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Corporate behavior: a new dimension to corporate compliance 16/10/2009

Posted by Corneel Maes in Uncategorized.
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As some careful signs of recovery from the economic crisis start to surface, the corporate world is diligently shaping up for revival and getting back to “business as usual”. Having said that, the question is whether business will ever get back to what it used to be before the Lehman collapse. Most probably not. As bankers are being accused and pursued for taking risks they didn’t even fully understand themselves while pocketing extravagant bonuses, the virus that spread through the financial sector has highlighted the interdependencies that ultimately undermined the whole global economic system. Commentators call it systemic risk: a new buzz word, these days often used and sometimes abused.

What did we learn, if anything? Do we understand what really caused the economic tsunami? How can we prevent this from happening again? Lots of theories have been developed, lots of measures proposed, discussed, adopted or rejected. Almost everybody seems to agree on three main conclusions. First and foremost: careless risk taking in banking should be made impossible. Second, good corporate governance and ethics should be the only drivers in business. And last but not least: it looks like the word “bonus” needs to be erased from corporate vocabulary. But how will we achieve that and turn around almost overnight? The remedy looks as obvious and straightforward as the analysis of the cause: we need more and better regulation, stronger control mechanisms, less loopholes – in other words: close the gap on systemic risk. Shareholders and clients need to have more transparency on what they get in return for their money. And we need to ban disproportionate remuneration packages for senior leadership.

Whilst all these ideas and objectives are very legitimate, I think we should not underestimate the risk in overregulation of the business and undervaluation of leadership capabilities. Rules and regulations are the foundation of every democratic and well functioning community, whether it’s social or business. But too many rules and too stringent regulations, as an overreaction to the financial industry meltdown and as an attempt to close each and every loophole, may well turn out to become an adverse effect. At the end of the day, what’s important now is to learn from experience, turn around and prepare for the post-crisis momentum. Business is bound to pick up sooner or later and smart companies are the ones that look ahead and take their own sustainability at hand.

In the post-crisis game, financial institutions – and by extension corporate companies in general – will need to work hard to regain and earn respect and credibility. That’s not an easy task. Especially in finance but in other sectors too, a lot of reputational damage has occurred and it will require years of hard work to get some brands back to where they stood 15 months ago. It’s a challenge, one that cannot be achieved by merely complying with the newly enforced regulation, not even if compliance were 200%.

The roadmap to earning confidence in the post-crisis world is walking the talk. By actually evidencing the “R” of responsibly taking  in CSR, by demonstrating ethical behavior in business dealings, by being transparent on corporate governance and decision making processes, by maintaining an intelligent dialogue with shareholders, customers and employees. Believe me, those companies that comply with the new rules and regulations will be good in class. Those who act upon them and live and breathe the substance of these rules will become best in class. Corporate behavior, as a new dimension to corporate compliance. Nice word play, I agree – but to me it’s the benchmark against which corporate brands and their leadership will be perceived, valued and rewarded in the post-crisis economic environment. Compliance is a  non negotiable, corporate behavior is what creates trust and differentiates companies that move ahead of the pack, in any given industry.

Easier said than done? Maybe, maybe not. It all depends on how effectively companies and their leadership communicate with their audiences – directly and indirectly, in speech and in behavior. In the current social media explosion, stakeholders – friends and foes – increasingly serve as multipliers of their own perception – good or bad – about the company. And perception is reality. The recent “hype” around Fortisgate is a good example of the damage that horizontal influencing can do to a company.

As we move out of the crisis, we need to make sure that the current regulatory groundwork serves as the solid foundation for reconstruction, but also as the fertile soil in which responsible behavior can grow and be cultivated. If you look at the financial services industry, the focus is very much on going “back to basics”. Retail banking – and savings banks – are bound to revive, whilst for decades they were considered second tier as compared to the “real”, more sophisticated banking practices. I just hope that back to basics doesn’t mean “back to the past”.  In itself there is nothing wrong with sophisticated bank products and financial services – what matters is how bankers deal with them: there lies a world of corporate responsibility between “over the counter hard selling” and “empathic face-to-face advisory”.

Coming back to remuneration packages – and bonuses – they have become such a sensitive topic lately, but shouldn’t we at least have the courage to reconsider going back to basics too? I just wonder. At the end of the day, what’s the harm in rewarding a handful of truly visionary leaders who think long term, act long term and inspire thrust and confidence through their responsible behavior? The share price (or perceived brand equity) of a company is the present price tag for its future (financial) value creation potential. Everybody will agree to that. I leave it as food for thought, but wouldn’t it be great if the post-crisis “management bonus” would be the price tag for transparency, ethics, sustainability, talent management and forward thinking?