about the products alone,” he says. “We are seeing corporate attributes being the ones that drive reputation.”

Reputation Ranking