Reputation plays a major role in the way most companies are perceived by both their clients and the stock holders. For this reason, organizations try to maintain flawless reputations both intrinsically and out of the organizations. Consequently, Chief Executive Officers of organization represent the public face of the company. The point shows how important the reputation of the chief driver of the company is to the organization. A good example of the role of reputation is the incident in 1991 when the Salomon Brothers Investment bank was sued for wrongful trading of treasury bonds. The bank was being accused of improper trading until, the newly elected Chairman, Warren Buffet convinced the head of treasury for a last chance. The suspension was lifted and the investment bank allowed to continue with its daily activities. In essence, the above instance shows how much CEO reputation goes a long way toward allowing capital investment and company value. Warren Buffet's reputation as head of Berkshire Hathaway was the main reason Salomon Brothers was allowed to continue. The following paper discusses the importance of CEO reputation for capital investment and and improving company value.
According to a report by Weber Shandwick, on the CEO reputation premium, it is cited that research has discovered that respect for corporate leaders and multinational company gurus has reduced significantly (2016, p. 3). Most of the threats that the CEO's have faced come from the frequent riots, work strikes and activism movements occurring throughout the world. The above research shows that the reputations CEO's hold goes a long way to ensuring that the company reputation remains intact as well. In a significant way, companies in the modern world seem to trade on reputation. Reputation can be classified as both a currency and an asset because of the value it provides for parties to hold necessary transactions. The first section will discuss the importance of CEO's reputation in capital investment.
The necessary resources that companies require to investments and daily operations are referred to as capital. In essence, the proper utilization of the capital determines the productivity of a company. Like a project manager, CEO's are expected to ensure that the overall capital injection in an organization is utilized as efficiently as possible. In the same way, allocating and monitoring the resources ensures that they are used effectively. A high degree of competence is required in order to safely lead the resources toward any organization's goals. One report shows that CEO's themselves attribute 45% of company success to the CEO's competence and reputation (Shandwick, 2016, p. 5). The percentage could also be a reflection for the need for overall senior management competence and reputation. In the role of senior management setting of strategy, the top management also has a mandate to maintain the company's reputation. In essence, the strategies brought forward by top management in a bid to improve capital utilization should also consider reputation management in the strategies suggested (Conte, F. 2018, p.56). Essentially, the actions taken by top management on the company's direction should ensure that capital investment is ethical and in line with organizational ethics. In essence, the actions taken by a CEO are observed by the stakeholders to be the company's own decisions. This shows the extent to which a CEO is an extension of an entire organization's reputation.
The above discussion shows the importance of CEO's in capital investment. The role of the CEO in capital investment involves the following: in conjunction with other top management, the CEO oversees the budgetary requirements for most organizational operations. For this reason, a CEO with prior reputation issues would cause doubt in the way the budget are to be utilized efficiently. In the same way, a CEO with a reputation of losses will have a harder time convincing both stakeholders and clients of any budgetary competence (Weng & Cheng. 2017, p.225). Budgeting, in a very significant way can be likened to planning. Hence planning is one of the major responsibilities of a CEO. Research shows that CEO's characteristics have a major part to play in investment decisions made by organizations. Consequently, the major consideration capital investments in organizations are: growth opportunities available, profitability, cash flow and financial leverage. Considering the following factors in relation to CEO reputation, it is clear that capital investment in organizations is also dependent on CEO reputation (Alsop. R. 2005, p. 2). For instance, a CEO with longstanding history of recognizing growth opportunities will give investors and stake holders the confidence in the organization. In the same way, a reputation of constant and consistent profits enables stakeholders, clients and employees to have real confidence in their leader.
The following section discusses the importance of CEO in company value maintenance and creation. Company value can be observed both internally and externally. The internal value of a company is mostly characterized by its employees and internal structure. On the other hand, the external is involved with various stakeholders, shareholders, clients and potential investors. Each of the players, whether internally or externally look to the CEO for advice and overall company confidence. There are various ways in which a CEO can improve and maintain the value of an organization.
