Reputation & Integrity

Andrew Kitchen 05.10.2015

Conduct Risk & Culture are at the forefront of many a CEO’s mind. The past 7 years has seen instance after instance of banks falling foul of the regulations and public perception/trust of the banking sector remains at all-time low.

Post financial crisis bonuses in the City have now topped £100 billion, yet 1,700 jobs were lost last week at SSI’s Redcar steel plant in Teesside. It’s no wonder that many on the far left are pushing for the so-called “Robin Hood Tax”.

Working closely with the Internal Audit profession, I wanted to cover reputation and its impact on brand recognition/success – relating to both individuals but also to audit functions in general.

What is reputation? Why is it important and how do we build it? 

Few would argue that Reputation is a key determinant of any corporation’s success and sustainability. Of all conceivable risks, a risk to reputation must rank as one of the most toxic and fast-acting poisons.

As we’ve all seen over the recent months and years, stock price can always bounce back.

But when an organisation’s reputation is badly damaged, its route to recovery is both rocky and drawn out. It is never an easy process. One thing is clear, a risk to its reputation is a threat to the very existence of the entire business…Just ask Volkswagen!

As finance professionals, most will no doubt be familiar with Arthur Andersen and the 2001 Enron scandal but I want to bring it back into focus. 

Arthur Andersen was once widely regarded as one of the Big 5 Accounting firms. In 2002, that Five became Four! 

Think straight, talk straightAndersen, himself, was a zealous supporter of high standards in the accounting industry. For many years, Andersen's motto was "Think straight, talk straight". As a result, the firm counted some of the world’s largest corporations amongst its client base.

Jump forward now to June 2002 and the Enron scandal. Andersen was convicted of obstruction of justice for shredding documents related to its audit of American energy giant Enron. The subsequent reversal of the criminal conviction on a technicality did little to help.

So, what was the impact to the firm’s reputation?

The damage to the Andersen name was so severe that it has not returned as a viable business even on a limited scale. There remain over 100 civil suits pending against the firm related to its audits of Enron and other companies. 

In addition, its reputation was so badly tarnished that no company wanted Andersen's name on an audit. Even before voluntarily surrendering its right to practice before the SEC, it had many of its state licenses revoked. 

From a high of 85,000 employees worldwide, the firm is now down to around 200 based primarily in Chicago. Most of their attention is on handling the lawsuits and dissolution of the company.

Something a bit more recent? How about the News of the World scandal?

In July 2011, News Corp closed down the News of the World newspaper in Britain due to allegations of phone hackings. The allegations included trying to access former Prime Minister Gordon Brown’s voice mail, and obtain information from his bank accounts, family's medical records, and private legal files.

The closure of the News of the World after 168 years in print was the first significant effect of the scandal.

In the days leading up its closure Virgin Holidays, the Co-operative Group, Ford Motor Company and General Motors had all pulled their advertisements from the News of the World. In response to the unfolding controversy, Rupert Murdoch was also forced to withdraw his proposal to take full control BSkyB.

But what about those striving to a build positive reputation? 

Arguably the most successful investor ever, Warren Buffett certainly knows which horse to back.If you're looking for a wonderful business, it's hard to beat Coca-Cola. "If you're looking for a wonderful business, it's hard to beat Coca-Cola."

With hardly a single major scandal in its 129 year history, Coca Cola is consistently ranked as one the world’s top five most trusted brands and it’s little wonder that Berkshire Hathaway currently owns around 400,000 shares for a market value of more than $16 billion.

In my view, reputation shouldn’t simply center around the wider corporation. Successful businesses are built on successful individuals with a successful personal brand and reputation.

Those leaders & managers who have built a strong corporate reputation know what it takes - An internal culture that forges a positive opinion of the company. 

The same goes for internal audit departments...

In order to emphasise the supreme importance of building a positive reputation and to highlight the consequences to both an individual and institution, I’d like to refer to the Frost/Nixon interviews which I watched again over the weekend.

The Watergate of the 70s scandal left such an impression on the national and international consciousness that many scandals since then have been labelled with the suffix "-gate".

Interestingly, most people will focus on the ruined reputation of President Nixon. But what about the host, David Frost?

Hand-picked by Nixon’s team, he was considered a light-weight. Indeed, in the early parts of the interviews, he did little to alter people’s perception of this.

Frost grew in stature, however, and as he warmed to the task and became better prepared, so he began pushing the boundaries.  The zeal with which he pursued the issues was undoubtedly the making of him.  

Build your brand through reputation and integrity.

The above example serves to highlight the importance of building your own brand through reputation, and the dire consequences of failing to do so. 

In the more prosaic corporate world, many would criticise a heavy handed audit function. They would question the diminished effectiveness that “policing-type approach” often creates. Equally, the same is true for a light and forgiving approach. 

Integrity is of course critical to the continued success of an audit function. The challenge is to find the balance between achieving results and aligning oneself with the overall business strategy. 

For any Internal Auditors out there, you have a positive opportunity to take control of your own reputation before somebody else does it for you.

Stand up for what you believe to be right regardless of the obstacles blocking your path.

The finest steel has to go through the hottest fire”, Richard Milhous Nixon

Andrew Kitchen's picture
Manager | Internal Audit
akitchen@morganmckinley.co.uk