Trend Report on The Management of Intangible Assets developed by the Research Centre of Governance, Sustainability and Reputation, an independent research centre supported aimed to foster collaboration for reseach, analyis and training in the field of Reputation Risk, Corporate Governance and Sustainability.
This report has been developed in collaboration with Canvas Estrategias Sostenibles, a strategic consulting firm focused on corporate responsibility and intangible assets in companies. It shows the main global trends, which define the present and future of intangible assets. Approaching the Future aspires to become a benchmark publication in the field of reputation, corporate governance and sustainability.
These are the headlines of the report:
Global Trends
- Trust increase, but also the social gap broadens.
- Climate change at a crucial tipping point
Sustainability Trends
- Strategic Partnerships: you can't do it alone
- Connect with aspiring shoppers
- Sustainable investment, growth formulas
- New business models?
Reputation trends
- Three critical reputation risks
- What is the real impact of reputation?
- Investment on Reputation growth
- New responsibilities for upper management
- Evolution of metrics
- Gain authority over influencers
2. Document Prepared by:
Research Centre of Governance, Sustainability and Reputation
Research Centre of Governance, Sustainability and Reputation is an independent centre aimed to promote collaboration in the
research, analysis and training of reputation risk, governance and sustainability and to study the impact of governance and sustainability
on reputation.
The Centre is supported by Corporate Excellence – Centre for Reputation Leadership and IE Business School, both benchmark
institutions in the field of business intangible assets management.
The current report has been developed together with Canvas Estrategias Sostenibles, a strategic consulting firm specialized on corporate
responsibility and business intangible assets.
RESEARCH CENTRE OF
GOVERNANCE
SUSTAINABILITY
AND REPUTATION
3. Summary
01 Global Trends
1.1 Trust recovers, but there is still a great social gap
1.2 Climate change at a crucial tipping point
02 Sustainability Trends
2.1 Strategic Partnerships: you can’t do it alone
2.2 Connect with aspiring shoppers
2.3 Sustainable investment, growth formulas
2.4 New business models?
03 Reputation Trends
3.1 Three critical reputation risks
3.2 The real impact of reputation
3.3 Investment on eputation growth
3.4 New responsibilities for upper management
3.5 Evolution of metrics
3.6 Gain authority over influencers
04 Corporate Governance Trends
4.1 New Code of Good Corporate Governance in Spain
4.2 Risks of a bad corporate governance
05 Map of Trends and Main Conclusions
06 References
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5. Trend Analysis 5
RESEARCH CENTRE OF
GOVERNANCE
SUSTAINABILITY
AND REPUTATION
GLOBAL TRENDS
In a world that is interconnected and
fragmented, trust building is, at the same
time, a challenge and the answer. Global
bad practices, such as the financial crisis,
banks’ abuse of power, corruption or harsh
refinancing measures imposed on the most
vulnerable countries, have undermined
people’s trust, both in companies and
institutions.
However, the findings of 2016 Edelman
Trust Barometer reveal trust has increased
compared to last year. Still, it shows the
largest ever trust gap between the informed
public and mass population when it comes
to trust. This growing inequality has
important consequences, such as the rise of
populist politicians and a higher demand on
governments for further regulations.
Globally, trust in business increases (53
percent) and remains above media (47
percent) and government (42 percent) but
continue to lag behind NGOs (55 percent),
which remain the most trusted institution.
Most of the participants in 2015 Edelman
Trust Barometer claimed that technological
advances in companies happen too fast.
They also think that firms are more motivated
by what they stand to gain than by the
common good and demand (80 percent) that
companies focus on improving the economic
and social conditions in the communities
in which they operate. The topics the
respondents are more concerned about
include education and training, healthcare
and well-being, protection and improvement
of the environment, support of human rights,
income inequality, poverty reduction or
creation and maintenance of infrastructure.
Experts, people “like yourself” and
employees are still more trusted than
government, which, one year later, still
presents the lowest trust rates. According to
the Barometer, respondents are more likely
to rely on employees (52 percent) rather
than on the organization they work for. In
this sense, the trend is expected to be rising
(it grew 4 points compared to 2015). The
findings also show that employees are the
trustworthiest source, —more than activist,
experts, CEOs, managers or academics—
when it comes to specific subjects such as the
relationship with employees and customers,
financial information or business practices
in crisis situations. CEO trust has also risen
substantially: from 41 to 49 percent in 2016.
However, they are still criticised for not
focusing enough on job creation (49 percent)
or causing a positive long-term impact (57
percent).
Without trust, everything else vanishes. Dov
Seidman, author of How: Why HOW We Do
Anything Means Everything claims that we
should focus on the source of trust, especially
in times of uncertainty, that is, we should pay
attention to how we do what we do.
Companies shouldn’t replicate a business
model strictly based on economic benefit;
instead, they should focus on how they
obtain that benefit and which values or
principles guide their actions. To do so,
thinking leaders, such as Christian Felber,
author of Economy for the Common Good,
claim that the two main rules that guide the
behaviour of economic actors, profit motive
and competitiveness, need to be replaced by
contribution to the common good.
Trust recovers, but there is still a great social gap
6. Trend Analysis 6
RESEARCH CENTRE OF
GOVERNANCE
SUSTAINABILITY
AND REPUTATION
The capitalist crisis brought a democratic crisis
and a widening inequality gap. According to
recent data, the gap between rich and poor in
OECD countries has reached its highest level
in thirty years, when data was first collected.
Changes brought by this gap can already be
seen in politics, for example, with the arrival
of new populist approaches asking to rethink
our capitalist system.
More than 33,000 participants emphasized
two important aspects to build trust:
engagement and integrity. Both variables are
valued as highly important, but respondents
perceive that companies don’t pay enough
attention to them (view figure 1). Thus,
engagement means listening to customers
and communicating —frequently and
honestly— about the state of the business.
Integrity, on the other side, implies ethical
business practices, transparency and taking
responsible actions to address a crisis.
To recover trust, organisations need to evolve
towards new ways to do, communicate,
produce, sell, and distribute. It is true that
this journey needs a shared effort, but we
must accept that with greater power comes
greater responsibility.