One thing that CEO reputation does to a company's value is to attract investors. Investors, more than anything, want confidence that their invested principal is bound to return with profits. A CEO with a reputation of proper capital investment increases the confidence of investors and contributes to company value by attracting potential investors. Some studies put the ability of reputation to attract investors at more than 90% (Shandwick, W. 2016, p.6). On the other hand, media is closely tied to the perception of an organization. The way an organization is perceived leads to the overall value the company is observed to hold. In essence, therefore, CEO reputation is observed to increase positive media by almost the same amount as attractive potential investors. In fact, a better look shows them to be mutually exclusive. Apart from the external influence that the CEO has on clients, the general public and investors, reputation is observed to play a major part even in internal structure. Consequently, about 70% employees are observed to be attracted by CEOs with an impeccable reputation (Weng & Cheng. 2017, p.228). The need to serve under a leader with a good reputation enables employees to be significantly attracted by reputation. On the same note, more than half of employee retentions in organization are achieved by the strong reputation exhibited by the Chief Executive Officer. Hence, reputation can be concluded to have a significant influence in the employee retention rates that most companies realize.
Although there are numerous debates on the potential CEO visibility has on reputation. Most scholars observed that transparency brings more good than harm. In essence, regulated public engagement by CEOs is observed to have significant effect on the value of a company. Highly regarded CEOs have a reputation of being good communicators; hence, the value of a company can be increased by having an excellent communicator as a CEO (Weng & Cheng. 2017, p.229). Modern studies also show that engagement in social media also contributes to creating and maintaining company value. Significant market value is also observed to be attributed to CEOs. More than 40% of CEOs think that reputation also has a significant part to play in gaining market value. In essence, the CEO's reputation is a mutual link to market value because it shows the leadership is worth investing in and also cultivates value. In essence, Ranft, Zinko, Ferris and Buckley, put it that CEO's As capital are a strategic asset to the access of other important corporate resources as well as a key factor to the long-term success of the organization (2006). Long term success can therefore be concluded to be determined by known reputation of the organization's CEO.
In conclusion, CEO reputation has been observed to play an important role in the success of an organization. Essentially, CEOs can be treated as valuable assets that can be used by companies to leverage on competitive advantage. CEO reputation can be empirically measured by the market's thoughts on his or her ability. Therefore, proper reputation assessment can only be done by considering the market the CEO is dominant at. One of the important measures that the market uses is tenure. The tenure held by a CEO in an organization can be used to determine their overall ability. Constantly renewed tenures show significant performance by the CEO and gives confidence to stake holders. Another important factor in empirical reputation determination is whether they became CEO by appointment or by promotion. A promoted CEO shows the organization's confidence in internal employees and would enable continued confidence. Appointed CEO's on the other hand usually have outstanding reputations before they are absorbed into major corporations. Consequently, the above study has shown that CEO reputation is important in maintaining the capital investment of the company and overall value of an organization.
Alsop. R, 2005. The 18 immutable laws of corporate reputation: Creating, protecting and repairing your most valuable asset. New York: Dow Jones & Co.
Conte. F, 2018. Understanding the influence of CEO tenure and CEO reputation on corporate reputation: An exploratory study in Italy. International Journal on Business Management, Vol. 13: pp.55-66.
Ranft. A., Zinko. R., Ferris. G., Buckley. M, 2006. Marketing the image of management: The costs and benefits of CEO reputation. Organization Dynamics, 35(3): pp.279-290.
Shandwick. W, 2016. The CEO reputation premium: Gaining advantage in the engagement era. KRC Research.
Weng. P., Cheng. W. 2017. Doing good or choosing well? Corporate reputation, CEO reputation and corporate financial performance. The North American Journal of Economics and Finance, Vol. 39: pp. 223-239.
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