A number of years ago some enterprising deal makers at GE Capital proposed a series of transactions that would provide financing for a chain of funeral homes. From a financial perspective, it looked like an attractive proposition: The terms were good, the demographics pointed to a growing market need, and the fragmentation of the industry suggested major opportunities for continued consolidation. When the idea was presented to Capital's CEO, Gary Wendt, however, he asked how the company would be perceived if a GE-financed funeral home was accused of overcharging a bereaved family or didn't provide proper services for someone's beloved grandmother. In his opinion, the deal did not pass what he called the "reputational smell test."
I was reminded of this story when I read about the SEC case against Goldman Sachs. While it is still to be determined if Goldman actually violated any securities laws, it's already clear that the Abacus deal has been another blow to Goldman's reputation. Whether true or not, there is a perception that Goldman sold a product without fully disclosing some of the key facts to investors. This charge comes on top of concerns that the firm also somehow contributed to the debt crisis in Greece; that it unduly profited from the TARP bailout; and that its bonuses are out of line with what is fair and decent. It is quite possible (in fact likely) that Goldman has done nothing wrong and has played by the rules in all of these cases. But the accumulated weight of these stories has begun to create a perception that Goldman places a higher priority on its own profitability than that of its clients. For a firm that considers its reputation to be a key part of its success, this should be an even more serious concern than the SEC case.
Toyota, of course, is in somewhat of a similar situation. It has suffered a series of quality problems, especially devastating for a firm that has built its reputation on quality. These began innocuously as a concern about floor mats that jammed the accelerator pedals of certain models and then escalated into full-scale recalls of its most popular cars, a temporary shutdown of sales and manufacturing, and possible government fines and legal actions. As a result, Toyota's reputation has plummeted. Whereas two years ago, 80% of Americans saw Toyota as a company that built quality products, that figure now hovers around 20%.
Reputation is a "soft" concept that most managers and employees don't feel is their job to manage. Instead they view it as the role of senior executives, or of functions like corporate communications, marketing, advertising, or public relations. While this is certainly true to some extent, it may also be a cop out. For example, two firms that are consistently at or near the top of the "most reputable" companies list (based on extensive consumer surveys by the non-profit Reputation Institute) are Johnson & Johnson and The Walt Disney Company. Despite having many types of businesses, J&J emphasizes through its "credo" that every employee has a responsibility to put the well-being of the people they serve first. Similarly, Disney makes every employee feel responsible for the entertainment products and services they provide. So maybe their positions on the top of the reputation list are no accidents.
If reputation is important to your company -- or your division or unit -- then building and maintaining it may need to be part of everyone's responsibility. If that were the case at Toyota, perhaps some engineers or designers or testers would have discovered and reported the quality problems before the cars were produced. And if reputation were critical to all parties at Goldman, then perhaps its deal makers would have applied the "reputational smell test" to Abacus or Greece.
Nobody knows how much a reputation is really worth, although many would say that it's priceless. The one thing we do know, however, is that once a reputation is tarnished, it takes a lot of hard work, and a long period of time, to regain its luster.
How important is reputation to your firm -- and do you see it as part of your responsibility?
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