This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.
Every entity ranging from individuals, small family business to multinational companies strives to enhance their reputation to the society. They are willing to go to deep extends just to build and maintain their reputation as they consider it very important for their survival. Though the process of building reputation is expensive, companies and individuals are more than willing to sacrifice their resources in order to create a good reputation. Reputation has proved to be important in some aspects of a company such as enhancing sales of a company, securing credit and loans, finding reliable suppliers, maintaining market share and enabling investors to have confidence in the firm (Atkins, Bates and Drennan 10).
Reputation is an important factor of success to a business. According to Atkins, Bates and Drennan, a survey conducted in 2002-3 on threats to a business ranked loss of reputation as the second threat after business interruption (6). The other threats also had an impact on the reputation of a company. This is a proof of the fact that reputation is very important to an organization.
Due to its importance, it is in the interest of an organization to establish and maintain a good reputation with its stakeholders. This is achieved through reputation management which entails tracking on the activities of a company together with the accompanying opinions, reporting on the opinions and reacting to them. Nowadays, almost all organizations are embarking on reputation management as a component of strategic management to safeguard the long term interests of the organization.
This paper seeks to determine whether reputation of a company is important to the company during times of crises. A thorough analysis of corporate reputation is made and two case study conducted to establish whether corporate reputation is of any importance when a company is facing a crisis. The case studies are done for Shell Refining Company and Emirates Airlines.
PART 0NE: CORPORATE REPUTATION
Reputation refers to the general opinion that the society has towards a person, company or another entity. It is a concept that exists in the mind only and therefore it is possible for a company to command different levels of reputation from the society (Oriesek 14). The reputation of a company is assigned to different objects such as the brand name, product, country, organizations as well as individuals. According to Oriesek, a company can be looked at as a social entity that interacts with different people and the complex environment (14). It has the personality aspect and in most legal systems in the world, they are treated as artificial being with ability to think and take action. A company is associated with psychological attributes such as trust, credibility, charisma, character and fairness (Oriesek 16). Therefore, a company has the need to create and maintain good reputation in the eyes of the people it interacts with.
Reputation is said to be very important since it determines the long term success of a company. Company reputation is an inter-disciplinary concept covered in psychology, finance, marketing, business strategy and organizational. The reputation of a company should be estimated by aggregating the opinions of all the stakeholders of a company globally. This is by investigating how well a company meets the expectations of the various stakeholders such as customers, employees, government, suppliers and the management.
Corporate reputation is not determined in a one time event but rather through the past, present and future events or happenings about a company (Oriesek 18). Building a company reputation and measuring or determining the level of reputation is hard because it is in the opinion of many stakeholders who have different evaluations of a company. Thus it is very possible to find a company having good reputation with on of its stakeholders but having problems with the rest. Therefore, corporate reputation is determined by observing the extend of spread of the reputation. A wide spread means that a company has good reputation with most of its stakeholders while a limited spread shows that a company has good reputation with only a few of its stakeholders.
It has been noted in this paper that a company enhances its reputation by its actions. This is because actions of a company influence stakeholders' opinion on the company. Therefore, it is true to say that reputation of a company is an aggregation of its past activities and accomplishments and an extrapolation of the same into future.
Components of corporate reputation/Reputation Strategy
The components of reputation refer to the aspects in which the reputation of a company can be measured. These are the factors that form the reputation quotient of a company in order to establish its reputation. According to Falkenreck, the components for corporate reputation are divided into appealing to the customers, issues relating to the company's products, company's visionary and leadership strategies, work place environment, financial performance and social responsibility (40). Emotional appeal means having the stakeholders have a good emotional feeling about the company, admire the company and trust it.