Figure 1. Attributes for trust recovery
Integrity
• Exhibits highly ethical behaviours
• Takes responsible actions to address an issue or crisis
• Behaves in a way that is transparent and open
Engagement
• Treats employees well
• Listens to customer needs and feedback
• Places customer ahead of profits
• Communicates frequently and honestly
on the state of their company
27
24
Gap 24
Gap 25
Source: Edelman Trust Barometer, 2016
49
51
7. Trend Analysis 7
RESEARCH CENTRE OF
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SUSTAINABILITY
AND REPUTATION
During the 2009 Global Humanitarian
Forum, Kofi Annan, then Secretary-General
of the United Nations, claimed that heat-
waves, floods, storms, and forest fires were
responsible for 300,000 deaths and projected
that climate change will be responsible for as
many as 500,000 deaths a year by 2030.
Naomi Klein reported in This Changes
Everything what The American Association for
the Advancement of Science (AAAS) in 2014:
“based on the evidence, about 97% of climate
experts have concluded that human-caused
climate change is happening now”.
Pope Francis has also joined the fight against
climate change with an encyclical about
ecology where he puts the blame on big
companies and powerful leaders.
However, over the last years, even the most
reluctantcountrieshavejoinedthefightagainst
global warming. In 2015, China and the United
States, for example, signed an agreement to
reduce their emissions by 2030. More recently,
in December 2015, 196 countries met at the
Paris Summit to sign the first global agreement
to limit their emissions of greenhouse gases.
The World Business Council for Sustainable
Development, composed by more than 150
multinationals, thinks that “it is a positive
text for companies, because it shows a very
clear image of long term investments with an
ambitious goal of 2°C, even going as far as
1.5°C”.
The documentary Time to Choose, directed by
Charles Ferguson, was screened at the Paris
summit. The film examines the main factors
that contribute to climate change and suggests
ways to ease the current crisis. Ferguson argues
that we already have the necessary tools and
knowledge to fight climate change.
In 2015, GlobeScan and SustainAbility conduc-
ted a survey called Leadership on Climate on
the factors that a company should have to be
considered leader in fighting climate change.
The total of mentions are set out below,
alternative energy and new technologies/
innovation being the most prominent.
Figure 2. Leadership on Climate Change: COP21 & Beyond
Source: GlobeScan and SustainAbility, 2015
Leader in alternative energy
New technologies / Innovation
Targets / strategy
Communication / advocacy
Core strategy / governance
Leadership from top
Committed / real results
Products and services
17
12
11
11
10
10
10
10
GLOBAL TRENDS
Climate change at a crucial tipping point
9. Trend Analysis 9
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SUSTAINABILITY
AND REPUTATION
In a complex system with limited resources
like ours, improving sustainability can’t be an
individualsuccess.Anthropologistssaythatour
ability to cooperate is one of the qualities that
distinguish us as humans, because it allows us
to reach targets that go beyond our personal
limitations. Therefore, partnerships between
organisations and collectives are essential in
order to reach the sustainability goal.
Collaboration between companies to
successfully develop a project is nothing new
but nowadays it is a crucial need, as defended
at the conference Ethical Corporation during
the Sustainable Supply Chain Summit Europe
2015. To eradicate child labour from its supply
chain, for example, a company should not
only count on other companies but also on
professional NGO’s on the ground, local
authorities, and consumers.
Clothing is one of the most problematic
industries in this regard and is one of the
most criticized for the abuse of human and
labour rights in its value chain. This scrutiny
has resulted in a change of management and
control strategies in companies, with constant
audits sometimes, in order to thoroughly track
their supply chain. The industry has therefore
being transformed, especially after the tragedy
that took place in 2013 in a garment-factory in
Bangladesh, which promoted the creation of
a five-year initiative called Bangladesh Accord
Foundation signed by over 200 companies to
implement collapse and fire prevention plans
in factories.
In this vein, it is also important to note some
initiatives from companies in the textile
industry. Mango, for example is a member
of the Accord Foundation, and Inditex has
grouped all its CSR Policy under the name
Right to Wear in a four-year strategic plan.
Outdoor wear brand Patagonia applies the
Traceable Down Standard to source down how
the feathers used to make its garments are
collected. Some of the principles demanded
by this standard are: feather must not be
removed from live animals or that have been
force fed, it and can only be processed if its
origin can be fully traceable. Nike started a
two year program in 2011 to eliminate toxic
components from its supply chain.
In fair trade, Nespresso stands out thanks to its
initiative Ecollaboration committed to sourcing
80% of its coffee from the AAA Sustainable
Quality™ Program.
Figure 3. Progress of the factories tracked by
The Bangladesh Accord Foundation
Source: Bangladesh Accord Foundation
30-11-2014
19678
603
4869
14206
28-02-2014
21128
1836
4379
14913
30-11-2014
18989
43
3255
15619
28-02-2015
19209
521
3010
15678
30-11-2014
13938TOTAL TOTAL TOTAL
CORRECTED
IN PROGRESS
PENDING
VERIFICATION
136
2124
11678
28-02-2015
14095
222
2252
11621
SUSTAINABILITY TRENDS
Strategic Partnerships: you can’t do it alone
10. Trend Analysis 10
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SUSTAINABILITY
AND REPUTATION
Companies need to “attract and, ultimately,
free the power and influence of aspiring
shoppers”, as stated by one of the speakers
at Sustainable Brands 2015. Consumers
are increasingly demanding sustainable
companies and aspiring shoppers, in turn,
advocate the brands with which they feel
identified. According to the study The
Sustainability Imperative. New Insights on
Consumer Expectations prepared by Nielsen
in 2015, 60% of consumers say they would
be willing to pay more for sustainable brands.
Consumers want products that are affordable,
healthy, practical, and environment-
friendly, and their purchase decision is often
motivated by accessibility, convenience,
brand recognition, and novelty.
