Disaster strikes: BP's Deepwater Horizon response has become a case study in reputation mismanagement
Corporate ethics and reputation
It is easy to forget that as recently as the 1980s, many businesspeople and business academics thought of ethics as at best optional, at worst irrelevant to companies’ central task of maximising shareholder value (see page 12).
But business schools scrambled to introduce or upgrade courses in ethics as part of their MBA programmes following the 2001 Enron scandal. The backwash of the financial crisis has given further impetus to attempts by companies to clean up their act. In 2009, the idea of an “MBA oath”, outlining values and ideals to which managers should adhere, began to take root.
In parallel, a series of crises has prompted companies to re-examine how they manage their reputations, in preparation for, and in reaction to, mishaps and mistakes. BP’s clumsy response to the 2010 Deepwater Horizon oil rig disaster and Toyota’s poorly handled product recalls have become case studies in reputation mismanagement. The transparency brought by social media (see page 17) – which allows critics, inside and outside the business, to amplify ethical, environmental or reputational problems – has given added impetus to companies’ attempts to improve their corporate culture.
Gradually, companies have realised there is no short-term fix for ethical and reputational damage. Rebuilding a corporate culture – as Barclays, hit by the Libor interest rate-rigging scandal, is discovering – takes time. Nor is corporate social responsibility, in its original form as a philanthropic effort separated from the business itself, sufficient to offset any perceived lapses in the core management of a company.
Instead, advocates of “creating shared value” – such as academic Michael Porter and consultant Mark Kramer – urge businesses to feed a virtuous cycle of good behaviour and mutual self-interest. By investing in the communities they serve, companies such as Nestlé, Unilever and GlaxoSmithKline are managing to improve their reputation, develop their business, and create the conditions for future growth of the overall economy.
In the same pragmatic spirit, Archbishop Vincent Nichols, head of the Catholic Church in England and Wales, has urged corporate leaders to harness both the desire for profit maximisation and the need to do good, principled business. The question, of course, is how to balance these two essentials of modern capitalism.
Andrew Hill