Archive for September 10th, 2009

  Industry reputation has been of great interest to me. Especially as entire industry reputations now overwhelm the reputations of the individual companies within them. When we think about the financial sector today, it is hard not to have an overall perception of transparency-lessness (not a word, I know) over the past year.

A few years ago I spoke at a Governor’s meeting that Davos held to nail down the best topics for the broader January meeting. My topic then was of course reputation and particularly reputation in the financial sector because of the massive failures at Enron, WorldCom, Royal Ahold, Adelphi, and so on. I never forgot a gentleman from one of the largest German banking institutions who said that reputation meant everything to them because after all was said and done their reputation was built on one thing and one thing only — trust. As I thought about that at the time, I found it profoundly perceptive. Why chose one financial institution over another for any reason besides trust?  Most companies and individuals would have trouble articulating why they place their money with one financial institution over another except for trust.

At the time, accounting firms were also under tremendous pressure for having failed shareholders of Enron and other tainted companies.  Arthur Andersen imploded, similar to Lehman Bros today.  Accountancies too were facing troubled reputations.  Yet, in the Financial Times this week, they editorialized about the accounting profession’s resilience:

The resilience is unsurprising. The industry has shrunk from the “big eight” of the 1980s to the “big four” of today, a consolidation that has helped bean counters; PwC earned a juicy 34 per cent profit margin. Much of their work is also required by law, with taxation and audits seen as annuity businesses. Arguably, though, the most important asset accountants have maintained in this recession is their reputation.”

The FT cites two reason for their ability to rebound and lack of major scandal in these difficult times. First, they say that auditors are more conservative post-Enron and second, Sarbanes-Oxley demands more disclosures. I would add a third reason to accountancies’ reputation stabilization and that is that the “big four” has poured time and money into rebuilding their industry’s reputation, understanding where they went wrong, working closely with their trade association and paying strict attention to behavior and training. They have taken the “trust” issue seriously and are often on best places to work lists.

Reputation resilience is made, not born.