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Are you prepared to protect the biggest thing you have to lose — your reputation?

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Sam Waltz

Sam Waltz
Founding Publisher

Watching Wells Fargo CEO John Stumpf twist in the wind – deservedly so – before his forced dismissal reminds us of the case just a six months ago where Volkswagen CEO Martin Winterkorn was forced into his own resignation.

Such is the power of reputation, and the value put on it.

It can cost political incumbents – Delaware’s former State Treasurer just two or three years ago and the state’s second-highest executive in the person of the New Castle County Executive in September.

It can cost corporate chieftains who seem beyond reach, scrutiny and accountability, perhaps the case in recent corporate adventures for DuPont, leading to its CEO being deposed, or even Hercules where a bad acquisition created the vulnerability that led to its own acquisition by Ashland Chemical.

It can cost not-for-profit leaders – and their boards – when they stumble, e.g., the social services agency where the daughter of the founder was accused of having sex with a minor who was an agency client.

It can cost small and mid-sized businesses, e.g., the founder of a Delaware solar energy company where actual financial performance apparently did not match what the company was reporting, or the state’s beloved Wilmington Trust Co.

Talking about that last week with some not-for-profit leaders prompted me to recall some of what I’ve taught over the years at universities and workshops regarding reputation and crisis management. Because so many of our readers work in industry, serve on not-for-profit boards, or are otherwise active in Delaware public life, it’s worth considering.

First, from a reactive point of view, understand the four sources of a crisis that can threaten reputation:

  • Mission failure
  • Leadership failure
  • Human failure
  • Acts of God.

Yes, for the most part – with perhaps the exception of acts of God, like a lightning strike that kills people – they can be prevented. A good audit accomplished on an annual basis allows an organization to look at its exposure, anticipate and remediate.

Mission failure occurs when the organization fails spectacularly in its mission, e.g., the hospital that kills its patients rather than cures them (e.g., the macabre 1971 Paddy Chayefsky black comedy “Hospital” starring George C. Scott), the ag chemical that kills crops as well as weeds, etc.

Leadership failure occurs when an organization’s leaders don’t exercise the requisite stewardship of their charge, that is, nurturing businesses through change, growth, challenges, etc. In effect, that’s what activist investor Nelson Peltz charged the most recent generation of DuPont leadership with.

Human failure arguably is the most common. It’s “people being people,” with all the human weaknesses that come with people. It’s the financial person who steals money. It’s the engineer who cheats – as did VW’s engineers on its emissions. It’s the sales people who make up sales, e.g., a well-known Delaware solar company whose CEO was “booking sales revenues” that had not occurred to create a misleading P&L.

In understanding the capacity for human failure, one needs look at only the handful of things that drive people:

  • Money, or the lust for it
  • Sex, speaking of lust
  • Race, in all its permutations
  • Power, or the lust for it
  • Non-performance and the avoidance of accountability

I’ve worked with a number of not-for-profits where a not-closely supervised official has stolen large sums of money. I’ve worked on the issues of predatory sexual behavior in schools and churches, as well as the workplace. In one case, several women of a well-regarded physician began to report that – after 30-plus years in practice – he’d begun to grope some of his female patients. In another, one of the state’s best-known accountants had stolen millions of dollars, albeit not from his firm or its clients.

So, why is this important??

A crisis can cost an organization its future, even its present. They may be less important in really small businesses, which simply go out of business and fail when a crisis occurs.

But in larger privately held or publicly traded businesses, as well as even small nonprofits as well as larger ones, government, higher education and health care, diligence in this essential.

In what I call the “shoot the survivors,” or even “shoot the messengers,” when a particularly messy issue occurs, even the innocent are not safe because of a variety of issues, e.g., duties of loyalty, fiduciary responsibility, etc., even though they may discover the issue and report it. Ultimately it can cost the organization its own survival.

Managing expectations – along with great stewardship – really is a key, and building a strong culture that exemplifies the highest aspirations is a great approach.

Think MBNA and its “Think of yourself first as the customer,” where MBNA built the most extraordinary culture in its virtually overnight growth. Ditto to WSFS Bank and its redefinition of the WSFS brand to “We Stand For Service,” with a great customer promise on which it delivers day in and day out.

Don’t find yourself in a reputational crisis. Be proactive.

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