Corporate Eye

A good scare beats a good plan any day

I saw this old management dictum in an Ivey Business School article, “LESSONS FOR EXECUTIVES FROM THE FINANCIAL CRISIS OF 2008”.

A good scare can be a once-in-a-generation chance to get tough but needed things done that would never be possible otherwise: the likes of completely changing the business model, drastically cutting jobs and costs, culling the product line, changing senior management and selling off or closing major divisions. Very unpleasant stuff, though every business needs this kind of therapy once in a while.

What instantly came to mind was something I wrote in an earlier post about ethics/integrity/trust — “I’d like to be optimistic that the current financial crisis inflicted so much pain that Boards and C-Suites will finally get it that ethics matters. We shall see.”

When I wrote this, I was skeptical that anything would change. My skepticism, though somewhat diminished, remains. However there are signs that maybe, just maybe more Boards and members of the C-Suite will finally realize that issues of trust, ethics and integrity “have legs”.

Here are some headlines —

U.S., Euro Companies Paying More Attention To Reputation Risk

“Most importantly, consumers have high expectations that companies will not only produce quality products and services but also will act ethically in their creation and distribution.”

How the Best Leaders Build Trust

(This is an excellent article by Steven Covey)

Think about it this way: When trust is low, in a company or in a relationship, it places a hidden “tax” on every transaction: every communication, every interaction, every strategy, every decision is taxed, bringing speed down and sending costs up. My experience is that significant distrust doubles the cost of doing business and triples the time it takes to get things done.

By contrast, individuals and organizations that have earned and operate with high trust experience the opposite of a tax — a “dividend” that is like a performance multiplier, enabling them to succeed in their communications, interactions, and decisions, and to move with incredible speed. A recent Watson Wyatt study showed that high trust companies outperform low trust companies by nearly 300%!

Reputation  Learning

Corporate reputation is the foundation for business health and commercial success. A large company’s reputation is typically worth 20 to 40 per cent of its stock market valuation and can be as high as 70% or more for companies that rely heavily on their reputation and brand values (Sources: Oxford Metrica, Reputation Institute, University of Kansas research). We can all think of recent cases where reputation has been 100% and a matter of survival. Conversely, getting reputation risk management right means competitive advantage, higher ROI and performance.

Managers in all functions and Internal Audit need to understand reputation risk. This is important for everyone, not just Brand and Communications staff. Respected corporate reputations depend on these skills and a raised awareness of how reputation underpins successful business strategy and performance – the business case.

These are just a small sampling of writings in the recent past. Seems that dramatically falling equity prices, the news media feeding frenzy and the increased consumer emphasis on Trust and Ethics have finally penetrated many organizations.  These tangible threats provided the pain for those organizations that have been ambivalent on Ethics and Trust to finally see ethical business practices as a serious corporate-wide issue.

Here are some additional references —

The Practice of Leadership site has these worthy articles —

  1. The critical importance of trust in times of adversity
  2. How leaders build trust
  3. Factors that leaders should manage to encourage trust
  4. Behaviours that create or break trust…
  5. David Maister on the Four Dimensions of Trust

Finally visit Vanno The Reputation Index and see what others are saying and interact.

In future posts, I will highlight some good practices.

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Ed Konczal has an MBA from New York University's Stern School of Business (with distinction). He has spent the last 10 years as an executive consultant focusing on human resources, leadership, market research, and business planning. Ed has over 10 years of top-level experience from AT&T in the areas of new ventures and business planning. He is co-author of the book "Simple Stories for Leadership Insight," published by University Press of America.
 
Comments

Hi Ed,
Many thanks for referring to our Executive Programme “Reputation Learning” in your article. As you say, reputation, governance and ethics are high on board priorities these days. The Programme has run in Europe through 2008 and was launched in the USA earlier this year where it is licensed to evolve24 LLC (www.evolve24.com). Our aim is to put reputation risk awareness at the heart of all business functions, not confined to Corporate Affairs or Communications people. After all, the risks usually arise within the business operations, not Comms. To that end, the Programme has been adapted as a series of seminars for MBA students.
Financial Services regulators are taking an interest. take a look at:
http://www.ftadviser.com/FinancialAdviser/Regulation/Regulators/FSA/Features/article/20090312/7722a9aa-08b6-11de-ba4c-00144f2af8e8/Last-line-of-defence.jsp
Best wishes
John

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