Another research developed by Nielsen in
2014, showed that 67% of respondents would
rather work in socially responsible companies;
55% would pay more for products and services
from companies with a positive social and
environmental impact; 52% had purchased
from one or more socially responsible
companies during the last six months; another
52% had checked the packaging of the
products to ensure that it has a sustainable
impact; a 49% had volunteered or donated
money to organisations committed to social
or environmental programs, with the highest
percentage being in Africa/Middle East
(59%), Asia-Pacific (58%) and Latin America
(46%), compared to North-America (40%)
and Europe (33%).
According to this research, the causes
respondents are more concerned about are:
access to clean drinking water, improving
health facilities, eradication of extreme
poverty and hunger, combatting diseases,
ensuring environmental sustainability, and
reducing child mortality. Nielsen claims that
family and friends also influence sustainable
purchase decisions: 47% of respondents trust
their personal circle before choosing a brand
to guarantee it has ecological features or a
positive social impact. In Africa/Middle East
and Asia-Pacific, the influence of friends and
family is stronger than in Latin America, North
America, and Europe.
Amy Fenton, global leader of the research
Public Development and Sustainability
(Nielsen, 2014), claims that a significant
percentage of consumers are willing to
participate in socially responsible actions. The
research also shows that success depends on
the ability to effectively connect sustainable
profits with the consumer’s desires and wallets
and, to do so, companies need to clearly
communicate their brand positioning.
Thetotalnumberofaspiringshoppersamounts
to 37%, according to the US consultancy
BBMG and GlobeScan. Companies are
actively interested on discovering these
potential brand partners and consider that
managing this group of stakeholders is a
powerful asset, according to Tensie Whelan,
president of the NGO Rainforest Alliance.
Aspirational segmentation explores the
relationship between consumers’ needs,
desires, and purchase behaviours with their
social and environmental beliefs, values, and
priorities. Aspiring shoppers buy responsibly
and trust brands that act in the interest of
SUSTAINABILITY TRENDS
Connect with aspiring shoppers
11. Trend Analysis 11
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AND REPUTATION
society. Aspiring shoppers are the largest
segment of consumers globally and they
bring together materialism, sustainability,
values and cultural influence, becoming a
critical audience to build markets (BBMG and
GlobeScan, 2015).
Requiring companies to be more sustainable,
coherent and closer to their stakeholders
is one of the demands of “millennials”,
people born between 1980 and 1990. The
Global Millennial Survey 2013, developed by
Telefonica involving 12.000 young people of
27 countries, showed that the main concerns
of this new generation are job market
integration (80%) and the economy (80%).
Three out of four millennials surveyed stated
their readiness to pay more for sustainable
products.In2015thispercentagehasdoubled
from the previous year (Nielsen, 2015).
Millennials demand innovation, flexibility, and
empowerment (Corporate Excellence, 2015).
Another segment to take into account
when talking about aspiring shoppers is
the so-called “Z Generation”, people born
from 1994 and raised during the crisis that,
according to Daniel Verdú, columnist in El
País, “are regaining social awareness, which is
confusing for brands”. However, this specific
statement on companies is not owned by one
generation or another, it is not a matter of
age but attitude and cultural perception.
A recent research published by 21 Gramos
together with Canvas Estrategias Sostenibles
called Marcas con valores —which could be
translated as Brands with Values—, shows
that 71% of the participants want to achieve
a responsible consumption, while 22% say
they already do it. The document also points
out that 90% of the respondents consider
that brands need to “take responsibility” and
“talk” with consumers. “Trust”, “honesty”
and “transparency” are the most important
values companies should have,
according to consumers. The requirement for
companies to develop an ethical behaviour
continues to grow.
This demand can also be applied when
looking for a job. According to Deloitte
Milennial Survey 2015, 77% of millennials
claim to have chosen their company because
of its social vision. They all agree to require
more social and environmental responsible
companies —47% thinks that the main goal
of a company should be improve its impact
on both fields.
Figure 4. Social trends: segmentation of the population
Source: BBMG y GlobeScan (2015)
MATERIALISM
SOCIAL & ENVIRONMENTAL VALUES
25%
Practicals
39%Aspirational
26%
Advocates
10%
Indifferents
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Despite the global crisis, partly caused by
bad practices in the financial sector, and
although over the last years big companies
are making progress in this regard, sustainable
investment is still struggling to be considered
a profitable option.
ChrisMcKnett,vicepresidentofESGInvesting
at State Street Global (one of the largest
asset managers in the United States with a
portfolio of more than $1.4 trillion), argued
at a Ted Talk in 2013 that it is necessary to
invest in sustainable assets and companies.
He also underscored how his department
manages $60 thousand million on sustainable
investment using the formula Sustainable
Investing ESG + financial.
In June 2015, Merrill Lynch announced that
they were including in their Investment
Portfolio a pack of sustainable assets for
customers wishing to invest considering the
social and environmental impact of their
shares. The company also committed itself
to train its 14,000 financial agents to help
customers understand the impact of their
investments.
In a context that challenges the financial
sustainability of the health system or social
collectives such as pensioners, many experts
argue that Socially Responsible Investing (SRI)
is of low volatility, which is becoming more
important for the long-term investor, claims
made during the SRI week at Spainsif 2015.
Furthermore, the new Codes of Good
Governance promoted by regulatory bodies
andgovernments—discussedinfurtherdepth
later in this document— demand companies a
more exhaustive control of their accounts and
require them to develop a strategic approach
focused on long-term investors.
Companies should also pay attention to the
development of the Sustainability Accounting
Standards Board (SASB), aimed to develop
and disseminate accounting standards to
make it easier for companies to give investors
relevant and useful information.
Fuente: Bangladesh Accord Foundation
SUSTAINABILITY TRENDS
Sustainable investment, growth formulas
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SUSTAINABILITY
AND REPUTATION
Sustainability needs new business models
and formulas inspired on responsible
innovation and collaboration, which are likely
to save resources and consider environmental
management, as stated by SustainAbility,
leader of the project Identifying Business
Model Innovations for Sustainability. This
study identifies 20 innovative business
models, classified in different categories
according to their environmental and social
impact, financial innovation, removal of
inequalities (base of the pyramid) and impact
on diversity.
