The economic crisis is having a negative impact on the reputations of businesses in general, but it will have a particularly dire effect on companies that have weak reputations, said Fernando Prado, managing director of the Reputation Institute in Spain at the inaugural edition of the Corporate Reputation Conference held on IESE's Barcelona campus recently.

The event was sponsored by IESE's Center for Business and Society, in collaboration with the Reputation Institute and the Foro de Reputación Corporativo (fRP). In addition to special invited speakers, IESE Professors Joan Fontrodona, Vicente Font, Guido Stein, and Antonio Argandoña took part. Representatives of firms such as Danone, Agbar, BBVA, Telefonica, Ferrovial, Iberdrola, Gas Natural and Repsol were on hand to discuss key reputation challenges.

While strong reputation has always been an important dimension for corporate success, it takes on even greater importance in a dour economic context. However, the function of reputation extends beyond pure economic variables, noted IESE's Dean Jordi Canals, during his opening remarks at the conference. Today more than ever, firms must work to build their reputations in order to go beyond being mere "commercial" entities to become fuller social enterprises. Firms play a critical role in society, because they are made up of people and should be oriented toward service to others, he stressed.

Canals noted three variables that are key in the long term for the reputation of firms, and which are having increasing importance in today's uncertain context. The first variable is the way in which firms respond to the needs of employees in moments of crisis, since "people are the essential nucleus of any organization." The second variable is the company-client relationship, since in a recession firms must pay even greater attention to the added value of their products. Finally, firms must take into account what society expects of them in terms of social areas such as education, professional training and immigration. These three areas must be taken into consideration when testing the quality, solidity and solvency of a firm in the long-term, he said.

The Economic Value of Reputation

In a separate presentation, Charles Fombrun, founder of the Reputation Institute (RI) and former professor at Wharton and NYU, discussed the research his organization has carried out on the effects of reputation on financial results.

Following research conducted in 27 countries, RI developed the reputation management tool RepTrak(TM), which measures seven core dimensions of reputation: products and services, innovation, workplace, governance, citizenship, leadership and performance.

Research suggests that a strong reputation affecting public perception results in an improved financial market value of a firm. At the same time, a strong reputation can lower costs.

He concluded by citing investor Warren Buffett's comment: "It takes 20 years to build a reputation and five minutes to ruin it."

"If you think about that, you'll do things differently," the quote ends.