Reputation is everything in good times and bad

Peter Verhezen - November 16, 2006

From the dark side - Photo: Peter Riches

RECENT surveys reported in The Age and The Australian Financial Review show that trust in
the integrity of business leaders has been dramatically eroded over the past few years.
The age-old respect for leaders in business or public life has been tainted; their reputations
have nosedived.
In the wake of recent corporate and organisational scandals in Australia and around the
world, politicians and lawmakers are demanding more stringent reporting and control
mechanisms in an attempt to restore corporate reputation.
A bad corporate reputation hurts, but how can the situation be turned around? The
complexity of the business world requires executives and managers to make responsible
decisions which benefit the corporation in a socio-economic sense.
People are expecting solid financial results from business, yet they are also expecting these
healthy returns are achieved through fair play and socially responsible conduct. Hence,
creating a good reputation is about creating certain soft capital and generating value for the
firm.
Green Australian corporations for instance are committed to socially responsible behaviour
that not only benefits their social reputation but also positively affects their financial longterm strength.
Their socio-economic reputation is built by demonstrating integrity, through a commitment
to socioeconomic and environmental values and principles, that go beyond public relations
tactics.
Integrity creates goodwill and ultimately enhances the reputation of the organisation. When
an organisation can convince its key constituencies that its products and services not only
match but exceed those increasingly demanding expectations, the organisation has created
reputational capital and it can enhance its financial performance.

Indeed, firms creatively gain sustainable competitive advantage by cultivating intangible

assets such as reputation.
A positive reputation is like having a healthy immune system or comprehensive insurance.
The threats and opportunities in reputation arise from the main drivers behind reputation:
corporate governance and leadership, financial performance and long term investment
value, regulatory compliance, customer service, workplace talent and culture, corporate
social responsibility and communications and crisis management.
By systematically identifying these risks to reputation and nurturing the relationships with
its key constituencies or critical stakeholders, an organisation can safeguard and even
enhance its reputation.
Continuous reputational risk management should be integrated and embedded into
everyday decisionmaking, strategy development and the organisation's policies, processes
and procedures.
Ultimately, it is the board's role in establishing the vision, values, culture and strategy that
will determine the appropriate framework for managing risks and setting tolerance
boundaries.
If a board does not ensure that significant risks to the organisation are identified and
controlled, so that exposures are acceptable and opportunities exploited, the board is failing
in its primary fiduciary duty to investors.
Despite the reputation of Australian farming products, the AWB board, for instance, faces
the charge of not fully safeguarding its reputation.
The importance of the prudent and supervisory role of Australian organisational boards,
with their independent members operating as the conscience of the organisation, ensuring
there is some internal accountability, cannot be overstated.
A clear set of values and principles that are consistently translated into corporate strategies
and communicated by competent managers may prevent damaging scandals.
Values and principles in themselves do not guarantee superior financial performances.
However, the board and its chief executive may hopefully not only create a competitive
edge by appealing to the ethical values intrinsic in a good reputation in this increasingly
scrutinised business world, they may also create an important and useful insurance policy
for the shareholders In the process.
Dr Peter Verhezen is visiting scholar, co-ordinating governance and international business at Melbourne
University's Department of Management & Marketing. He is also an associated partner with IndoConsult/Booz,
Allen & Hamilton Management Consulting Group in Jakarta.