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Reputability LLP are pioneers and leaders globally in the field of reputational risk and its root causes, behavioural risk and organisational risk. We help 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.

Monday, 16 December 2013

Speaking truth to power


Some parts of Government are in 'desperate failure' and across the whole of Whitehall there is 'an inability to learn the lessons of failure and speak openly and truthfully to each other'. That is what Bernard Jenkin, Chair of the Public Administration Select Committee in the UK’s House of Commons, believes according to a report by the journal Civil Service World (CSW).

For an example of what he means, we need look no further than the Department of Work and Pensions’ (DWP’s) flagship Universal Credit Scheme. Only last week, Secretary of State Ian Duncan-Smith was forced to defend implementation delays and admit that upwards of £40m has been lost on an abandoned IT system which was simply not fit for purpose.

The story didn’t begin there.  In September the National Audit Office (NAO) highlighted delivery problems on Universal Credit citing a 'fortress mentality' and 'a culture of good news reporting that limited open discussion of risks and stifled challenge'.

Dame Anne Begg, Chair of the Commons Work and Pensions Committee, has criticised the DWP for 'an inability of ministers to admit there was anything going wrong in the Department'. Asked by CSW whether it is possible for DWP civil servants 'to speak truth to power' she said 'I think it's difficult, and the attitude is set from the top'.

If true, such attitudes have very worrying implications for sound decision making and good governance. Adding to the concerns is a recent survey from CSW and the marketing firm Claremont which found that 'just 9% of civil servants surveyed believe that ministers and senior managers openly encourage challenge, debate and reporting of operational problems'.

A recent study from Reputability, 'Deconstructing Failure: Insights for Boards' determined that amongst the key root causes of corporate crises were risk blindness exhibited by those at the top and defective information flows throughout the organisation.

If difficult news is seen as unwelcome by managers, it is easy to understand how individuals might withhold particular unwelcome data or disguise unpalatable truths so as not to be seen to be rocking the boat. Unfortunately, the consequences of misreporting or being economical with the truth can have devastating results for the organisation and its corporate reputation.

Examples from the business world abound, but the debacle surrounding the delays to the EADS Airbus A380 and the Toyota 'accelerator surge' recall in the USA are particularly telling examples of delayed or inadequate reporting of problems which had severe adverse consequences. In both instances the financial cost of insiders holding back critical information from leaders ran to billions, bringing with them immense loss of reputational capital.

Regular readers will also recall what we have written about the effects of killing the bearers of unwelcome news and the importance of a culture of openness.

Fortunately there are signs that not all in Government are blind to these dangers. Speaking recently at the annual Civil Service Awards ceremony the Prime Minister encouraged his audience 'to talk truth to power and tell it like it is'. He added, 'That is really important. Don't stop doing it.'

Let's hope that his colleagues were listening.



Rob Haslam
Reputability LLP
London
www.reputability.co.uk

Wednesday, 4 December 2013

Note to Board: Reputation is down to you



Thinking back over discussions with FTSE Chairmen about optimum board structures for effective governance, I was struck by how often the subject of “corporate reputation” recurs. 

This is not surprising.  Studies show that the bigger the organisation, the more value is contributed by reputation.  In the FTSE100, corporate reputations are contributing on average, 32 per cent of companies’ market cap. By comparison, reputations add an average 14 per cent of value to FTSE250 companies.  

Whatever the precise figure, few doubt that reputation is a significant business asset even though it doesn't appear in the balance sheet.  It is interesting therefore, to ask why more businesses do not organise themselves at board level specifically to protect and enhance their reputation.  A few have a “reputation” committee alongside those of “audit”, “remuneration” and perhaps “risk” but most do not.  Those that do often seem to see managing reputational risk as a PR issue.

Perhaps boards believe that they have an innate ability to manage this most valuable asset.  Maybe they think that reputation management is covered by existing processes.   They shouldn’t.  The 2011 report from a high level workshop, 'Policy and Governance for Risks to Reputation',  led by Airmic and Reputability concluded that boards should take ‘deliberate responsibility’ for risks to reputational capital, highlighting that standard risk management wouldn’t systematically find the risks that cause reputational damage.

Recent research shows that nearly half - 48 per cent - of in-house communications directors do not think that their boards take responsibility for the organisations’ reputation.  If the ethics and tone, the aspirations and the heritage of an organisation are not set and proactively managed by the board, who has the authority to lead on them?

It’s not only communication professionals who see this lack of credible leadership.  Results from the Edelman Trust Barometer show that public trust in what CEOs say has never been lower.  When asked: “If you heard information about a company from one of these people, how credible would that information be?” the number citing a CEO as reliable rose to 40% in 2013, having only been higher once in the last 5 years.  It is no consolation that government officials and regulators were even less trusted.

In our transparent, internet-accelerated world, reputation and risks to it need to be taken out of the traditional silos of risk, Human Resources, Public Relations and Investor Relations.  It is time for boards to take responsibility for reputation, that most valuable yet vulnerable of assets.  It's too precious to be delegated.

Jane Howard
Reputability LLP
London