The most valuable intangible asset contemporary companies have is their company’s brand reputation—that is, the repute or disrepute with which the majority of the public (including investors and customers) view the company holistically. While brand reputation has historically focused on product reliability and customer service satisfaction, a new generation of more savvy consumers and investors have completely upended the old framework by which a corporation is assessed in the court of public opinion. As such, brand reputation now includes a litany of items once trivialized in the context of consumer choice. These include, but are not limited to, a company’s commitment to sound ethical and legal practices and increasingly, a company’s commitment to environmental, social and governance (“ESG”) principles.
Boeing: A Once Revered Name Now Tarnished
The loss of brand reputation can have devastating financial and other collateral consequences for the company as a whole. As the fairly recent Boeing 737 MAX debacle demonstrated, for instance, the entire credibility of a company once heralded as one of the most reliable global manufacturers of civil and military aircraft can suffer a near-fatal blow in the blink of an eye.
Forced to ground its entire 737 MAX fleet in the aftermath of deadly—and preventable—crashes in Indonesia in 2018 and Ethiopia in 2019 caused by its now infamous MCAS system, Boeing quickly became the object of scorn and ridicule. Worse, it was later revealed that Boeing personnel were aware of the glitch and took no action to remediate a feature that clearly imperiled lives by impeding a pilot’s ability to competently fly the aircraft. Boeing’s stock price plummeted from a high of $440 per share in March 2019 to a low of nearly $95 by March 2020—representing a nearly 80% decline in Boeing’s stock performance overall. Adding insult to injury, Boeing quickly became the target of increased scrutiny by its principal regulators—the U.S. Federal Aviation Administration (“FAA”) and U.S. Department of Transportation (“DOT”)—in other contexts as well. In September 2020, Boeing announced an ongoing investigation into certain manufacturing flaws involved in the production of the 787 Dreamliner. By November 2021, a bipartisan group of lawmakers on the Transportation and Infrastructure Committee of the U.S. House of Representatives had urged the Office of the Inspector General within the DOT to conduct a thorough review of the FAA’s oversight of the manufacture and production of the 787—leading to widespread speculation that the proverbial storm facing Boeing had only just begun.
Boeing’s stunning fall from grace should be a lesson for all companies. Had multiple warnings from within Boeing itself been taken seriously, it is entirely probable that the MCAS system would have been modified or eliminated altogether—preventing the loss of its once impeccable reputation, and most importantly, the lives of those lost during two ill-fated flights. But as multiple reports acknowledged, Boeing had lost the critical element of an open culture through a series of successive acquisitions—particularly that of McDonnell Douglas in 1997—which caused it to elevate profit over quality.
While the Boeing tragedy is an extreme example, no contemporary company is immune from either the financial pressures or potential scandals that can arise when ethics and compliance are not recognized as critical business functions. To preserve brand reputation, therefore, companies should take the following steps to ensure their actions match their rhetoric:
1. Cultivate a Culture Where Employees are Encouraged—Not Discouraged—from Speaking Up
As the Boeing example illustrates, cultivating a speak-up culture from within the company is a critical component of an effective ethics and compliance program. Such reporting mechanisms should be anonymous and confidential, easily accessible by employees—via the Internet or telephone—and preferably operated by an independent third party. But merely having such a mechanism in place is insufficient. Boeing, too, had employee hotlines available. What distinguishes Boeing from other companies that effectively detect and deter malfeasance is that mechanisms exist to raise concerns with parties that will take the report seriously. Therefore, companies that value ethics and compliance should not only have mechanisms in place to receive reports, but to thoroughly investigate, and where necessary elevate concerns past senior leadership to the board of directors and/or designated board committee. Importantly, the elevation of such concerns to the board should be encouraged rather than discouraged. Effective corporate governance—and relatedly, an increasing emphasis on board member liability in shareholder derivative suits—is dependent on the disclosure of fundamental concerns to, and swift action by, the company’s board.
2. Consistently Communicate the Importance of Ethics and Compliance in Word and Deed
It seems contrite but necessary to say that a company’s commitment to ethics and compliance cannot be confined to a mission statement or code of conduct alone. Indeed, the company must take proactive measures to ensure that all employees understand their conduct has a direct impact on whether the company is viewed favorably or disfavorably by the general public. To that end, senior leadership commitment to ensuring that ethics and compliance topics are relayed to employees seriously and consistently is required. As the U.S. Department of Justice’s own Guidelines on the Evaluation of Corporate Compliance Programs (“DOJ Guidelines”) emphasize, a material factor in assessing whether an entity qualifies for leniency in federal prosecution is measured by the extent to which “senior management have clearly articulated the company’s ethical standards, conveyed and disseminated them in clear and unambiguous terms, and demonstrated rigorous adherence by example.”
While companies typically employ the practice of having the President or CEO send an annual message to employees stressing the importance of complying with a code of conduct or business practices holistically, the DOJ Guidelines candidly require more. As such, periodic messages throughout the year stressing the importance of individual aspects of a company’s code of conduct or business practices would be preferable. In each case, the senior leader responsible for conveying the message should be available to discuss any aspect of the code that may seem ambiguous or irrelevant to the employee audience. As the use of computerized video conferencing technology has exploded in the wake of the COVID-19 pandemic, companies have resorted to using a variety of these platforms to hold periodic “town hall” style meetings—presenting a perfect opportunity for senior leaders (in conjunction with compliance professionals) to highlight the significance of ethics and compliance topics to a captive audience.
3. Ensure that Discipline is Consistent and Hold Senior Leaders Accountable
Creating a positive brand reputation and culture of compliance also means adhering to a protocol of consistent discipline across the board—from the C-suite to the reception desk. When an infraction of the code of other policies of the company occurs, consideration of title and seniority must never take precedence over the nature and gravity of the purported transgression. Equality in discipline means that regardless of whether the CEO violates a specific policy or whether a frontline worker violates the same policy, each is treated the same—with dignity, fairness, and firmness. Preferential treatment of key leaders—be they members of the company’s board of directors or senior officers—completely undermines the company’s stated commitment to elevating ethics and compliance as virtues and can lead to serious legal repercussions as well. The bottom line is this: each substantiated infraction of either the law or a company’s policies by an employee is a bad deed that must be dealt with equitably.
4. Integrate Good Corporate Governance Principles throughout the Company
Brand reputation is also increasingly tied to good corporate governance principles by more scrupulous consumers and a new generation of more socially conscious investors. Where possible, companies conscious of brand image should attempt to align their strategic goals with these principles. For example, the growing emphasis on climate change should prompt companies to adopt strategies for immediate and longer-term sustainability with a view towards limiting the company’s overall carbon footprint and contribution to environmental degradation. Likewise, a focus on diversity, inclusion and equity in the workplace should encourage companies to examine their own hiring and promotion practices to ensure that disadvantaged or historically marginalized populations are afforded an equal opportunity at meaningful work and advancement.
Warren Buffet—the scion of modern capitalism—once famously observed that it “takes twenty years to build a reputation and five minutes to ruin it.” In the information age, where near instantaneous communication allows news to reach even the most remote locations, companies can ill-afford to have their brands undermined by malfeasance or misconduct. A renewed focus on ethics and compliance can ensure that a company is well-situated to compete in a dynamic competitive environment.
Want to know more? Discover more in the ultimate playbook on how to build a strong speak-up culture in your organization.