Fragile reputation footing for many corporates heading into the 2020's

The end-of-decade commentary is well and truly underway, opining on all fronts on the changes and trends that the 2010's brought about and what might be in store in the 2020's. 

For the corporate sector, the 2010's might be remembered as the decade when reputations took a battering, particularly in the last few years. Much of this was driven by regulatory revelations of corporate misconduct, Royal Commissions and other investigations, fueling intensely critical media and public attention. As a consequence, arguably there has never been a more reputationally perilous time to be a board member, senior executive or advisor in the corporate sector.    

By definition, a corporation is a legal entity that enjoys most of the rights and responsibilities that individuals possess. Practically, it is a very effective way of mobilizing human and financial resources to meet society’s product and service needs. But in the 20's, it is the “responsibility” part of this definition that is undergoing big expectational change. And this change is already starting to shape the reputation footing that corporates are working from.  

In Australia, recent Royal Commissions have exposed often breathtaking occurrences of corporate misconduct and institutional neglect (and abuse). This has prompted a range of responses that are still evolving. In the US, just last year we saw a remarkable development from the influential US Business Roundtable.[1] This blue-blood, corporate collective proclaimed that the era of shareholder primacy is over and as we move into the 20’s, the purpose of a corporation today is to serve all of its constituents, including workers, customers, investors and the broader society.[2] This notion of shareholder primacy first emerged in the 1970’s and was based on the idea that if a corporation entirely focused its obligations on satisfying shareholders, other stakeholders – such as customers and employees – would be satisfied as a consequence.

No more, apparently. As Katharina Pistor of Columbia Law School noted, “the statement is notable not so much for its content as for what it reveals about how US CEOs think.”[3]

At its core, it suggests that they think there is a need, and expectation, to redefine the purpose of a corporation. 

What's driving this change in thinking is complex and multi-layered but as we enter the 20's, one of the challenges that corporates are still grappling with is the democratisation of information that the digital age has brought about. With the scalability that social media platforms enable to the flow and speed of information exchange, coupled with this expectation of redefining their purpose, corporates have arguably never been on a more fragile reputation footing (remembering that reputation is what others say about you).

The brilliant Showtime series of 2019, “The Loudest Voice”, illustrated this fragility by exploring how Fox News’ Roger Ailes “harnessed (and stoked) post-911 fear to build an enormous audience and harness power. As the Russell-Crowe portrayed Ailes tells a young journalist, “You tell people what to think, you’ve lost them. But if you tell them how to feel, they’re yours.[4]

For the corporate, this notion of course raises questions as to how their reputation is at risk. Not only the risk of what their stakeholders and society and the media think of them, but how they make them feel. For many corporates – especially those who’ve been blowtorched by reviews such as Royal Commissions – their stakeholders are feeling angry and vengeful.

How this plays out over the next decade will be volatile and traumatic. But we might start to hear more about the notion of corporate character this decade. After all, it’s character that is revealed when all the corporate window dressing and spin is removed.

And governments, regulators and the media are entering the 20’s determined to keep corporates exposed and accountable.   

“Be more concerned with your character than your reputation, because your character is what you really are, while your reputation is merely what others think you are.” John Wooden

 

[1] https://opportunity.businessroundtable.org/wp-content/uploads/2019/12/BRT-Statement-on-the-Purpose-of-a-Corporation-with-Signatures.pdf

[2] https://www.afr.com/world/north-america/murdoch-gorman-join-push-to-abandon-shareholder-first-capitalism-20190820-p52ipm

[3] https://www.afr.com/work-and-careers/leaders/why-america-s-ceos-have-turned-against-shareholders-20190827-p52l8g

[4] https://hbr.org/2019/11/persuasion-and-resistance 

About the author

Justin Kirkwood

GAICD, MIntS Syd., BA (Comm) 

Justin Kirkwood has more than 30 years’ corporate relations advisory experience
specialising in communication and reputation risk management.

Kirkwoods Corporate Relations

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Sydney NSW 2000