Why reputation matters: a case for reputation management.

• Author: Holloway, Betsy Bugg

Corporations today are grappling with the best ways to manage their reputations. In the wake of scandals such as Enron and Bernie Madoff and the failure of well-known companies such as Lehman Bros., managing reputation ranks as a major concern for every organization.

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But it's not only corporations that must be concerned with reputations--law firms must also consider their reputations both inside and outside the firm. The process by which law firms develop reputations and manage perceptions of these reputations involves tracking the firm's actions, as well as stakeholders' and the public's opinion about these actions. It should also involve reporting on these actions and opinions and reacting to such reporting through a continual feedback loop.

The Value of Reputation

Economics and marketing theories can help law firm marketers understand the value of reputation. Research shows that a good reputation signals the value of services to the marketplace. Many clients are unable to judge the quality of a legal service and draw conclusions from cues that the firm sends out, intentionally or not. A law firm's good reputation can reduce the client's need for information (along with search and information costs), as well as the perceived risk of doing business with the firm and its lawyers.

Reputation is particularly important in the context of high-end professional services, where the product is intangible and differentiating the firm from competitors can be difficult. Strong corporate reputation drives perceptions of trust, client loyalty and client referrals, and it provides an enhanced ability to attract new business as well as the ability to charge fees higher than competitors'. This positively impacts firm profits over time.

Just as it is for many clients, corporate reputation may be the most valuable asset a law firm has to maintain market share and deflect competitive attacks.

Hard to Pin Down

However, while reputation may be easy to recognize, it can be much harder to define. According to many theories, reputation is multidimensional. Depending on the context, the characteristics by which stakeholders form reputational judgments often differ. For example, research shows that individual consumers judge a company's reputation very differently than a business does. Similarly, corporate reputation is considered far less important for a single-exchange transaction than when...