This proposal considers value creation
around two axes: value for society and value
for business. To maximize value creation in
these two axes it is necessary to innovate
with the business model. Thus, the 20 models
presented aim to reach the highest value to
society and business at the same time.
A recent example of this transition towards
more sustainable business models is BBVA,
which has reformulated its inner structure
and created, among other things, the unit
Responsible Business, aimed to place all
elements related to responsible banking at
the centre of the business and manage the
relationship with all stakeholders. BBVA sets
financial education as one of its priorities, so
that customers can make informed choices,
along with the development of products with
a high social impact.
In December 2015, the European Commission
adopted an ambitious set of measures about
circular economy to boost competitiveness,
generate employment, and create sustainable
growth. The actions proposed will help “close
the circle” of a product’s life because they
encourage recycling and recovery to favour
the environment, economy, and society;
extracting maximum value of all raw materials,
products, and waste, and promoting energy
savings and reducing greenhouse gas
emissions.
Proposals of the European Commission in this
regard cover the full life cycle: from production
and consumption to waste management and
secondary raw materials market. The key
measures adopted, to be applied during the
current Commission’s mandate, include €650
million funding for Horizon 2020 and €5,500
million for structural funds; measures to halve
food waste before 2030; drafting of quality
standards for secondary raw materials that
reinforce trust of stakeholders in the domestic
market; measures to promote durability,
reparability and recyclability of products and
their energy efficiency to make it easier to
Figure 5. Innovation Framework
Value of Society
Ways of doing business:
Value to Business
Processes
Products/
Services
Business
Models
e.g. closed loop; shared economy;
product as service
Better producgs:
recycled content; concentrated
laundry detergents; energy-
efficient appliances
Better internal systems:
supply chain certifications;
renewable energy sourcin;
transparency; high performance
buildings
Source: SustainAbility Model Behaviour: 20 Business
Model Innovations for Sustainability
SUSTAINABILITY TRENDS
New business models?
14. Trend Analysis 14
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SUSTAINABILITY
AND REPUTATION
recognize organic fertilizers based on waste
re-utilization and reinforce the importance of
bio-nutrients; a plastic strategy that considers
recyclability and biodiversity problems, as
well as the presence of dangerous substances
and water recycling.
In first place, the common goal established by
the EU is to recycle 65% of municipal waste
and 75% of packaging waste before 2030.
Secondly, we have a binding target to reduce
landfill disposal to a maximum of 10% of total
waste before 2030 and to develop measures
to promote re-utilization and boost industrial
symbiosis.
Figure 6. Examples of sustainable business models
Source: SustainAbility Model Behaviour: 20 Business Model Innovations for Sustainability
ENVIRONMENTAL IMPACT
Model: Closed Loop Production
Features: It suggests a closed production
system that minimises consumption of
natural resources.
Example: Aluminium producer Novellis.
INNOVATIVE FUNDING
Model: Crowdfunding
Features: voluntary and collective funds.
Example: Kickstarter is the biggest platform
in the word to finance creative projects.
VARYING IMPACTS
Model: Behavioural change
Features: This is a relatively new model that
promotes change towards a more sustaina-
ble consumer behaviour.
Example: Opower rewards those customers
that have been more "energy efficient".
Model: On-demand production
Example: Threadless only produces the
most popular designs.
SOCIAL IMPACT
Model: Buy One, Give One
Features: For every product or service sold
by a company, part of the profits is used to
donate a similar product or service to the
needy.
Example: 2Degrees, a company that sells
nutrition bars, donates a meal to children
who are at risk of malnutrition for each bar
sold.
BASE OF PYRAMID
Model: Innovative product funding
Features: It uses a leasing formula for pro-
ducts that are not affordable.
Example: Simpa Networks provides energy
solutions on a progressive purchase model.
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Reputation risk is considered a “top” risk
by CEOs and directors around the world.
Improving reputation is now a great strategic
opportunity. According to the 2014 Global
Survey on Reputation Risk developed by
Deloitte, customers are the most important
stakeholder to take into account when
managing reputation risks. In a world
increasingly influenced by social networks
and global instant communication, managing
the expectations and perceptions of the
customer is crucial for success. Besides, it
has been proven that reputation issues have
greater impact on incomes and brand value.
Being able to value in advance the potential
risks of a certain corporate behaviour is
essentialinaverycompetitiveandincreasingly
demanding context. From the analysis carried
out by experts and academics, some trends
in risk reputation can be outlined:
• Perceived tax evasion. Companies like
Starbucks, Amazon, Google, and Apple
were at the centre of the discussion
about positive contribution of companies
in the United Kingdom. This was also
the starting point at the Tax Reputation
Conference, held by Oxford University in
Figure 7. Main drivers in reputation risk
Source: Deloitte, 2014
55%43%45%
52%55%38%
54%51%38%
64%48%40%
48%48%40%
62%52%45%
52%47%47%
61%35%46%
52%47%42%
Total Respondents
TOP THREE REPUTATION RISK DRIVERS OF CONCERN
Financial Services
Americas
Consumer &
Industrial Products
Life Science &
Health Care
Technology, Media
& Telecom
Enerty &
Resources
Europe, Middle
East & Africa
Asia Pacific
Ethics/Integrity
(fraud, bribery,
corruption)
Product/Services (product
safety or services issue,
health/environmental,
controversial products)
Security (physical
and/or cyber)
Financial (reporting/
accounting Issue,
credit rating)
REPUTATION TRENDS
Three critical reputation risks
17. Trend Analysis 17
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2013 to address the consequences of tax
evasion perceived by stakeholders. Lots
of entrepreneurs reunited at the event to
discuss, among other aspects, the impact
of negative publicity on taxes and how
companies should address this issue.
Conclusion was that the pressure exerted
by consumers, which was traditionally the
tenth reason considered by companies to
improve their positive contribution, ranks
now fourth.
• Excessive pay. Deborah Hargreaves,
director of the High Pay Centre, claims
that criticism against “excessive pays” of
top managers has shifted from outside
actors to business insiders; now, criticism
comes from shareholders, employees, and
providers. According to Hargreaves, “it
was not the G20 protests or the Occupy
movement that had caused the most
damage to the reputation of business and
free market but the greed of those who
demand and secure rewards for failure in
far too many of our large corporations”.