Building reputation in terms of products and services means offering high quality goods and services to the customers, being innovative in the development, production and provision of goods and services as well as offering goods that give customers value for their money. The other component of vision and leadership requires a company to have excellent leadership, have a well formulated mission for its future and to scan and take advantage of market opportunities. To build reputation through the work place environment component, a company should seem to be well managed in the eyes of the stakeholders and have the look of a good company to work for. The financial performance component requires a company to have a good reputation of profits over time, be a low risk investment, manage its cash flows well and have better prospects for future growth and expansion. Lastly, social responsibility means that the company should support projects that contribute to the welfare of the society, be involved in conservation of the environment and maintain high and responsible standards in interacting and treating people.
Varey suggests that components of reputation are the basic aspects of a company that affect the reputation of a corporation in the eyes of the stakeholders. He further suggests that the aspects can be divided into components which include community involvement, environmental record, employment record and practices, quality of offering, price reputation, recommendation from third parties, media endorsements, financial soundness and well established products and services (202). In evaluation of reputation of a company, attributes such as the quality of management practices, product offering, innovativeness, long term investment value, financial soundness, ability to attract best employees, social responsibility and use of companies' assets. These attributes together with the communication practices of a company form the components of corporate reputation.
In community involvement, a company should participate in the affairs of the community and contribute or initiate social development projects. Though some scholars argue that this is a waste of company resources, the proponents of the idea argue that improving the welfare of the community is an investment in the society and it yields returns by enhancing a good reputation of the company involved.
Management of corporate reputation is a major concern to both small and even the big companies. This is because it affects the long term attractiveness of a company to the stakeholders. Due to the realization of importance of establishment and maintenance of corporate reputation by companies, they no longer leave reputation to fate. Most of them consider it to be a very important non tangible asset and they are actively formulating strategies to manage reputation. Firestein puts forward seven strategies that can be used by a company to gain corporate reputation. These are establishment of core values, a company looking at itself from the perspective of the stakeholders, defining company's landscape, building reputation from inside out, communicating to the world, being prepared for crisis and conforming to regulations (19).
When a company establishes its core values, it sets the starting point of building reputation because stakeholders will like a company with well laid values since it helps them to understand and relate well with the company. A company should put itself in the shoes of the stakeholders and try to figure out the expectations of the stakeholders from the company. This will enable the company to understand well the expectations of the stakeholders. The company should build its reputation from inside out, that is, becoming the company it wants the world to see. The company should communicate to the world since without communication, stakeholders will not come to know and appreciate the values and reputation of the company.
The stakeholders of a company and their most important dimensions
Earlier in this paper, corporate reputation has been defined as the opinion of the company in the minds of the stakeholders. This section seeks to define the state and define the various stake holders of a company. It is important for a company to know and understand well its stakeholders since this will enable them to fulfill the expectations of the stakeholders. A stakeholder means a person or entity that has an interest or a relationship with the subject company (Hill and Jones 348).
The major stakeholders of a company are shareholders, employees, society, customers, suppliers and the government or regulatory authority. Shareholders, being the owners expect the company to generate profits for them, sustain itself, grow and maximize their wealth. They also expect the company to safeguard their investment and the company that does exactly that builds a good reputation with the shareholders. Employees as stakeholders expect the company to remunerate them well, create good working conditions for the employees, safeguard their health, train and motivate them and assure them their jobs.
The society expects a lot from the company. First, it expects the company to remain in business so that it can continue providing goods and services to the society. It also expects the company to protect the environment by being involved in environmental conservation projects such as tree planting. The company is also expected not to pollute or destroy the environment. Therefore, for a company to earn a good reputation from the society at large, it must protect and conserve the environment. The customers are the people or organizations who buy the goods and services offered by the company. They expect the company to assure them of availability of the good or service when it is needed by them, guarantee them high quality goods and services and charge them fair prices for the products. They also expect the company not to produce goods that may harm them and also expect it to provide instructions or support services on goods and services. A company that that is reliable and faithful to its customers builds its reputation.
