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Reputability LLP are thought leaders in the field of reputational risk and its root causes, behavioural risk and organisational risk. Our book 'Rethinking Reputational Risk' received excellent reviews: see www.rethinkingreputationalrisk.com. Anthony Fitzsimmons, one of its authors, is an authority and accomplished speaker on reputational risks and their drivers. Reputability helps business leaders to find these widespread but hidden risks that regularly cause reputational disasters. We also teach leaders and risk teams about these risks. Here are our thoughts, and the thoughts of our guest bloggers, on some recent stories which have captured our attention. We are always interested to know what you think too.

Wednesday, 22 December 2010

Accountants and lawyers - how much does reputation matter?

It takes years to build a reputation and minutes to lose it. Since it gives a company its 'licence to operate' as a respected citizen of the world, its loss can be devastating. BP is a topical example of an asset rich commercial company that lost a large part of its market capital over a sustained period. Only a proportion of the fall can be attributed to liabilities.

Things are far starker for pure service providers such as lawyers and accountants.  They have few assets beyond human wits and their reputation.  Their ability to attract clients and to borrow depend on it.  It is by far their most valuable and important asset.  The redoubtable Lex now suggests that regulators should attack accountants' reputations.

Paradoxically, the value of reputations rarely appears in balance sheets.  Neither are they given attention or protection in proportion to their value or importance.  The reasons for this are not clear but seem to include both a lack of understanding of how reputations are made and broken and much too narrow a view of what puts a reputation at risk.  This matters.  

The largest accountants still hope they are 'too big to fail', but in reality their future depends on three questions.  Is audit still an essential service for larger companies?  Is it still a valuable service?  And can they still afford to offer audit services given the audit liabilities they bring?  Many wonder whether the answers are increasingly No, No and No.  If this feeling grows, the willingness of regulators to attack accountants will grow and the comfort of being 'too big to fail' will decline.

For a firm that is not 'too big to fail' - which means all law firms and most, perhaps all, accountants, a substantial loss of reputation will be devastating. All should fear the fate that befell Arthur Andersen, including the biggest accountants and their regulators.  The question is what action they should take - and whether they will take it.

Update: See now  "The demise of audit" - the Big Four seem to recognise the extent of their vulnerability

Anthony Fitzsimmons
www.reputability.co.uk

1 comment:

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