Public indignation about these excessive
share awards is worsened by a wider gap
between directors’ salaries and every other
employee’s, which, in words of Hargreaves,
was the last straw in the context of the
current crisis. Andrea Bonime-Blanc, Jorge
Cachinero, and Beatriz Herranz, authors
of The 21st Century Reputation Risk Hit
Parade agree with Hargreaves with a
wider approach called “leadership risks”.
The report puts the blame on the banking
system and recalls that former senior
executives “ are still solving their social,
commercial,andcriminalliabilitiesbecause
of how they behaved as leaders”. We can
clearly see how reputation risks linked to
the behaviour of many directors “have
completely transformed the industry” ca
organisations have disappeared because
of this.
• Market value. William Lawes and his
researchers in Freshfield analysed the
crisis’ impact on the market value of 78
companies, between 2007 and 2012. They
determined that reputation crises have a
long term effect in share. One year after
the crisis, share prices weren’t at the level
of previous years in more than a half of
the companies analysed. The research
identifies variations in share prices in the
short and long term based on the type of
crisis —internal or external— and shows
that “in the long term, the market is more
lenient towards companies damaged by
an external crisis”.
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Weshouldquestionwhethertheconsequences
of a reputation loss are devastating for a
company or industry, or whether they have
a relative impact. Now, the question is even
more pressing after the failures trying to
approach reputation. Several authors defend
that after the crisis, reputation will be one of
the most valued intangible assets.
Jonathan Macey, author of The Death of
Corporate Reputation: How Integrity Has
Been Destroyed on Wall Street, suggests that
reputation needs to be placed again at the
centre of corporate relationships in order to
avoid the collapse of the sector.
As Macey defends, intermediaries (auditors,
rating agencies) in the financial sector were
essential to guide investors when purchasing
products and to justify the reliability of the
company’s accounts. Reputation was the only
guarantee of those intermediaries. However,
when companies were legally forced to obtain
rating,audittheiraccounts,etc.intermediaries
no longer needed to take care of their
reputation and thus allowed less strict audits
to reduce costs. Macey’s book also includes
some other bad practices, such as teams that
work exclusively for a customer and seek
maximum profit from that relationship or law
firms, investment banks, accounts auditors
and directors that jump from one company
to another because reputation of individuals
is no further linked to the reputation of their
companies. According to the author, this
is caused by the separation between the
company’s ownership and its management.
Nevertheless, reputation recovered its
importance after the crisis and Macey claims
that “either the financial sector collapses and
disappears or the intermediates start taking
care of their reputation if they want to make
business with any company”.
If this is how it is, why are there companies
that prefer not to change their practices and
risk damaging their reputation? Sociologist
Polo Campana brings an example of this on
his analysis of the Parmalat case published in
Reputation Magazine, the magazine of Oxford
Saïd Business School. Campana wonders
how can blatant cases such as Parmalat’s
—a family company that hid a huge financial
black hole for years— occur, where the threat
of a bad reputation is not enough to curb top
manager’s bad behaviour. It is often assumed
that reputation is a very valuable asset, but
Campana doubts that it has any real weight
or can work as a deterrent to bad behaviour.
Alternatively, he suggests including
management measures that benefit directors
and seek balance between incentives and
control.
Another expert, Stephen Brammer, questions
in that same publication what he calls
“sustained orthodoxies over time”, such
as considering share price an indicator
of reputation. He thinks that “corporate
irresponsibility” only damages reputation in
a significant way when it directly affects the
consumer. Jonathan Doh adds that the higher
the expectations about the responsibility of a
company, the bigger the impact on corporate
reputation.
In this field, if we consider reputation as
a more solid value, particular attention
should be drawn to family companies, which
enjoy greater reputation stability with their
stakeholders. According to Peter Jaskiewicz
REPUTATION TRENDS
The real impact of reputation
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and David Deephouse, strong values such
as cohesion and a fighting spirit are more
often linked to family companies than other
organisations.
Ángel Alloza, CEO at Corporate Excellence,
tested Pulse’s metric equivalent in his PhD
thesis and proved that organisations can
have a single global reputation index with
metric equivalent regardless of gender, age,
educational level, and cultural differences
(general population from different countries)
of the respondents evaluating an organisation
and regardless of the company’s field.
Having a global reputation metric is an
essential requirement for companies to be
able to include in their high-level scorecards
a single reputation indicator. This shows
that Pulse has proven to be capable of not
only measuring global reputation and its
evolution over time but also of comparing it
to other organisations, in different segments
of population, stakeholders, industries, and
countries.
According to Reputation Institute, there are
ten trends in reputation management:
1. Know who you are first, and stick to it.
Companies must develop an authentic
narrative based on their core purpose and
stick to it.
2. Consequences of the Big Data revolution.
By 2020, big data will dominate the way
companies manage their reputation.
3. Reputation management is a long journey
that needs patience and organization.
Companies using long-term indicators
such as reputation make better decisions.
4. CCOs will lead reputation management in
2020.
5. Employeeswillbereputationambassadors.
6. Reputation management will increase the
value of the business.
7. Stakeholders will increase in numbers
and influence. Social networks’ influence
will increase and significantly expand the
voice and power of stakeholders.
8. Personalized messaging will be the norm.
To be able to reach their stakeholders,
companies need to create more
individualised messaging and stop
massive communication.
9. Industry reputation will individually affect
a company.
10. Social relevance will help companies,
products, and services stand out from the
crowd.
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The main problem when researching
reputation has been the lack of clear concept
definition and relevant literature. Carreras
and Alloza agreed with this hypothesis when
studying Steven Wartick’s 2002 research
project about corporate reputation, which
showed an important confusion of metrics.
But context changes and now reputation
research can be considered a trend, as
shown both at the annual symposium on
reputation held by Oxford University and
the event held by The John Madejski Centre
for Reputation at Henley Business School.
