Mallen Baker's Blog

The halo of reputation

3 Dec 2008

Management Today in the UK has brought out its 2008 Most Respected Companies list - and drinks firm Diageo has arrived in the top slot. Unilever has taken the top slot for corporate social responsibility. But are such 'perception' indices really all they seem?

Professor Rosenzweig, the author of 'The Halo Effect', makes a strong case on the BBC website for there being other factors in play.

He noted that M&S did well last year - winner of the overall list - but has dropped to 29th and crashed out of the top group in seven of the nine specialist categories (not the CSR one). Has the company changed so much? Or is it just that Diageo has emerged as one of the winners of the downturn, because alcohol is a pretty safe bet, whilst all the retailers are hurting?

More interestingly, Diageo not only hit the top slot, but it appeared in the top five of a number of specialist categories. Quality of goods and services, for instance - although its products haven't changed at all in the last year. Likewise, the company topped the section for attracting and retaining top talent, but there is no reason why it suddently got better at this - the senior team is mostly the same.

This, Resenzweig argues, is the halo effect - good financial performance means that people's perceptions of how strong the company is in other specific areas becomes influenced and affected.

This is undoubtedly the case, and a good reason why perception indices like this are very very broad brush indeed. The fact that a number of companies are in the top ten one year, and well outside it the following year when not much fundamental has changed with the business - that is a sign that there is no science here.

Does that make such efforts worthless? Not at all - particularly in the area of CSR which is meant to reward successful companies with the business benefit of enhanced reputation. But it may be that the crudity of the measure doesn't survive breaking down into the specialist areas.

Ultimately, it is the perceptions of the customers, employees and regulators that matter the most in the reputation game. These guys, after all, have the power to make or break your company. I have seen polls of the general public, but not one that explicitly uses these groups as criteria to develop a real reputation index. It would be a nightmare to organise, but oh so useful.

Anyway, nice work by Prof Rosenzweig. It made me, at least, go off and buy his book.

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