There is an intriguing blog post on the HBR Blog Network titled "Don't Trust Your Company's Reputation to the Quants." Considering all the hoopla around Big Data, I was immediately curious about how they would frame an argument about also relying on non-quantitative data when the world seems so enamored of stats and scores. Of course, companies are right to care about making their numbers and the bottom line but there is another side to the story when it comes to reputation risk. "Reputation will always be too impressionistic, and too long-term in its impact, to be left to your Quants. Indeed, if you do leave it to the Quants, it will most likely be neglected, along with other risks that involve intangibles." Quants can often neglect the commonsense solution that protects reputation or overlook how the public might react to and protest a company action. Qualitative insights and experience often adds a dimension to corporate behavior that is not only sufficient but imperative to safeguard reputation. Their advice is for boards and senior executives to listen to the Qualts as much as the Quants. Qualts are defined as those in the organization who "have internalized the values and larger purpose of the organization, and grasp how powerful these are in maintaining healthy connections between the company, its customers, employees, and other stakeholders." This reminds me of an article I just read by BP's CEO Bob Dudley on the BP oil spill in the Gulf of Mexico. Quantitatively, you could say they should have negotiated settlements through the courts but instead they waived the $75 million statutory liability cap and agreed publicly to pay all legitimate claims. They listened to their qualitative side by not delaying acceptance of responsibility and creating long delays before people affected by the disaster received payment. The qualitative side of their character and their focus on reputation came before strenuously litigating from the start of the crisis.
The authors have a good close to their post: "But Qualts appreciate more than anyone else how succumbing to immediate financial temptations can mortgage a reputation, creating reputational debt. They maintain and evolve decision-making models that guide those decisions with clear reputational standards that remain inviolate up, down, and across the extended enterprise." This is where understanding what your company stands for, how it behaves and the value of reputation for the long-term comes into play.
No one is arguing that quantitative inspection is not important. It is just that reputation is not black and white but as someone once told me, plaid. It is very complex and the fabric of reputation is made up of many patterns, colors, threads and how well its owner takes care of it.