In both events, the interest in investigating
reputation as well as its growing importance
in more disciplines became clear. Digital
communication networks play a crucial role
in this sense, because they allow research to
work closer and exchange ideas and efforts
in the evolution of reputation analysis. There
are still vast horizons to discover in the field of
reputation, since achieving a good reputation
about someone and perceived by someone
is only the beginning in the business world,
distinct from what happens on a personal
level.
REPUTATION TRENDS
Investment on Reputation growth
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The complexity of managing corporate
intangible assets, especially reputation,
demands leaders that are sensitive to
the challenges and opportunities of this
kind of asset and to their changing nature
and evolution. Executives responsible for
reputation management need to consider it
a strategic piece within the business.
In The CEO’s role in reputation building,
Corporate Excellence claims that “ranging
from an unplanned departure or succession,
through the setting of a company’s vision
or other corporate statements, sending key
messages to customers, employees, and
society in general, to satisfactorily overcoming
a crisis situation, CEOs play an essential role
when it comes to boosting and protecting
their company’s reputation”.
In its new training program, the Oxford
CorporateAffairsAcademyfromSaïdBusiness
School seeks a greater specialisation of
leaders responsible for intangible assets and
corporate communication. Corporate Affairs
are becoming more important for the strategy,
because they help create value and protect
the company from different risks. This is why
CEOs should develop a more integrating
character and have a strong engagement
capacity, since they are “responsible for
achieving greater engagement to attract
and retain talent, gain advocacy and obtain
contracts, achieve long-term goals and draw
legitimacy in the system”.
Reputation management in companies is also
perceived as one of the functions of the Chief
Communications Officers (CCO), together
with critical thinking, public relationships, and
strategic business vision. This is what Roger
Bolton,presidentoftheArthurW.PageSociety,
the premier professional association for senior
corporate communications executives in the
United States, said during the presentation
of the 2015 Communications Yearbook,
developed by the Spanish Association of
Directors of Communication (Dircom). The
Arthur W. Page Society explains in The
Future CCO that, in order to successfully
manage reputation, CCOs need analytical,
communicative, interpersonal, leadership
and management skills.
According to a report developed in 2015
by Brunswick and the European Association
of Communication Directors (EACD), to
ensure its future, communications should
“cut through the noise”. This document also
explains several emerging realities that will
have a profound effect on the profession:
1. The combination of social media and
instant digital communication means
transparency. Organisations are coming
to grips with the reality that anything and
everything going on inside the business
can suddenly be part of the conversation
outside. This presents risks and challenges,
but also presents an opportunity
Organising the communications function
around this notion can be powerful and
differentiating.
2. Brand and reputation will increasingly be
managed as one. The ease with which
information about a corporate brand, its
products and services, and reputational
issues can be discovered and linked
REPUTATION TRENDS
New responsibilities for upper management
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means that brand and reputation will need
to be managed as one to ensure they are
working together effectively and to reduce
risks.
3. Communicatorswillusedirectengagement
and rely less on intermediaries to deliver
the message. As communications and
engagement shift increasingly to social
and digital channels, organisations will
build their own processes and platforms
to turn great ideas into stunning content
and to deliver them without the need of
intermediaries.
4. Agencies will change as well. Agencies
will more closely align to achieve greater
consistency and impact and therefore, will
need to be more collaborative too.
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Every new reputation initiative faces the
challenge of getting KPI to show a real
picture of the evolution of reputation as a
corporate asset. To relieve this permanent
tension between benefiting the society or the
business, initiatives cannot be detached from
the company and, consequently, must be
focused on the direct or indirect impact that
they have on the income account. However,
quality is becoming more important to deduce
behaviours and plan strategies. At this point,
it is important to mention cultural studies,
which promote a more motivational analysis
of stakeholders and can be essential to plan
before taking action.
The trend is to design flexible
measurement models that enable a greater
responsibility, rigour and efficiency; that
allow relevant comparisons and can be used
with different stakeholders.
Figure 8. Keys to measure reputation
Source: Reputation Institute
Link reputation initiatives to commercial relevance. For a program to receive ongoing funding, it
needs to be linked to value generation. Promoting unanimous attention and engagement from
the top
Deliver visible ROI for reputation programs, this is, performance metrics linked to the income
account. According to Reputation Institute, less than half of the programs focused on reputation
include these metrics. Likewise, it also indicates the necessary development of strategies to enjoy
a competitive advantage.
REPUTATION TRENDS
Evolution of metrics
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Using intermediaries in social media to
generate more conversation around a product
or brand is an increasingly widespread
practice.
Influencers have a great capacity to make their
opinion matter and expand, and companies
are growing aware of it. This term, specially
used online, refers to all intermediaries who
have a large number of followers in social
media. Influencers are well-known and make
a company or product obtain more visibility.
In this sense, experts put the spotlight on
the importance of partnering with them and
having sufficient authority over them.
Merco, the flagship Corporate Reputation
Business Monitor in Spain since 2000, included
Influencers and Social Media Managers
as expert audience in 2015, because their
opinion has now the same weight as financial
journalists’.
These new trendsetters are now a trustworthy
source for people seeking advice or
recommendations. According to Gillian
Brooks, research associate at the Oxford
University Centre for Corporate Reputation,
influencers are also called “perceived experts”
because they generate trust even when they
are not an authorized source or professionals
from a particular topic or discipline. The
dynamics that intervene in this trend imply that
influencers’ credibility is put under scrutiny
by their followers and they should therefore
defend a personal and believable tone, and
not allow companies to control their actions
and opinions, at least, in an obvious way.
There are key influencers in all fields, opinion
leaders of the industry and politics that
determine if a company will be successful or
not in the market. With this in mind, becoming
more important to include this profile in
the map of stakeholders to strengthen the
relationship with them.
REPUTATION TRENDS
Gain authority over influencers
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The Spanish Securities & Exchange
Commission (CNMV) approved a Code
of Good Corporate Governance for listed
companies, which places Corporate Social
Responsibility (CSR) at the centre of corporate
management and claims that the Board of
Directors needs to be responsible for it, linking
CSR to executive management functions.
