The Carryover Effect of Reputation Risk

Trust and reputation are assets. Corporate leaders are realizing that it is no longer sufficient to be just compliant with rules and regulations, and with the letter of the law as it is written today; instead organizations have to aspire much higher and constantly try to meet and exceed stakeholders’ and society’s expectations. Otherwise, trust and reputation will always be at risk as the past catches up as the latest corporate scandal hits the news.

In the digital information age, with ubiquitous internet connectivity (the “Evernet“), instant live streaming, virtually limitless storage capacity and social networks spanning the entire globe, no news is local any more. Instead, all news is global and digitally stored forever. Managing reputation risk does not mean only making decisions with tomorrow’s news headlines in mind; but with the news headlines in 10 or 20 years.

What might be perfectly legal and considered normal industry practice today in one jurisdiction, may be already frowned upon in others and outlawed in many in the course of the next 10 years. The mere local legality of an action today cannot serve any more as a decision criteria, especially for multinationals operating in more and less severe jurisdictions at the same time. Consider the different treatment of facilitation payments under the FCPA, UK Bribery Act and various other national legislations as an example.

But the impact on reputation begins at the point of time when the news hit the media and gets attention; the general public’s opinion is formed with little regard to when and where the actions took place and if they were legal or at least generally accepted or tolerated then and there. Organizations and individuals will judged by the standards prevailing and the time when the news are published. And if the past circumstances are taken into account, they are likely to appear as mere excuses and justifications and contribute to the perception of opportunistic or immoral behavior. Because with hindsight, had they been truly ethical at the time, they should have known better already then.

Reputation management then begins with acting with “ethical foresight”, guided by values and principles above and beyond what is considered just legal and tolerable today.

The failure (or refusal) of a leader to foresee may be viewed as an ethical failure.
Robert Greenleaf, “The Servant as Leader”

One thought on “The Carryover Effect of Reputation Risk

  1. Absolutely right. Trying to base your behaviour on ethical, rather than legal compliance makes the organisation much more robust and resilient to changing public attitudes. However, we have to recognise this as (sadly) aspirational – most organisations are simply working to catch up with the law and regulations, and it is incredibly hard to make a case for going beyond these standards, especially when resources are scarce. The senior management have to buy into this philosophy, and live it to make it effective. It normally takes an external shock (regulatory investigation, adverse publicity in the news) to spur this behaviour.

    Liked by 1 person

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