What’s in a reputation? Anyone paying attention to news headlines will appreciate the extent to which the strength of financial services companies is tied to their reputations.
Banks that are perceived as having implemented appropriate risk controls are seen as safer investments than those that have not. Those perceived as having limited exposure to assets such as sub-prime mortgages are less risky than those that invested heavily in poorly understood securities.
Right now, even the faintest hint of trouble can lead to a downward spiral with disastrous consequences for shareholders, employees, and possibly the entire financial system. It does not stop there. Politicians, economists, and pundits alike are finding their reputations either enhanced or in tatters as a result of their words, decisions, or inaction.
Reputations obviously matter but it seems to me the issue for financial services has been that reputations have become skin deep. So much of the communications work in a boom market is about growth that any notion of quality actually went by the board. Now that times are hard and the future unclear, most companies have withdrawn into their shells, just when the public vacuum offers the perfect platform to reaffirm their commitments. Maybe that reticence reflects the size of the problem, or the lack of confidence the industry has about its own reputation. Robust reputations, it seems, are built over time and lost in the blink of an eye.
But will a good reputation matter when good times will return? What constitutes a good reputation? It is in part about perception, in part about evidence, but overall it is about quality.
My recent experience of jury service highlighted the importance of having a process that allowed evidence of fine reputation to be established. Good character can count for everything when everyone is pointing the finger at everyone else. It saved at least one person on my watch and while good character cannot logically be a guarantee of innocence, good reputation can be the difference between success and failure, freedom and custody.
I believe there is a key point in satisfying the criteria of our earlier definition. Financial services has had a record of over-promising and under-delivering from a customer’s point of view, hence the vast reams of regulation that have inundated the industry in the past 20 years. Culturally, we are catching up with the notion of quality management that is more easily understood in other industries.
There are people and there are processes. This is especially true when you consider what has happend in the credit crisis. Many banks and financial services providers are flat, lean organisations with good people, who outsource non-core functions, and whose companies are less unencumbered by physical assets and are instead rich in intangible asset value. The superior returns on these assets are highly dependent on complex arrangements and business networks. This means institutions depended on a global network of other organised sources of capital. That network’s crisis of confidence and its resulting failure to supply liquidity have wounded banks and insurers alike.
So one of the strongest factors keeping complex business networks together – reputation – is also a source of risk. In financial services, a good reputation was a given for best in class companies, but only because they were presumed to have it. We understand quality in products – we also need to learn to understand quality in process. My guess is that transparent processes will be the new standards of reputation and that then we will have something to shout about. n
Matt Smith is managing director of WPB Creative
