Honesty, Reputation, and Ethics

The connection between reputation and ethics is complex. A pattern of ethical behaviour is clearly essential to establishing a good reputation, which for a company means a reputation as the kind of company people want to do business with. But hold on. All that’s really essential, from a business point of view, is to be perceived as ethical. But there are two ways of reading that ancient point. The cynical way is to say that all that matters in business is to give people the impression that you’re ethical, and that can be done through good PR or even outright misrepresentation. The less cynical way of reading that is that you’ve got not just to be ethical, in the sense of doing what you think is the right thing to do; you’ve also got to convince key stakeholders that you’ve done the right thing.

Take honesty, for example. Honesty matters, but so do public perceptions of honesty. In that regard, see this useful piece on corporate disclosure, by Steven M Davidoff for the NY Times: In Corporate Disclosure, a Murky Definition of Material.

Most of the piece is an exploration of the legal standard of “materiality.” Materiality is essentially about relevance. Publicly-traded companies are obligated to reveal certain information to the investing public (typically through filings with the relevant regulatory agency). But not everything they do needs to be reported — not everything is sufficiently important — and there are lots of legitimate reasons why companies don’t want to reveal any- and everything. Figuring out just what needs to be disclosed is a difficult legal problem. But towards the end of the piece, Davidoff argues that companies should avoid focusing on mere legalities. As Davidoff points out:

Companies need to understand that information disclosure is not just a legal game. Failure to disclose important information on a timely basis can harm a company’s reputation.

So, it’s all about reputation, about ‘optics’? “What about ethics?” you ask. But consider: why would a failure of disclosure harm a company’s reputation? In part, it would do so because (or if) the failure harms people’s interests. But even then, harming someone’s interests won’t immediately harm reputation. If, for example, Ford designs a new SUV that’s so good that sales of GM’s SUV’s fall, putting thousands of GM employees out of work, well, that’s bad for GM’s employees, but the harm done to them by Ford is not going to damage Ford’s reputation. Because, after all, the harm done to the employees was the result of fair competitive practices on the part of Ford. A company’s behaviour is only going to hurt its reputation if some critical mass of people see that behaviour as unethical. So in the end, even a concern about “mere reputation” has to be grounded in ethical principles.

6 comments so far

  1. Niki on

    Ethics build the structure how to behave for every person as for big companies. But values differ from each other in different cultures, countries, religions. So I think it could be a problem for an international company to decide which values to follow. They might not be able to do it right for everybody, are they?
    A wise man told us: consider all opportunities before making a choice and, if there is not a good one, take the less bad one to maximize the general wealth. I think this could be a good way…

    • Matthew Brophy on

      Reputation, I tend to think, is given far too much weight. My business ethics students tend to be idealistic, thouggh: they seem to believe that there’s something like karmic PR, where if a company does a bad thing, they’ll be sufficiently punished for it by a ruined reputation that will result in diminished profits. Though I haven’t done extensive research, I suspect this is bull-puckey. It seems to me that Lee Iacocca and Ford did just fine after the infamous Pinto debacle (Iacocca is named one of the greatest CEOs of all time). Nestle has always been strong despite the baby formula travesties. And I imagine that BP will be just peachy years after the biggest oil spill in history. I’d like to think we live in a world where reputation matters so much that its provides self-serving constraints on a business to actually act ethically. I tend to think that, unfortunately, reputation is far more inert.

      • Chris MacDonald on

        Matthew:

        I tend to agree with you, though I don’t know any relevant stats. I suspect it depends on things like how essential (or even just attractive) a company’s product is. BP will do fine because people need gas & oil. And it’s hard for me to imagine what unethical things Apple would have to do to stop me from buying their products, which in my eyes have no real competitors. I suspect reputation mostly matters around the edges, so to speak.

        Chris.

  2. Courtney Wantink on

    Chris:

    Based on your statement that a company’s reputation is formed by a key number of outsiders’ perceptions of its actions, what then do you make of Corporate Social Responsibility? I’ve read many arguments that CSR is fast becoming a trend of corporations to uphold or gain a good reputation. This may be true in some cases, but in my opinion, there truly are some companies out there seeking to make ethical decisions, and the good reputations just follow (I may be a little biased, as I’m working as the CSR Coordinator of Fashioning Change). What are your thoughts on this?

  3. Arsene Kodjo on

    Reputation certainly has its place as a key intangible resource to carefully manage. I believe reputation as an intangible strategic resources reposes on a company’s performance and track records. So, in the case of BP for instance people will continue to patronise the company not simply because of the essential nature of its products but also its “quality superiority”. In addition, I strongly believe that customers’ image in use of a company is mainly based on the overall perception and transaction with the company rather than on a single event: How many times had BP dealt with oil spillages in its lifetime to warrant a boycott of its products and services?


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