The suppliers expect a company to be fair in tender allocation and keep its part of the bargain. A company should therefore be fair and transparent in selection of suppliers, pay them fair prices and pay promptly. Lastly, the government or the regulatory authorities expect the company to abide by the rules of the land and trade guidelines. They also expect the company to pay taxes accordingly and not to indulge in unlawful practices.
It is impossible for a company o satisfy all of its stakeholders because there is a conflict of interest of various stakeholders. For example, shareholders expect the company to maximize their wealth while the society expects the company to be socially responsible. This is conflict and the company must choose wisely which stakeholders to prefer over others in times of conflicting interests. A company should therefore undertake a shareholder impact analysis to enable it prioritize the stakeholder so as to pursue strategies that favor the most important stakeholders (Hill and Jones 348). The stakeholder impact analysis involve identification of the stakeholders, their interests and concerns, the effect of their claims on the company and prioritize the importance of the stakeholders from the perspective of the company. This will ensure that a company understands its stakeholders and their expectations of the company and that the company meets the expectations of the most important stakeholders first.
Communication objectives of a company
Corporate communication has been cited as one of the components of corporate reputation. A company should be careful with what it communicates to the world since it impacts on its corporate image. Before a company sends a message into the world, it should carefully consider the event being communicated, the message, the timing of the message, audience, and the format. After consideration of all the above, the company decides the content of the information.
Companies should pass messages that enhance their reputation and ignore those which have negative effect on the reputation of the company or better still, communicate the message in a soft manner so as to result to the least damage. The communication objectives of a company should be therefore to protect it reputation.
A company should therefore communicate salary increments to employees, its future plans on issues like development of a new product and involvement in social programs. The timing and language must be selected wisely. Companies should also communicate their financial reports in order to inform the stakeholders on the progress of the company. Also, a company should provide instructions on usage and handling of its goods and services, especially if they are new to the market. It is therefore enough to say that the communication of a company should be balanced in terms of content and audience, that is, it should target all stakeholders and should not be biased. It is better for a company to say communicate the facts as they are rather than gaining reputation by miscommunication of facts as this will have serious effects on the company if stakeholders come to know the truth.
The reputation process
Reputation process refers to the steps a company follows to build and manage its reputation in the eyes of its stakeholders. It is also called reputation management and it involves an inherent set of steps that must be followed in a logical and subsequent manner. According to reputationinstitute.com, the reputation process is made up of five important steps which are listening, engaging, addressing and responding. A company must scan the environment to know what the people are saying about it before it plans its course of action. In this step, a company must first be aware of its stakeholders and listen to them to know their expectations from the company. Listening means carrying out an analysis to understand the expectations of the stakeholders better.
The second step is to engage the stakeholders in the affairs of the company. A corporation must make the stakeholders to feel part of the company and to identify with it. They should feel important and have the feeling that the company listens to them. They should also feel that their expectations are fully understood by the corporation. The company can do this by adequately communicating to the stakeholders on its findings about their expectations and inform that the expectations are being acted on. In this way, the company will have established a rapport with the stakeholders and by so doing the reputation process will be in progress.
A company should also address all the problems and incidents that the organization faces. It is good for a company to react on the criticisms by various people including its stakeholders. This reaction is important and should be timely since a delay will serve to worsen the matter. Reacting to problems immediately creates confidence of stakeholders on the company and this will be a way of enhancing its reputation with the stakeholders.
The next step is to respond to the problems the stakeholders experience about the company. The company should acknowledge existence of problems with customers or other stakeholders apologize genuinely to them and the take actions to correct the problems. It is argued that a good response to a problem being experienced by one can make a critic to be an evangelist who will broadcast the news about the company. It is therefore important for a company to respond to the problems of the stakeholders.
The reputation process is a continuous process and a company must keep on repeating the steps over and over in order to maintain its reputation. Once a reputation is established, the company should not relax since the expectations of the stakeholders and their problems change from time to time. It is therefore important for the company to actively scan the environment, listen to the stakeholders and respond to their problems. Managing reputation is therefore a continuous process.
