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Does the market care about bribery?

June 13, 2012

In recent times, reputation risk has increasingly featured as one of the growing areas for executive concern. Much has been written about the ned for business to guard against the type of faux-pas that will generate adverse publicity – whether it be the use of child labor, unethical marketing practices, product safety issues or allegations of bribery and corruption.

I recall various researchers – including my friend Profesor Rob Handfield – undertook analysis to show the impact of reputational risk, in particular on a company’s share price. If I recall correctly, it often took 2 years or more to recover and even then performance was often left negative to wider industry performance.

But is reputation risk actually just another fad? Has the market – and society generally – now accepted reputational issues as another  feature of doing business? Perhaps we are at a point where such issues are deemed relatively normal and inevitable; and maybe the scale of actual penalties levied by the regulators (once so feared) have in practice proven quite manageable. Indeed, in many cases the benefits achieved from ‘the offence’ perhaps exceed the scale of the resultant fines.

Take the case of Walmart and its alleged activities in Mexico. When news first broke, the share price fell by almost 5%. But since then, it has actually climbed by around 12%, outpacing the performance of its main competitors. Indeed, in a recent blog, business ethics consultant Lauren Bloom observed: “According to the Wall Street Journal,  Warren Buffett said that in general, someone at larger corporations is always doing something wrong, and that the company’s job is to get the issue corrected. Translation: a scandal may be embarrassing but, unless it seriously impacts a company’s profitability, investors probably won’t care about it very much.”

This attitiude is generally reflected in the priorities we discover among many supply chain and commercial staff. While they certainly are not careless about these issues, there seems to be an increasing attitude of self-insurance – it is not worth paying the premium involved in being overly zealous about reputational risk. So perhaps it is a case that familiarity has once more bred contempt.

What do you think?

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