Proof that a good reputation improves the bottom line

  A study, reported in the European Management Journal recently, examined the economic benefits of a company’s corporate reputation among a sample of UK listed firms.  It revealed a significant positive relationship between the company’s media reputation and the level of its trade accounts payable and the number of days of trade credit received.  This indicates that a favourable media reputation influences a supplier’s credit risk perception of a firm and helps the firm to use trade credit as a source of finance.  This means that a good corporate reputation (presumably through ethical business behaviours, fair treatment and transparency) is regarded as a valuable intangible asset which can lead to competitive advantage and a stronger performance.

Social purpose is business critical

The “Social Business” journal has recently reported on the rise of social purpose driven business models.  This is where business institutions recognise their shared humanity and a role in wider society.  It reports that in designing and creating solutions that address education, sustainability, poverty etc, businesses have found that they can also reap rewards in terms of profits, knowledge or talent.  Social value and economic value can go hand in hand. 

This is backed up by the rise in “social intrapreneurship”where a person in a large organisations takes the direct initiative for innovation which addresses social and environmental issues.  The Doughty Centre at Cranfield University has summarised the necessary internal environment or “ecosytstem” to foster social innovation using the acronym DARE which stands for:

• Dialogue
• Autonomy
• Risk taking
• Experimentation 

These elements are seen as being key to attracting top talent and to sustainability in business.  Basically business needs to understand that social and environmental impacts are business critical.

Executive pay threatens trust in business

With the pay of FTSE 100 chief executives now 160 times that of the average full-time UK worker, finally it looks like leaders in business recognise the potential problem. Well at least 52% of companies surveyed by the High Pay Centre see "anger over senior levels of executive pay" as a threat to public trust. The Institute of Directors' commissioned the survey which also showed that 48% of firms agreed, or strongly agreed, that falling trust was an important threat to the success of their company. This surely means that declining levels of trust and damage to reputation should be firmly on the board's agenda with the risk committee monitoring carefully.

However, it is difficult to see what measures can really be taken to counter the specific threat to trust of high levels of executive pay without significant restructuring of the whole of business. The likes of the Ecology Building Society can be held up as an example with the Chief Executive's pay linked to 5 times the lowest paid worker but substantive change has surely got to come from shareholders? Last year shareholders of many firms questioned the remuneration proposals of their top executives. What is needed now is a continuing and concerted effort by shareholders to challenge, question and defeat remuneration proposals over the forthcoming years striving for more equity and fairness across the workplace. Any risk to trust and reputation has a direct impact on the potential returns of their investments. Let's hope we have another revolting shareholder spring,but one with a bit more bite.