Reputation Landscape - Audit
Reputation landscape refers to the components of the public of a corporation (Fombrum 1). Corporate reputation has been defined as the image that a company has portrayed to the public over the past. A good understanding of the meaning of 'public' to a company should therefore be made to enable the company focus its attention to appealing to that 'public'. The company public is what is referred to as the reputation landscape. Reputation audit is the estimation of this public and what it expects from the company. It also involves determining the perceptions that matter to a company, that is, whether they are those of investors, consumers, financial analysts, or regulators.
In order to assess the reputation landscape and audit it, Fombrum proposes six points of view from which they can be addressed. These are the economic view, strategic view, marketing view, the organizational view, sociological view and the accounting view (1-2). The economic view looks at how the economists perceive reputation. They view reputation as trait or signals that differentiate a company from others. They say that corporations release information to the public with the aim of sending a particular message or signaling. They borrow heavily from game theory and assert that '…in a game theory, the reputation of a player is the perception others have on the player's values' (Weigelt and Camerer, 443). Due to information asymmetry, some stakeholders rely on others because they have less information than them. For example, managers influences to a great extend the decisions of consumers since the managers have information about reliability and quality of products that is not available to consumers. The investors also rely heavily on information released by managers. The economists also believe that corporations send information to the public through the way they allocate resources and prioritize activities.
To strategists, reputations are very valuable intangible assets to a company and they have the potential to enhance the competitiveness of the company (Fombrum, 3). They argue that having a good reputation has competitive benefits to an organization. The marketing view has it that reputation is a result of brand image or the 'pictures in the heads' of consumers. The consumers make up an image about a corporation by analyzing the products of the company. A company that wants to enhance its reputation in the heads of the consumers must therefore create a brand that is familiar to the customers and that the customers can identify with easily. In branding, a company can use three strategies which are using individual names for all products without mentioning the company name openly, having all products mention the company name and a combination of company name and the product brand names.
In the organizational view, the reputation of a company is shaped by its culture, values, employees' experiences and corporate practices (Fombrum, 4). The culture impacts on the motivations and perceptions of employees which in effect determine the corporate identity. The sociological view believes that reputation is a social aspect and therefore it is made by interactions of a firm with its stakeholders. A firm must be aware that numerous characters are watching it and they all have different evaluation considerations. Therefore, the meaning of reputation to sociologists is the summation of all the assessments done by various characters in the public.
Lastly in the reputation landscape is the accountant's view which has been criticized for failure to report on intangible assets satisfactorily. This has always resulted to a big discrepancy between the reported performance and accrual performance. The accountants have disagreed with managers on treatment of some items like research and development costs as expenses and have called on them to examine these costs carefully. There is therefore a proposal by the accountants to develop better measures of reporting costs such as research and development expenses as they are important in building reputation in the public. Costs on reputation building and management should also be included in this class of intangibles.
The five views suggest that reputation is an interdisciplinary discipline that can only be understood by integrating all the views. Corporate reputation audit is the review of all the views and contributions by people of different expertise. The audit or review therefore collects views from different experts and integrates them in order to help managers in managing corporate reputation.
Reputation Platform - Strategy
Reputation platform refers to the strategies that a company can use to acquire and maintain corporate reputation. In order to build a reputation platform, a company should know who the stakeholders are to the company, what they say about the company and the most important dimensions to them. The company should also do an analysis of its reputational risks and review the content of what it communicates to the public. The platform brings the idea to existence by identifying and pursuing those activities that will enhance the company's reputation. The components of the reputation platform are the ways and the pillars, that is, maintaining the actions and communicating the messages that will make a company relevant and reputable with the stakeholders.
