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Pp32-33 ABB from May2014 Final ECM May_Layout 1 02/05/2014 13:38 Page 32 32 Strategy and management Ethical Corporation • May 2014 ANYABERKUT Other section content: p34 Interface's Rob Boogaard p37 Climate action The GlobalEthicist Risk and opportunity – the role of stakeholder trust By Andrea Bonime-Blanc Whether the impact is one you can measure, or something less quantifiable, loss of trust has a lasting effect ontemplating the varieties of reputation administration more deeply focused on national Companies Cchallenge, risk and, yes, opportunity that exist defence and security issues. The trust of stake- for all types of organisation can be overwhelming. holders (or its erosion) is at the core of this operating in There are plenty of questions. What do we reputational hit. the cloud are mean by “reputation”? Whose reputation are we especially talking about? What is “reputation risk”? What is Risk can be contagious “reputation crisis”? What is “reputation opportu- And the reputational reach of the Snowden affair concerned about nity”? hasn’t stopped with the US government. By associ- reputation Reputation risk and opportunity are events that ation, the US technology sector (even companies can hurt or enhance an entity, person, product or not directly involved in creating, developing, imple- service, from the largest entities in the world – the menting or supporting the technologies used in biggest governments, for example – to the tiniest of national security work) has been very concerned entities: small businesses and, of course, people and about the reputational fallout affecting its competi- specific products (if you’re old enough, you’ll tiveness in the global marketplace. remember Tylenol). Companies operating in the cloud, for example, Let’s start with the biggest. The US government’s are especially concerned about this issue as their reputation, for example, has suffered a variety of global customers question the confidentiality and blows over the past decade and a half. First, there security of data held within US company cloud loca- were the two wars – Iraq and Afghanistan. One of tions (whether in the US or elsewhere physically) these (Iraq) was more broadly questioned around and consider instead going with non-US companies. the world and more negatively affected the reputa- Once again, the trust of stakeholders – customers tion of the US and the US government. and others – is at the centre of this concern. Then there was the Edward Snowden incident in Let’s drill down further to the company level. 2013 when a young contractor revealed many We have all heard about companies with major national security secrets of the US government toxic waste or health and safety events that cost exposing its hidden and often dark underside even them dearly in fines and settlements – and reputa- affecting US citizens and friendly governments. tional damage. The grand-daddy of these cases is This has resulted in specific reputational damage to probably the Exxon-Valdez oil spill in Alaska exactly the Obama administration. 25 years ago that caused all manner of short-term As an administration more closely associated and long-term environmental damage to a pristine with progressive, liberal and pro-constitutional habitat, and reputational and trust consequences for COLUMNIST: causes, it probably experienced a more severe repu- Exxon. ANDREA tational hit than if it had been a more conservative Then, of course, there is the recent BP Deepwater BONIME-BLANC ECM May_Layout 1 02/05/2014 13:38 Page 33 Ethical Corporation • May 2014 Strategy and management 33 Horizon oil spill of 2010, which continues to unfold almost 5% the day after the New York Times Reputational and is probably the biggest of its kind in terms of published its in-depth report on Wal-Mart’s alleged damage collective fines, settlements, civil and criminal inves- corruption and bribery of Mexican officials on 20 tigations and reputational damage. And no one who April 2012. assessment is followed this story will forget the additional reputa- Similarly, observers were able to chart a decline where the rubber tional damage that BP’s then CEO, Tony Hayward, of $7bn over four days of trading in the market capi- caused when he seemed to put his own personal talisation of NewsCorp when allegations of actually meets comfort ahead of the terrible crisis that had widespread phone-hacking by journalists from the the road occurred (claiming 11 lives) when he complained News of the World were reported in the summer of about not having enough time off. 2011. The multi-billion-dollar financial crisis of the past However, both companies have more or less half-decade has had its share of reputational conse- recovered since these hits and it would be very diffi- quences as well – negative for certain institutions cult to isolate what specifically has affected their (the companies that were most fined) and positive stock price since their respective reputational blows, for others (those that weren’t). given the myriad factors that go into a stock Just recently we have the new case of GM and performance. its defective ignition switches. For many years struggling to be financially viable, generally thought Taking the hits of as a company with an immutable leadership Can one look at these incidents through a purely style and culture that did not allow for much quantitative or cost-of-doing-business lens or are change or the questioning of strategy, financial or there other important considerations? In the case product decisions, GM went bankrupt and got a of the US government and the Snowden affair, massive government bailout. This was a company BP, NewsCorp, Wal-Mart and the global financial that was already suffering from reputational institutions, what is the long-term reputational degradation. damage, if any? How do you measure and Suddenly in January we hear that 13 GM car quantify it? Is measuring it quantitatively useless or accident deaths (and many more accidents) over the helpful and/or do we need other measurements, past decade may have been caused by a defective qualitative ones to really understand what is ignition switch that could have been fixed for $1 per happening? car. GM decided not to make that correction. While The following are some of the more qualitative the facts of this case are yet to be fully understood, hits an organisation can suffer: this is what the media and GM itself are currently • Loss of quality investors reporting. The reputational hit is yet to unfold but is • Loss of time, resources, creativity of workforce unlikely to be modest. The way the new CEO sucked into investigations handles this crisis and what she calls the “new GM • Executive reputations irreparably damaged culture” will have much to do with whether the •Restructuring and even demise of business/ consequences are dire or manageable. (See p28 for business lines more on GM.) • Consumer dissatisfaction and loss • Hits on recruiting new talent, and departure of What is reputational damage? talent Does a reputational hit today mean long-term repu- • Bad relationships with regulators This column is adapted from a tational damage? Perhaps these are mainly • Close media scrutiny chapter in the author’s forth- momentary blips that can certainly affect investors • Widespread criticism via social media coming book, The Reputation Risk temporarily but, depending on the response and Handbook: A Guide for Managers heft of the organisation, may not lead to long-term While quantitative snapshots such as stock price and Directors, to be published by negative consequences. can be helpful, the qualitative measures of how key Do Sustainability later this year. Reputational damage assessment is where the stakeholders size up an entity are as important or rubber actually meets the road. This is the issue that more so when it comes to understanding an entity’s Dr Andrea Bonime-Blanc is chief is not easy to scientifically or quantitatively settle, at ability to recover its long-term reputational health. executive of GEC Risk Advisory, a least not yet. This of course goes without saying when financial global governance, risk and The impact on a share price of a specific event is measures of an entity’s health are hard or impos- reputation consultancy to boards often used but is useful in a limited way: to show a sible to get. and the C-suite. She is chair dramatic change in reputational stature of a publicly And that is because trust is at the centre of this emeritus of the Ethics and traded entity at a given moment or over short concern. When key stakeholders lose trust in the Compliance Officer Association, a period. Of course, this does not help with assessing reliability, efficacy, transparency, growth, quality or member of Ethical Corporation’s the hit on a privately held company or other type of other tangible value of an entity, its product or editorial advisory board, a entity (such as universities, governments, NGOs services, that’s when the reputational hit has an programme director at the and people). They cannot be measured quantita- impact, whether or not it is easy to measure. Repu- Conference Board and a life tively. tations will remain damaged for as long as actions member of the Council on Foreign So, for example, Wal-Mart stock declined by are not taken to regain that trust. ■ Relations. @GlobalEthicist.
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