Reputation is a perception, not an absolute. Reputation isn’t owned or controlled by a company. It is the aggregation of the opinions of stakeholders, each of whom hold a view of the company informed by the factors that matter most to them – product quality, employee relations and environmental behaviour, among others. So, if most of your stakeholders have a good opinion of you, your company will enjoy and benefit from a positive reputation.
And the perceptions of your stakeholders, are themselves a summation of their direct experiences – together with what they have heard from friends, from the media and from other influencers – filtered through their own world view and personal beliefs.
Now what happens if those stakeholders hold you in higher esteem then you actually deserve? It will certainly feel good. A nice problem to have?
But I would argue that this is also a serious reputational risk. And it is one that few companies have the foresight to manage.
Eventually, the failure of a company to live up to its billing will be revealed and its reputation will decline until it more closely matches the reality. In the case of Volkswagen, a long-held reputation for technical expertise was blown apart by the emission testing scandal. Yes, they had expertise – but it appeared they were using it for their own ends, not their customers.
There is also the risk that company management do everything they can to ‘hide the gap.’ Reputation-reality gaps around financial performance often result in accounting fraud – think Enron, Rite Aid, Tyco, WorldCom and Xerox.