Reputation Workout - Planning
Reputation workout or planning is the process a company takes to maintain its corporate image. It is a task that is done by a company's strategic management team by considering the various interests of the stakeholders in the company. The company starts by preserving its confidence in the eyes of the stakeholders and ensuring that its relationship with the stakeholders is not compromised. The company also needs to evaluate its long term goals and try to align them with the expectations of the stakeholders.
Reputation planning or work out is a continuous aspect of strategic management to come up with corporate reputation. It forms a basis for a company to evaluate its reputation strategies and their impact and enhance improvement on the strategies. It is also during the reputation workouts that a company comes to understand the resources it requires to put reputation strategies in place and to review its reputation strategies.
Reputation Activities - Action
Reputation activities refer to the courses of action that a corporation or an organization should undertake to build, nurture and protect its corporate image. It is composed of various activities such as monitoring the environment, communicating to the stakeholders, public relations and identifying itself with the stakeholders. The aim of these activities is to make the stakeholders feel part of the corporation and have confidence in the company. In this way, a company will have enhanced its corporate image in the public.
Stakeholders Alignment - Monitor
Stakeholder alignment is the process of reviewing the expectations of the stakeholders from the company and reconciling these expectations with the interests, goals and objectives of the corporation. It is normal, due to the diversity of the stakeholders, to find that their expectations contradict the objectives of the corporation and the objectives of the other stakeholders. A corporation should therefore conduct a stakeholder alignment to reconcile these expectations (Wiedmann and Prauschke, 3). According to them, stakeholder alignment can be done from a stakeholder-specific perspective or cross-stakeholder perspective.
The stakeholder-specific perspective involves measuring the reputation of the company from the view of only one group of stakeholders while the stakeholder-cross perspective is measuring the image of a company to all stakeholders collectively. Scholars have argued that a stakeholder-specific perspective is better since it is easier to analyze and it results to more accurate findings.
In conducting the stakeholder alignment, a company must be aware of the various roles of the stakeholders to the organization. These roles are setting expectations, experiencing effects of the actions of a company, analyzing results of activities of an organization and reacting to the evaluations (Wiedmann and Prauschke, 3). Stakeholder alignment is also referred to as stakeholder aligning.
Reputation Management Systems and Reputation Risk Management
Reputation management systems are the processes and procedure that a company follows in creating and maintaining a good corporate image. Reputation risk management is carrying out an analysis of the impacts of loss of corporate reputation to the operation of an organization and extends to finding mitigation measures. Both reputation risk management and reputation management systems are intertwined and one is the precursor of the other.
Brand and reputation alignment and employee alignment
Alignment refers to the action of reconciling the interests of two groups so that they may rhyme. When there is conflict of interest in two groups, problems are likely to occur. Alignment is therefore important to eliminate or reduce problems due to unnecessary conflicts. The brand of a company and the company reputation should be aligned. Branding should be aimed at enhancing corporate image and at the same time, corporate image should aim at strengthening the brand.
PART TWO: MEANING OF CRISIS
A crisis can be defined as an unexpected change that creates instability in the society regarding economic, social, environmental and political affairs. The work crisis comes from a Greek word which means dangerous or unstable. A crisis has four characteristics which define it and they are unexpected, specific, non- routine occurrence of an event or events which create a high level of uncertainty. Crises are generally brought about by forces of nature and they are uncontrollable. However, some crises are brought by acts of man and they can be reduced or eliminated by taking the right mitigation efforts.
Different types of crises and their differences
There are different types of crises depending on likely causes of the crises. They can be grouped into those caused by natural calamities, problems relating to financial and economic systems, social-political problems and social disorder such as armed conflicts (ILO 11). Natural disasters arise out of destructive forces of nature like floods, earthquake, droughts, cyclones and volcanic eruptions. These are cause crisis because they impact negatively on the lives of people and companies socially and most importantly economically. They affect a company much because they destruct infrastructure such as roads, communication and others. They also affect the work force negatively. Natural disasters like floods can be prevented but prevention of others is impossible due to difficulty in prediction such as volcanic eruptions. A company can put measures to protect itself from effects of natural disasters.
