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Only 26 per cent of UK businesses have a formal procedure in place to deal with reputation risk. That compares with a global average of 35 per cent. Grant Thornton’s International Business Report, based on a survey of 7,200 businesses across 32 countries, asked companies whether they had formal policies for dealing with key risk areas such disaster recovery, security of electronic information and reputation. Although the UK often scored above other countries in procedures to deal with many risks, when it came to dealing with risks to reputation, UK companies scored well below their counterparts.
PR disasters, once they hit, can have a lasting negative affect on a company. British Airways, Cadbury’s, BP and BAE Systems are just some of the UK companies which have suffered reputation crises in the past twelve months; and they continue to feel the effects. From penalty charging by banks, to additives in food, rigging of TV competitions and dangerous toys due to poor supply chain management, companies are under constant scrutiny by the media and a general public who are becoming more and more sensitised to ethical issues and standards.
In a publication by the Institute of Business Ethics, Risky Business, we set out the many drivers of a company’s reputation. These are: - Financial performance and profitability
- Corporate governance and quality of management
- Social, ethical and environmental performance
- Marketing, innovation and customer relations
- Regulatory compliance and litigation
- Communications and crisis management
- Employees and culture
If there is poor performance in any of these, an organisation is vulnerable to risks which can cause business-critical damage to their reputation. The word integrity comes from the Latin "integra" meaning whole, complete, one; if any aspects of a company fails then the integrity of that company is threatened.
But how can an organisation mitigate against integrity risk when it involves seemingly intangibles such as “ethical performance” and “corporate culture”?
Many companies have codes of ethics which set out their commitment to do business ethically and guide staff in ‘right’ conduct. Recent IBE Research shows that at least 85% of the FTSE100 and 65% of the 350 have some form of explicit ethical policy. And yet, despite having such policies in place, companies are still receiving reputation hits arising because of unethical behaviour within their organisations.
Companies are finding that having a code of business ethics is not enough. In order to have a positive affect on the corporate culture and the way business is done, ethical values need to be embedded deep within the organisation’s DNA. Ethics policies and programmes can be embedded through training. This can help employees to understand the company’s policies and to ‘live’ them at work. That way companies can be confident that their employees understand that ‘doing the right thing is the right thing to do’.
An important aspect of protecting against risks to an organisation’s integrity is to ensure that staff have a means of raising any concerns they might have. IBE research shows that of those employees who witnessed misconduct in their workplace, only a quarter say they have reported it. The main reason employees gave for not reporting their concerns was fear of alienation from colleagues. Staff need to be encouraged and feel supported in speaking up about their concerns; and companies who have such procedures in place can be alerted to potential problems before they become crises.
IBE research in Does Business Ethics Pay? – revisited found that, of the companies who had code of ethics, those that offered training to staff in ethics outperformed financially, those that did not. More research is needed to understand why a company with an ethical culture perform better financially. It could be as a result of the ‘feel good’ factor. Employees are able to feel proud of the company they work for, which in turn will lead to attracting and retaining quality staff. Suppliers and customers too, will want to align themselves with a company on the basis that success breeds success. Investors feel confident that the business is well managed and is actively managing risks.
All these factors can lead to the company reputation being enhanced. This usually feeds through to the share price as well as lower costs of borrowing – all of which helps the bottom line.
Ensuring your business is done ethically will help protect your company against risks to its integrity and reputation.
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