The Board of Directors should identify what
mattersforacompanyfromaCSRpointofview
and respond to stakeholders’ expectations,
establishing communication channels with
them. Besides, the Board needs to make
promises and lead the commitment while
at the same time promoting a CSR policy. In
the third place, the Board of Directors needs
to monitor adequate implementing of the
corporate strategy and policies and keep in
mind non-financial risks, compliance with the
objectives set by the company on a strategic
plan, quality supervision and assessment of
the relationship with frequent stakeholders
and information prepared in this regard.
(KMPG and SERES, 2015).
Top management should be involved to
guarantee that the company meets its
goals and generates value. In 2007, Craig
Mackenzie, from the University of Edinburgh,
identified six tips for directors to manage and
promote CSR:
1. Review the CSR policies.
2. Identify and control non-financial risks.
3. Set policies and standards.
4. Monitor compliance with CSR.
5. Review CSR reports and corporate actions.
6. Supervise corporate social action.
ThenewCodealsoreferstoBoardofDirectors’
function regarding CSR. In accordance with
the principle “comply or explain”, companies
are requested to publish a report about
the company’s policy in this area. It is also
important to assign special responsibilities to
an expert commission that oversees the CSR
policy, monitors the strategy and evaluates
if it is being fulfilled, given “the relevance
of issues related to corporate governance
and Corporate Social Responsibility”. Thus,
this organism can be an audit commission,
an appointments committee or an ad hoc
commission of corporate governance and
social responsibilities aimed to boost a more
intensive and committed management of
these issues.
Principle 24, targeted towards CSR, explains
that “society will promote the right CSR
policy as a non-delegable responsibility
for the Board of Directors and will offer
transparent and enough information about its
development, use and performance”. These
three recommendations in CSR are:
• CSR policy should be included, together
with the rules of corporate governance and
the internal code of conduct, as an issue to
be supervised by any of the commissions.
• It is recommended to have a CSR policy
that includes the principles or commitment
voluntarily assumed by the company with
reference to its stakeholders.
• It is in the interest to inform about CSR
related issues in a separate document or
the management report using any of the
internationally accepted methodologies.
Besides, the Code suggests that the Board of
CORPORATE GOVERNANCE TRENDS
New Code of Good Corporate
Governance in Spain
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Directors should try to conciliate social needs
with the interests of its employees, providers,
customers, and the rest of stakeholders
involved,aswellastheimpactofthecorporate
activities on the society and the environment
(Garrigues, 2015).
These principles and recommendations
regarding CSR step up the requirements for an
ethical and responsible corporate behaviour.
CSR becomes, consequently, an action
guide for managers in terms of transparency,
exemplarity and good governance.
Ethics in management and transparency of
CSR practices
The last report about Fraud and Corruption
by Ernst & Young developed in Spain in 2015,
showed that seven out of ten executives point
to bribery and corruption as the normal modus
operandi of businesses in Spain. In February,
the CIS (Spanish Centre of Sociological
Research) barometer placed corruption as
the second problem for Spaniards, only after
unemployment.
The Code of Good Corporate Governance
encourages ethics and transparency within
the governance of companies. In this sense,
the Code develops some of the concepts
included in the Spanish Corporation Law,
which promote a more thorough control of
the behaviour of executives and a better ethic
quality.
The Code’s reform expands the function of
the audit commissions, which are responsible
for supervising control and risk management
systems(principle21)andfinancialinformation
systems (principle 6). Auditors also need to
present three reports: one regarding their
independence, another one regarding the
performance of the audit commissions, and a
last one regarding related transactions.
For its demand of greater transparency,
the Code requires Appointments and
Remunerationreports;anonlinelivebroadcast
of general meetings and the publication of
all necessary information to protect minority
shareholders from discrimination, among
other measures.
For this to make sense, a new formula is
included for companies to easily adopt
the recommendations stated above – the
principle of “comply or explain”. Thus, those
companies that don’t comply with the Code
need to explain why to the CNMV.
However, it seems that companies, and not
only listed companies to whom the text is
addressed, are willing to comply with the
Code, , but maybe also other organisations
that use it as a model.
For example, compared to the previous
Unified Code from 2008, CNMV published
a follow-up report in 2009 —based on the
information sent by companies —, which
showed a “satisfactory” follow-up level that
went from 80.9% in 2007 to 84.9% in 2008.
In another independent research published
in 2010, in a Spanish business magazine
under the heading El Código Unificado de
Buen Gobierno: su nivel de seguimiento por
empresas socialmente responsables, which
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could be translated as The Unified Code of
Good Corporate Governance: its level of
follow-up by companies socially responsible,
explained that on average an 83.40% of
companies said they were fully following the
recommendations; a 9.95% confirmed they
partially followed the Code and a 6.65%
declared they ignored it.
More diversity on the top management
Whether it is a trend or a historical claim, the
Code of Good Corporate Governance points
out that companies must have a diverse top
management, this is, diverse in knowledge,
experiences and gender. It also establishes
a goal of 30% of female board members
by 2020. PwC (2014) says that there are key
actors to progress towards equity and gender
diversity:teammanagers,companies,women,
Board of Directors, media, head-hunters,
business schools, and Public Administration.
McKinsey (2015) analysed in a recent study
women’s contribution to global GDP in 95
countries; they provide 37% of the GDP
despite representing the 50% of the working
age population.
Besides the traditional barriers to the entry
of women in the management board: recent
incorporation into the employment market
/ lack of experience, lower visibility in the
management networks, and problems to
balance work and family; there are also
cultural barriers. Although the company is not
discriminatory insofar as it supports positive-
discrimination measures within its values, our
society is still discriminatory in many ways, as
it happens with the different interpretation of
maternal and paternal responsibilities.
In a recent study called Women Rising: The
Unseen Barriers, published by Herminia
Ibarra, Robin Ely, and Deborah Kolben on the
Harvard Business Review, the authors showed
how companies’ efforts to achieve diversity
at senior levels are failing. The authors also
concluded, as Helena Ancos claims in the
article Código de Buen Gobierno: Cuotas
para mujeres en los Consejos about quota for
women in Boards, that “companies haven’t
dealt with the problem of incompatibility
between the perceptions society has about
women’s characteristics and the skills often
associated to leaders”.