Financial and economic downturns are crises that are experienced by the economy as whole or a country, industry or a company only. They are often caused by a decline in Gross Domestic Product (GDP) decline, fall of prices or increase of prices of factor inputs, high inflation and drastic declines in consumption and incomes. Other causes may be foreign exchange problems, external debt problems, trade restrictions and other firm specific factors like inability to raise capital. These have a great a great impact on the success of a company, individuals or a country.
Armed conflicts are experienced as a result of a combination of political and economic tensions during some specific events. They may arise out of struggle for independence, equality, freedom, development or even struggle for limited resources. Social and political crises are brought by transitions or inequality in allocation of resources. The biggest cause of these is lack of legal frameworks and institutions that guarantee solution of problems amicably. They pose a great danger to businesses and that is the reason countries with where armed conflicts are rampant are not favorable for investment.
The importance of identifying the different types of crisis on the corporation.
In order for a corporation to be able to put mitigation strategies into place, it must have a good analysis and deep understanding of the different types of crises. This is because different types of crises require different mitigation procedure and therefore, without categorizing crises mitigation will be impossible.
PART THREE: A CASE STUDY -SHELL REFINING COMPANY
The corporation chosen for this analysis is the Shell Refining Company which operates in the energy industry. It refines crude oil and produces various products such as oil, liquefied petroleum gas, fueling station services among others. It is incorporated in Malaysia but operates in almost all the continents.
The company has good corporate reputation with its stakeholders. This can be proved by looking at how the company has been meeting the expectations of its different stakeholders. The company has spelt clearly its values and its responsibilities to the various stakeholders. It has stated its responsibility to shareholders to be to protect their investment and maximize its value by providing long term returns. To customers, the company acknowledges its responsibilities to win and maintain them and offer high quality services to them. The company has been paying dividends to its shareholders every year and the dividends are in an upward trend despite the numerous expansion programs of the company. To the society, the company promises to abide by the rules and protect the environment.
In order to secure a good reputation with its stakeholders, the company has spelt out its values and principles clearly to the various stakeholders. Its principles are divided into economics, competition, business integrity, political activities, health, safety environmental issues, locality of operation and operation in accordance of regulations. Under the economic principle, the company says that it will strive to pursue growth of the company by achieving the goals and objectives. It aims at providing the goods and services in an effective and efficient manner by using the corporate resources well. In making the investment decisions, the company aims to gather information in order not to make non viable decisions.
The company will always be fair and follow business ethics in competing with its competitors. It will also uphold business integrity and honesty in all business aspects. Under political activities, the company strives to ensure that the company is not involved in political affairs of the country in which it operates. The company states that it will also give its employees a chance to participate in the political activities of their country provided their participation is according to the laws of the land. Under health, environment and safety, the company will strive to protect and conserve the environment in which it operates. It also has the interest to participate in the affairs of the community the company operates in and to company with the laws of the countries' where the company operates. The need to look at the principles in detail is to demonstrate how the company has managed to build the good reputation it enjoys in the minds of its stakeholders.
Shell refining company can be said to be successful because of the profits the company has realized in the past few years. Despite the various crises affecting the business, it has continued to record high profits with an increasing annual trend. This can be illustrated by its profit for the first six months of 2010 which was RM 12 millions. The success of the company can also be measured by considering the extend to which it has met the expectations of the customers from it. According to its financial report of 2007, the company has received various awards which show its success in fulfilling the expectations of the stakeholders. Among the awards are Laboratory Excellent Award 2007 by the Malaysian Institute for Chemistry, ACCA Malaysia Environmental and Social Reporting Awards (MESRA) for integrating environmental aspects in it reports and the MSOSH Grand Award 2006 by the Malaysian Society for Occupational Safety and Health (MSOSH) for having the best occupational health measures in place. Another measure for the success of the refining company is its expansion. Over the years, the company has been increasing its operations through acquisitions of new plants and operation of business operations.
