Rebuilding reputation is a big communication issue: William Kooser
Corporate reputation and trust are two intangible yet valuable assets of any company that need careful handling, more so today when companies and leaders operate in a tumultuous global business environment, face demanding set of stakeholders and customers, and grapple with the rapid changes brought about by the digital revolution.
However, in the last few decades, many big companies have got embroiled in financial scams and scandals. Be it the Enron scandal in 2001 that led to the bankruptcy of Enron Corp., and the de facto dissolution of Arthur Andersen, one of the five largest audit and accountancy partnerships in the world or the bankruptcy of Lehman Brothers that triggered a global financial meltdown or the Satyam scandal in our own backyard—the list of scandals engulfing the corporate world is endless.
The latest addition to this is the Volkswagen emissions scandal that came to light last month. By cheating on emission tests not only in the US, but on an estimated 11 million cars around the world, Volkswagen broke the trust of its customers and clients, its reputation damaged to tatters, a stock price in free fall, and the prospect of a long-drawn criminal prosecution for the company and its brass.
Although the fallout from the scandal may not kill the German automotive company, it will be very difficult to mend its reputation and rebuild the trust with customers.
William W. Kooser, associate dean for global outreach at the University of Chicago Booth School of Business, spoke about Volkswagen, and issues of trust and reputation during his recent visit to Delhi. Edited excerpts:
How will Volkswagen rebuild its reputation after the scandal?
It is very, very hard. No matter who you are, when you have a major disaster like this, it is very hard to recover from that. Perhaps it is a little bit easier with a company like Volkswagen because there is a product that has historically been very, very well received. There is a large pool of owners of Volkswagen vehicles and my guess is they have been very happy with their Volkswagen products. So from a Volkswagen standpoint, it’s like kind of focusing on the technology and rebuilding trust. The main issue is that the management has recognized the errors and has made a significant change.
It’s more difficult for a company like Arthur Anderson from a few years ago, and with the Enron scandal where you have a professional services company that relies on trust and integrity. It does not have a product necessarily to rely on. So for Arthur Anderson, it was more difficult—they basically disappeared after that scandal. (This was a big blow to the consulting firm considering that it was one of the world’s top five accounting firms prior to the scandal). So it’s very hard—you have to work diligently to regain that trust for the consumer or the client—in some cases it’s easier than others, again for professional services companies it’s very difficult to rebuild that trust. For product companies, it’s a little bit more easy, but it takes a long time.
What about the BP oil spill that began in 2010 and is considered the largest accidental marine oil spill in the history of the petroleum industry?
Well, from a BP standpoint, I think they have done a lot of good things such as providing funding and confessing the mistakes they made. I don’t know where they stand revenue or profit wise from where they were before the big spill, but I see a lot of BP gasoline stations around the US and they are functioning just well.
Your advice for management on how to regain trust and rebuild reputation.
Well the best thing is to not to get in the problem in the first place, but of course that’s easier said than done. I don’t think there are any hard and fast rules on how to regain the trust. I think you have to recognize and communicate to your public that yes we’ve made a mistake, here is what we have done, here is how it happened, why it happened and here is what we are doing to fix the problem, and kind of go from there.
Rebuilding reputation is a big communication issue that needs to be based on the realities. There cannot be a smokescreen around that. But it takes a long, long time in many cases.
You’ve spoken a lot on social capital. What is that?
The idea is basically how do your connections or relationships within an organization influence your ability to function within that organization; how do your connections help you identify new and interesting ideas; what types of organizational structures allow you to get things done quickly and what organizational structures allow you to generate new and innovative ideas—so social capital is a concept of how do your connections within your organization influence who you are, your career path and how your organization functions.
There are very tight organizations where everyone knows one another and works together. They are very good at accomplishing things, as in they are fast and efficient in getting things done, but these organizations can suffer from an inbred thinking about ideas. Then there are other organizations that may not be so tightly knit, but where everyone has got connections to others’—colleagues, friends and other departments—so they are good at bringing new ideas into the mix, but they may not be as good at getting things done quickly. So you have this interesting tension between a tight-knit organization which is very efficient as compared to a looser organization that is very innovative, so one of the challenges of management is how do you structure things so that you have the innovative connection to external parties, but also have enough tight knitness to get things done.
What is your perspective on Asia and why Asia is an important destination for business schools?
What is happening in Asia is really driving the world economy. So between China, India and South-East Asia, it is an important element for any business and business school to be involved in. It gives business schools an opportunity to understand what is happening in the region and allows them to tailor educational programmes to students who might not otherwise be able to come to the US—so an Asian presence is very important for businesses and schools to build a global presence and global influence on business leadership.