The Commodities Futures Trading Commission (CFTC) joined the Securities and Exchange Commission and some federal courts this week in a significant pivot in corporate accountability in legal settlements. The CFTC insisted that JPMorgan Chase make a public admission of accountability in connection with the London Whale trading losses debacle. In doing so, the agency exerted its might well beyond the bank's check book.
Historically, government settlements permitted defendants to include lawyerly language that they "admit no wrong-doing." While asserting the absence of a negative in a legal settlement creates the perception usually that something, indeed, went wrong, it is far more powerful to insist that companies own up. To be sure, regulators now wave a far more consequential wand.
Indeed, while clearing the way for civil lawsuits and other avenues of legal reproach, the CFTC has signaled, intentionally or not, that a new and substantial cost exists for side-stepping accountability. By insisting on admissions of responsibility and accountability, the CFTC, among others, is weaving fitting irony by forcing financial institutions to mortgage their reputation and their trust.
In today's increasingly commoditized marketplace, reputation stands as one of the most important strategic assets in differentiating an organization competitively. Consider: Banks, airlines, food producers and many others largely mirror each other in what they provide. So their corporate reputational assets and trust become the most critical assets for stakeholders to determine their public license to operate.
While study after study documents the premium that boards of directors and senior executives put on reputational strategy, few companies in any market sector have effectively built process around reputational strategy. True, every airline CEO asserts to captive passengers in the traditional pre-take-off video that "customer service is our No.1 priority." But that nearly always rings hollow when the flight attendants are barking at passengers to turn off their personal devices or shrugging as they inform international travelers that their special meal order didn't make it on board.
The few companies with robust capacities for leveraging their reputational strategy share a common DNA. Every decision is made through a prism and reflects the concerns of the stakeholders who provide it with its sustenance and success. In most cases, these companies benefit from a diminished risk of embarrassing headlines, far lower litigation costs and, not surprisingly, stable and reliable financial growth. On the other hand, contrast this to the myriad companies that try to cash in on reputational claims they can't support. In nearly every instance, reputational risk becomes the largest impediment to meaningful and resilient commercial success.
Despite the fragile trust we possess in government, the CFTC seems to have gotten it right by forcing companies to put their reputations on the line knowing that this avenue isn't easily remedied with money.