I was quoted by Fortune‘s Geoff Colvin in the August 15th issue. He wrote about the Murdoch scandal and mentioned how “large ideas emerging from this story so far will influence companies of all types for years to come.” One of those large ideas is that we have officially arrived at the pivotal point where reputation has an edge over financial performance. As Geoff says, this is Reputation’s Moment. Companies may not have fully noticed but reputation is indeed “the new currency of corporate success.” Music to my ears.
In the article, Colvin makes a few points that could not be truer. I excerpt some below which includes my take on reputation as the new metric of corporate success.
“Previous major scandals were mostly financial; the numbers were lies. Not this time. The damage so far derives entirely from behavior—phone hacking and possible police bribery—that appears to be illegal but has nothing to do with reported financial results. Whether it’s illegal doesn’t matter anyway; it’s slimy, and that’s enough. News Corp. is deeply tarnished, and the financial effects could be significantly bad.
The company has lost about $5 billion of value in the few weeks since the scandal hit. Longer-term effects could be much worse. “The greatest reputational threat to News Corp., aside from criminal prosecution of Murdoch family members, lies within regulatory and policy circles,” says Rupert Younger, director of the Centre for Corporate Reputation at Oxford University’s Said Business School. News Corp.’s television businesses—TV networks, TV stations, and satellite broadcasting services worldwide—are together a major source of profit, and they’re all subject to government regulation. Government leaders have treated News Corp. gingerly for years, but now “politicians who have been afraid to tackle such an important company are starting to feel that it may be possible to do so,” says Younger. “This could literally destroy News Corp.,” in the sense that the company could be broken up.
Long-term damage to the company’s reputation among customers, employees, communities, and others could also hurt. “In this new reputation economy, people care about whether a company shares the same values as they do,” observes Leslie Gaines-Ross, chief reputation strategist at the Weber Shandwick communications firm. Her reading on the scandal so far: “A clearer demonstration of the direct relationship between corporate reputation and corporate well-being is hard to imagine.”
These two ideas, the one-man problem and corporate reputation, are obviously related. At News Corp. they’re two sides of the same coin. Yet Rupert Murdoch never seemed to put them together. Long before this scandal, he said, “Our reputation is more important than the last $100 million.” He was right.
In this brave new recessionary world, we have evolved into a reputation economy where companies are trading on their reputations like never before. They are trading for better regulatory favor, more loyal customers, higher skilled talent, more positive word-of-mouth and more capital. Reputation has become an account in credit that you can draw down on or add to. In this new reputation economy, people care about how decisions are made and whether companies share the same values as they do. It is not just value, as in dollars earned, but also values, as in standards maintained, that has become a crucial element of corporate success.