The company has been faced with various crises, some which were industry specific while others affected the whole economy. The most notable crises that have affected the company much were the energy crisis and the world financial crisis. The energy crisis has been a recurring problem and it has affected the whole economy but the companies in the energy industry suffered more from the crisis. The financial crisis is the most recent phenomenon had far reaching impact on the performance of companies. It is believed that the company has been faced with other small internal crises but the company, due to strategic reasons, did not consider them to be crises as such. It preferred to call the m challenges or problems.
The energy crisis has been a perennial problem in the world, recurring time after time and each time due to a different cause and with a different magnitude. In 1970s, there was an energy crisis caused by oil production reaching peak points in major economies like Germany and USA. In 1973, the crisis was created a decision by the member states of the Organization of Arab Petroleum Exporting Countries (OPEC) mostly from Arabic, to exert pressure on the western countries due to their support on Israel. The member countries decided not to supply oil to the western countries to punish them for supporting Israel. In 1979, the energy crisis was caused by the Iranian revolution which involved overthrowing of the Iran's monarchy. Because Iran is a major producer of crude oil, problems in the country would mean energy crisis in the world.
Another energy crisis was in 1990 which was caused by the gulf war. It was short and lasted only 9 months and the cause was the invasion of Iraqi by Kuwait. Another form of energy crisis happened in 2000-2001 and it was caused by failure in deregulation and market manipulation by Enron. The effect of the crisis was power blackouts but this did not affect Shell Refining Company much. In 2000, there were fuel protests in the United Kingdom which resulted in increase in the price of crude oil. Since 2000, there has been an increasing price of crude oil seconded by deflation of the US dollar which has caused energy crisis in the world. The major impact of this financial crisis has been on the financial institution and by extension to other companies in other sectors like the Shell Refining Company.
The effects of energy crises on Shell Refining Company are far reaching because the company operates in the energy sector. The energy crises have seen the operating cost of the company go high and have also caused the company to do some restructuring in order to survive. They have also impacted negatively on the profits of the company.
Financial crisis means the problems with the financial systems of a country and it has various effects such as failure of business and economic problems. In 2007 - 2010, there was a worldwide financial crisis caused by among other things the housing bubble in US, shadow banking, pricing risk and boom in the commodities market in the US economy.
The impact of the financial crisis on Shell Refining Company has not been great. Like any other company, the effect of a financial crisis on a company is the inability to raise capital for expansion or possible loss of money deposited with the financial institutions. Luckily for the Shell Refining Company, it did not lose any money to the financial crisis and despite the financial crisis, the company has been growing. The only impact was loss of some customers who were phased out by the crisis and foreign exchange risks when conducting business in foreign countries.
Corporate reputation has helped the company to minimize the impact of crises. For example, during the energy crisis when price of crude oil increased, the company increased its oil price but despite the increase, it managed to maintain its customers. This was due to the understanding of the customers and the understanding was triggered by the confidence they have had on the refining company. It is evident that the company managed to keep its market share during times of crisis due to its profits at those times. If the customers did not have trust in the company, they would not have understood the increase in prices and they would have shifted their loyalty to the competitors of Shell Refining Company.
In going through the financial crisis, the company also banked so much on its reputation to secure credit and funds from financial institutions. During tines of financial crisis, financial institutions are very cautious and would only lend to companies with good reputation. In the year 2010 during which the financial crisis had not ended, the Shell Refining Company managed to get Standard Chartered Bank to structure a loan of RM 450 million for the company. Such a deal would take good reputation especially during a time when financial institutions are ailing from the financial crisis.
From the above discussion, it is clear that the refining company banked so much on its reputation during times of crisis and this explains the reason why it continued to realize profits as opposed to other companies in the industry. The company could also manage to expand during times of crises which indicate its success. The success during crisis can be credited to the company reputation among other strategies.