Thesamearticlestalksaboutanotherresearch,
Gender Diversity in the Boardroom and Firm
Performance: What Exactly Constitutes a
Critical Mass?. The German researchers who
wrote the article showed from a performance
analysis in 151 companies that women need a
30% of quota so that their actions have better
performance than male boards.
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Pay and bonus
In this regard, the trend is to include non-
economic concepts, such as social and
environmental impact, innovation, quality or
value creation in pay-checks and bonus of
the top management. 54% of the S&P 500
companies connect the pay of managing
directors and top managers to sustainability,
and consider details such as environmental
impact on operations, health and safety
at work or engagement with employees,
according to data published by the Spanish
newspaper Expansión. The article highlights
the cases of Banco Popular, Enagás, and
Repsol as an example of companies that
have recently included ethical, social, and
environmental values in top manager’s salary.
At Banco Popular, executive officers will
receive 105% of their pay on the development
of reputation, good governance, social and
environmental policies, according to the
newspaper. The 10% of the bonus received
by BBVA employees is linked to responsible
business.
This can be linked to the New Code,
which includes aspects of the European
Commission’s recommendation such as
deferral on the payment of a salary’s variable
components.
Another novelty involves clawback clauses in
contracts signed by directors and companies.
This section is one of the recommendations
of the New Code and forces companies to
include in their contracts the possibility for
the society to claim repayment of variable
components of a director’s salary if the
payment is not adjusted to performance.
Long-term shareholders
Separationbetweenpropertyandgovernance
in companies encourages a professional
corporate management but it can also be
tempted by bad practices. In 1776, Adam
Smith talked already about this situation
in his famous book The Wealth of Nations:
“(With) directors [...] being the managers of
other people’s money rather than of their
own, it cannot well be expected that they
should watch over it with the same anxious
vigilance with which the partners in a private
co-partnery frequently watch over their own”.
A new ethical framework, which includes
corporate Governance, social responsibility,
and sustainability offers a more stable base to
live up to moral values and ethical thinking, as
stated by Thomas-Clarke in Values and Ethics
for the 21st Century promoted by BBVA.
In this context, the European Union is
reviewing the EU Shareholder Rights Directive
of 2007, an amendment approved on July 8
that is being reviewed now by the member
states before publishing the final document.
Measures in this area include:
• Shareholders should be granted the right
to vote on the company’s remuneration
report, in order to ensure transparency
and link remuneration with performance
of directors.
CORPORATE GOVERNANCE TRENDS
Risks of a bad corporate governance
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• Some great corporations must disclose
information about fiscal and investment
decision-making and public grants
received.
• Companies must include mechanisms to
gratify long term shareholders through
further voting rights, tax incentives,
dividends or fidelity shares. Member
states will define the “long term” period
with duration of over two years.
The debate requires to study more deeply the
big shareholders’ role and their responsibility
for involving large investment funds or
pension funds in the company and adopt
sustainable practices.
31. Map of Trends
and Main
Conclusions
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From the trends analysed, companies are
forced to have a “rather collaborative
leadership than competitive leadership”, as
stated by economist Margareta Drzeniek.
It is necessary to evolve to new ways of
interaction, of doing and supplying, for that
it’s the only way to recover people’s trust on
organisations.
To draw up the main plan for their
sustainability policies, companies should
question what kind of companies our society
needs nowadays and what kind of society
helps build our companies in the current
context.
Companies are essential in our society
and their future depends on whether they
are considered as corporate citizens and
whether their directors show they take
responsibility for their actions. Thus, culture
and sustainability must keep growing to be
integrated within enterprises.
We need transforming leaders with purpose;
leaders that inspire the change needed
to add more meaning and who will guide
the lives of whoever makes that change
possible. The purpose can be simple and
eloquent, powerful and feasible, deep and
basic at the same time, but specially, it has
to sum up the clear reason why the company
exists and does what it does. An authentic,
stand-out purpose must answer the question
as to whether stakeholders would miss the
company if it ceased to exist. That is the
primary test, the irreplaceable mark, of a
great purpose in life in favour of others.
Corporate Excellence developed a document
based on the book Grow: How ideals power
growth and profit at the World’s Greatest
Companies by Jim Stengel, who established
five key points to define a great ideal:
1. Deliver an experience of happiness to
people: encourage them and make them
feel at home.
2. Connect people with the outside world:
make them feel part of something bigger
and greater.
3. Explore new horizons with them: take
them out, and help them discover yet
unknown paths.
4. Develop confidence and stamina: help
them explore their inner strength and
build confidence.
5. Generate a positive influence on the
society: help them challenge the status
quo and embrace the change.
Leadership is not great because of the goals
or results achieved, but because of the people
that reach them, because of their identity,
character and authenticity, because of their
self-knowledge and wisdom. Leadership is
not only about logical-formal intelligence
but also practical and socio-existential
(Corporate Excellence, 2014b).
MAP OF TRENDS AND MAIN CONCLUSIONS
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Figure 9. Map of trends
Source: Corporate Excellence
GLOBAL
TRENDS
Trust recovers,
but there is
still a great
social gap
Climate
change
at a crucial
tipping point
Tax evasion
Excessive pay
Market value
Set strategic partnerships
Connect with
aspiring shoppers
and consider
new actors
(millennials)
Develop
new sustainable
business models
Manage risks
(listen + anticipate)
Recover
the value
of reputation
Gain
authority
over
influencers
Set flexible
and comparable
flexible
metrics
Determine
new
competences
for executives
Code of Good
Corporate
Governance
Reinforce CSR
Manage bad
governance
practices to
avoid risks
SUSTAINABILITY
TRENDS
REPUTATION
TRENDS
TRENDS IN
CORPORATE
GOVERNANCE
REPUTATION
Promote
diversity
Goal: 30% of
female advisors
SUSTAINABIL
ITY
CORPORA
TEGOVERNANCE
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