« The Truth-telling Machine | Main | Merging Social Networking and Search »

March 22, 2004

Comments

Shantideva

BUSINESSWORLD BOOK REVIEW of Building Reputational Capital

BE ETHICAL AND BOOST PROFITS
By PARANJOY GUHA THAKURTA

MANY businesspersons operate on the premise that since competition is tough, if not brutal, nice guys would invariably finish last unless they bend the rules. Such individuals also believe that corporations cannot afford to be overly moral, and that a firm's reputation is not a long-term strategic asset that generates profits. Building Reputational Capital questions these assumptions and draws attention to a company's intangible reputation.

Written in the wake of the collapse of the energy giant Enron that was, in turn, followed by the fall of the company's auditors Arthur Andersen and then, like ninepins, Global Crossing, WorldCom, Aldelphia and Tyco, Jackson asserts that "corporate credibility is the business issue of today". His research indicates that the annual loss of 'reputational capital' on account of unscrupulous corporate conduct exceeds the combined profits of the top 40 corporations in the US, and that "all this economic waste cries out for more than a public relations makeover".

Reputational assets are distinguished from a firm's image in the manner in which a person's 'character' can be differentiated from his 'personality'. A company's reputation may enhance its image, Jackson argues, but image alone cannot build reputation. He urges industry captains to realise the vast expanse of wealth beyond physical assets. What matters are trust, integrity and fair dealing - qualities that matter most to a business but, at the same time, exist beyond conventional measurements of the value of the firm.

Jackson states the short-run costs of ethical behaviour at the outset: "Walking away from deals tied to demands for illicit payments, refraining from pushing unnecessary services on a customer or disclosing adverse side-effects of a drug may all add up to lost business opportunities. Everybody knows that. But the consequences of ethical failure - loss of credibility and trust - are much greater. They are long-term."

Despite the recent increases in government regulations, corporate ethics committees and vastly-net-worked consultants, opinion polls indicate that public confidence in business and businesspersons is at an all-time low. While panning "stuffy and arrogant academics" about their "overwrought theoretical concoctions" on corporate ethics and social responsibility, the author indulges in what he calls 'practical suggestions' that go far beyond quick fixes, creation of brand images and PR band-aids. He believes a company can increase its competitive advantage by turning the prevailing climate of cynicism to its benefit. It is possible, Jackson asserts, to master the art of "balancing financial mandates with social imperatives", thereby overcoming the current crisis of confidence about business.

As a consultant, Jackson found that many company management teams were uncomfortable with the term 'ethics' since it had negative associations and was perceived to be akin to a moralistic sermon. Instead, a term like 'integrity' was preferred. He considers the notion that success consists only of material accumulation as a 'false assumption'. "Corporations have to realise that they are moral agents through and through - their character and probity are among the most fundamental determinants of their financial soundness," he writes.

For certain categories of firms, for instance, those of auditors, consultants, lawyers and investment bankers, a good reputation is itself a marketable product. A good reputation can assist a firm to command premium prices for its products and services and obtain fresh leverage in negotiating with suppliers, creditors and distributors, apart from attracting good clients and employees.

Jackson urges companies to go beyond the letter of the law in building their reputational capital. This capital has some resemblance to - and yet is quite distinct from - the accounting concept of goodwill and the monetary concept of brand equity. Goodwill has a narrow accounting connotation that is tied to the value of a corporate entity when it is up for sale, while brand image relates to its impact on only one category of a company's constituents, that is, consumers. Reputation goes further than these concepts and has its roots in the management discipline that promotes fairness in the workplace, quality products and services, attractive investments for stakeholders and good citizenship in communities and beyond.

By elaborating on how reputational capital links ethics to the bottomline, Jackson hopes his words will not be dismissed as those of a preacher on a pulpit. Interestingly, the only Indian company that has been mentioned in the book a number of times, and always in a favourable context, is the Mumbai-based Housing Development Finance Corporation (HDFC).

Paranjoy Guha Thakurta is director, School of Convergence at the International Management Institute, Delhi.

L. Richardson

The following link to "Inside Fordham" is an article about Prof. Jackson's book: www.fordham.edu/general/Whats_New/ Professors_Book_Expl14197.html

Kevin T. Jackson

Kevin Jackson will discuss "Building Reputational Capital" on the following radio broadcasts: KVON-AM, San Francisco Public Radio, "Morning Edition" April 8, 2004 at 8:30 a.m. PST; KPCW-FM, Utah National Public Radio, "Public Affairs Hour" April 9, 2004 at 11:40 a.m. PST.

Kevin T. Jackson

Greetings, I'm Kevin Jackson, author of Building Reputational Capital. I've established a website at www.reputationalcapital.com as a further resource for readers interested in the insights I offer in the book. The site has a special "spotlight" feature in which I give up-to-date ideas on how firms and businesspeople can leverage their reputational capital -- find creative ways to be forthright and responsible for economic advantage in light of current trends in the business world. Presently, the feature contains an excerpt from an article I recently published in the New York Law Journal (1 December 2003) entitled, "Keeping Scruples in Mutual Fund Trading." Thanks and best regards.

The comments to this entry are closed.