Ron Burt gave a great presentation tonight at Queen Mary University of London entitled Gossip and Reputation. He was on fine form, as he was when he spoke at Nesta last year (see here for webcast of that previous event). I really don't think I can summarise his points any better than he delivered them, so here they are verbatim:
Your reputation is owned by the people who discuss it. Their purpose is building ties with one another, which need not be about accuracy so much as empathy. Therefore, reputation building requires more than a display of competence. Reputation depends on colleagues telling stories to one another about you. Be suspicious of extreme reputations; they are based on gossip echo within closed networks [see below].
The closed networks that facilitate trust and build reputation to deliver value produce at the same time distrust, character assassination, and hostility. Closure [in networks] produces echo, not bandwidth. External relations wither, people benchmark solely against insiders, and the etiquette filter on information passing between people amplifies reputations into stereotypes with predictable problems for the value potential of diversity. Trust is facilitated between people already close, and distrust amplified between people not close, creating a potential for organizational arthritis.