Businesses must act on poor corporate governance, not just say they will
6 min read
24 January 2018
A myriad of companies suffered crises last year that threatened, if not destroyed their reputations, which shows the importance of acting on poor corporate governance.
The poor corporate governance list includes Pepsi and their misjudged advert, United Airlines forcibly removing a passenger, Uber losing their London license, McDonald’s suffering their first UK strike, and the irresponsible (to say the least) campaign in South Africa that led to the demise of Bell Pottinger.
Now, in the first month of 2018, we can already observe that things are no different. The collapse of construction giant Carillion reminds us of the poor corporate governance practices that came to light in 2017, and the thousands of jobs at risk have the public worried.
Each of these crises relates to poor corporate governance, whether it is the way they view and treat customers, workers or the wider society, all having a profound financial impact. It is the role of organisations to mitigate risk in these circumstances, whether that be preventing the instances from happening, or simply responding to them when they do happen.
It’s not news that high profile crises have a detrimental impact on businesses. What is interesting however is that it is crises revealing weak CSR and poor corporate governance that have the biggest impact. 2017 saw the emergence of corporate governance as a c-suite and government level issue, and for good reason.
Reputation can account for as much as 75 per cent of a company’s value (Source: Economist Intelligence Unit), this indicates the level of risk that companies expose themselves to through inadequate corporate governance mechanisms.
Additionally, according to our research, corporate governance – perceptions of fairness, ethics and transparency – has a more significant impact on company reputation than ever before. Governance now counts for 17.2 per cent of overall reputation, second only to perceptions of products and services.
Business leaders are certainly aware that CSR and corporate governance are important, but alarmingly, it still doesn’t seem to be integral to business strategy.
Soon enough, industry leaders will realise that this needs to be addressed. Now that we are firmly living in the digital age of freely accessible and widely shared information it is impossible to hide poor business practices. Those businesses that place transparency and corporate governance at their heart are the ones that will succeed.
We are already seeing this pay off. According to our data, the companies with the best reputations for CSR in 2017 were Lego, Microsoft and Google. Google had held the top spot, but lost a number of points due to high profile tax scandals. However, the tech giant finds itself in the top three for a number of reasons, one of which is because the leadership is actively engaged in CSR.
Sundar Pichai is a very private CEO, but sees it as his duty to speak up about the causes he believes in, specifically, what he feels are unfair immigration policies put forward by the US president. This is one of the five key principles to having a good reputation in terms of corporate responsibility.
CSR must also align with corporate purpose. Lego and Disney are good examples of companies excelling at this, Lego is known for working to inspire children through play, while the Disney Institute works to help organisations drive positive cultural change.
Thirdly, a CSR agenda has to be about action and not just rhetoric. Google has recently put the business’s values into action, using technology to help respond to the refugee crisis and helping children bring their voices to life with technology, through community outreach.
The fourth principle is that CSR drives internal and external engagement. Campaigns must be consistent inside and outside an organsation. Staff must feel involved and engaged in order for the work to feel authentic and to have a positive impact.
Finally, CSR should focus on human and social interest in order to be relevant and valuable. Cisco launched a very successful “Women Entrepreneurs’ Circle”, while Intel have invested heavily in local communities, giving educational support in technology to local schools and non-profit organisations.
The danger of failing to acknowledge these principles is a drop in overall reputation. Interestingly, considering Google ranked in the top three, Apple saw the biggest drop in the way people perceive its corporate governance.
The company’s closed off approach prevents the general public from learning about the work Apple do beyond their products. And when people don’t know what it is you are doing they tend to assume it isn’t good.
James Bickford is MD UK at the Reputation Institute
When it comes to marketing and advertising, causing offence can damage your reputation past the point of recovery.