A LOCAL EXAMPLE IN EGYPT OR MIDDLE EAST REGION- EMIRATES AIRLINE
This company is incorporated in the Middle East and is very successful in offering flight services worldwide. It was founded in 1985 in the Middle East and expanded with time to fly in almost all the countries. The performance of the company has been outstanding every year which is proven by the increase in the number of passengers annually. The brand name for the company is 'Fly Emirates-Keep Discovering' and it has picked up well with the public.
The company has a good reputation with the stakeholders and this is considered as the reason behind the success of the company. The good reputation can be illustrated by the treatment of the company to various stakeholders. The company pays dividends well to its investor and also offers quality services to the customers. It offers customers quality services pertaining in-flight entertainment, communication services and lounges in airports. It is involve in various community programs, an example being the sponsorship of the Arsenal Football Club. The company also as a good environmental record and its relations with employees is commendable.
The good reputation of the company has seen it go through crises without a big effect in its operations. This is because it has established a rapport with the stakeholders and it can count on their support and understanding during hardships. The internal crises the company has faced are, among others the smashing of the Airbus A340-300 In OR Tambo Airport and the Melbourne Airport land crashing. Despite these crises, the trust and confidence the customers have had on the company has not reduced. This is due to the corporate image of the company to its stakeholders. S
PART FOUR: LESSONS ON THE IMPORTANCE OF MANAGING CORPORATE REPUTATION AND THE PRIORITIES
It is clear up to this point that corporate image is a valuable asset to a company and this fact can not be over emphasized. From the case studies above, companies should have a lesson or two on the importance of nurturing and maintaining corporate reputation and the best way to make their priorities.
Atkins, Bates and Drennan observe that identifying and managing reputation risk is different from the traditional way of risk management since the strategies used to manage reputation risk should be well communicated to the outside world (9). Corporations should therefore understand that communication is a very key factor in managing their reputation. The content of the communication is also very important.
Companies should learn that maintaining a good corporate image is very helpful in times of crises. In handling a crisis, the quality and timeliness of the decisions made, though very important, are not the only factors that determine the success in handling the crisis. The most important thing is the image of the company to the stakeholders which is based on the history of the company before the crisis. Therefore, companies should learn to invest in building image since it is an investment and it can be banked on during times of crisis.
From the case studies above, it is clear that a company should get its priorities right. In management of reputation, some things and stakeholders should rank higher than the others. The company should do a stakeholder impact analysis to know how its reputation to the various stakeholders affect its ability to deal with crises. The shareholders are the most important stakeholders to some companies while to others, they might be the least important. A growing company needs customers much than the mature companies in the industry thus younger companies should focus in meeting the expectations of the customers first. Creditors are also very important to young companies since most of the young companies are faced with financial problems and they must borrow money.
The priorities of a company also depend greatly on the industry or sector the company operates in. some industries require a company to prioritize a certain group of stakeholders due to the sensitivity and their importance to the company. A company that operates in an industry where the customers are very sensitive may be due to stiff competition need to prioritize the customers.
It is evident from the discussion and the case studies above that corporate reputation is very important to companies when tackling crises. This is because at times of crises, a company needs the understanding of stakeholders more than at any other time. This understanding can only be expected from friends of the company and the friends are maintained by maintaining a good corporate image.
Cultivating and maintaining corporate image is expensive but it is very necessary. Companies should not view costs incurred to enhance image as expenses but investments since the company can bank on the investment during times of crises. The cost incurred to create a good image in to the public is big and it may involve the reputation management costs, corporate social responsibility costs and stakeholder alignment costs. However, the company should not feel the pinch of these costs since they will pay back in times of crisis
Therefore, organizations should always strive to have a good reputation with the stakeholders irrespective of the cost. It is also important to understand the most important stakeholders and this can be done through the stakeholder impact analysis.