The Reputation Journey: What we can learn from the financial services crisis

By Olivier Fleurot, CEO, MSLGROUP

Olivier Fleurot on What we can learn from the Financial Services crisis

If there is one industry that has seen its reputation seriously damaged in the last decade it is undoubtedly the financial services sector. Dubbed “the worst financial crisis since 1929”, the Eurozone was, as we know, severely shaken with several countries ultimately facing embarrassing bail outs from international creditors.

Financial services seemed immune to failure

How did it all start? In the late 90s the economy was booming, liquidity was abundant, and western banks were encouraging people to ‘live the American dream’ and borrow ever more money.

A few bells started to ring in 2000 and 2001 when the high-tech bubble burst and the Enron scandal unravelled. But trust in the financial world was so deeply rooted that people perceived these events as nothing more than isolated instances.

Riding on the people’s trust and ambitions, bankers continued to chase higher profits and to offer more sophisticated and riskier products. Hollywood and the media were quick to sensationalize the ambition, hunger and, at times, greed of Wall Street. The financial industry began to be perceived as a stairway to wealth – an industry that was thought to be immune to failure. This perception in turn attracted more and more investors and encouraged talented people to join financial firms. Yet despite this vicious circle, a few lone voices, mostly academics and analysts, began to warn that such growth and expansion was simply not sustainable.

What finally made the bubble burst? In reality it’s impossible to trace the cause of the crisis to any single event: experts often cite deregulation, the rapid pace of innovation, lack of global regulation and an industry-wide lack of accountability as critical factors.

Trust vanishes: Reality goes beyond fiction in 2008

When the US housing bubble burst in 2007-08, trust in the financial world vanished. The extent of the damage and the severity of the consequences were unprecedented and astonishing. Even worse: some banks and institutions remained in denial and sought to hide the extent of potential losses.

In the five years that followed, we witnessed:

  • Bankruptcy. On both sides of the Atlantic, most notably with Lehman Brothers going out of business in the US.
  • Nationalization, Bailouts and Forced Mergers. Central banks in the US and Europe injected hundreds of billions into the system. They nationalized and bailed out institutions and orchestrated mergers to keep weak players afloat. Governments in Asia too announced large stimulus packages to offer some stability to the system.
  • Rebranding. Some banks changed their name to start afresh (GMAC became Ally) or as a result of being acquired (Northern Rock was eventually absorbed by Virgin Money).
  • Penalties. The cost of the crisis in legal expenses and settlement costs is still being paid – one settlement reached as much as $13 billion.
  • Citizen activism. In 2011, young Spaniards launched the “Indignados” movement, soon followed by the global Occupy movement – groups founded to enable the free and broad expression of people’s outrage at the economic crisis and anger towards national governments.
  • Customer defection. Customers shared their negative experiences and organized events such as Bank Transfer Day on social networks.
  • Employee frustration. Dissatisfied employees too turned to social networks, especially YouTube, and news sites to share their stories.
  • Dramatic loss of Public Trust.  Although many perhaps couldn’t understand every single intricacy around financial instruments, publics were certain that, somehow, the financial world had betrayed them. And their distrust extended beyond the financial services industry, beyond rating agencies and regulators, to the corporate world as a whole.

While trust in the financial industry has improved since 2008, it remains lower than in other industries and continues to fluctuate, in response to post-crisis evidence of misbehaviour and the emergence of new scandals (such as the manipulation of interest rates). The debate around executive pay and bonuses still rumbles on in many countries, especially in markets where taxpayer’s money was used to bail out financial companies.

Rebuilding reputation will take time

As we know, it can take years, at times decades, for a company to build a good reputation, and only a few days to destroy it.  The challenge of restoring trust and good faith is made more complicated by the challenge of communicating in the information age. People expect companies to engage in two-way dialog in real-time and be consistent across geographies. Beyond this, people demand that companies to look out for all stakeholders and respect the larger ecosystem in which they operate.

Over the last few years, banks have delivered on these expectations with initiatives that combine Purpose, Participation, Performance and Sustainability. This meant…

Becoming a genuine partner for entrepreneurs.

Some banks launched efforts – both short and long term – to support local businesses and entrepreneurs.

  • Innovation Challenges
    Citi partnered with NBC’s Education Nation’s Innovation Challenge to fund entrepreneurs in the education space.
  • Support Communities
    American Express launched the online community OPEN Forum, which offers a wealth of business advice and connects small business customers.Australia’s Bendigo Bank launched the PlanBig platform to help entrepreneurs achieve their goals.
  • Change Movements
    American Express kickstarted the Small Business Saturday movement, to encourage Americans, and recently the British, to shop at small store during the holiday season.
  • Crowdsourcing Campaigns
    KBC Bank launched The Gap in the Market to crowdsource business opportunities across Belgium.

Giving people a bigger say in citizenship programs.

Some banks invited people to decide which organizations, charities and even national monuments would receive the largest share of funding.

  • American Express launched Member’s Project to let customers make a difference through votes, volunteer hours or donation of their AmEx member’s points.
  • Chase launched Chase Community Giving to let people decide which charities would get the biggest share of grant money.

Re-defining banking together.

A number of banks engaged customers and students in conversations and initiatives to build a better system.

  • Barclays introduced a new “co-created” credit card, Barclaycard Ring, to give the community a say in the card’s fees, policies and rewards.
  • Even former RBS chief Stephen Hester engaged students at LSE in a candid discussion about Rebuilding Banking
  • ING launched Next Generation Banking to challenge the ‘bankers of tomorrow’ to envision the future of banking.

And, simply communicating better… or differently.

Several banks embraced new media to encourage financial literacy and differentiate themselves from the ‘bad banks.’

  • Financial Literacy
    US Bank encouraged teenagers to create videos about the value of saving. The winning video – a rap video titled “Don’t forget ’bout ya debt!
  • Humility
    AIG used video infographics to communicate its “Turnaround Story” and announce that it had repaid its bailout in full. AIG followed this with the film “Thank You America” – albeit to mixed response.

In the last eighteen months, some banks have indeed begun to successfully differentiate themselves from the category and stand out. As HSBC’s co-head of global communications Pierre Goad shares, it is now a priority for these institutions to actively improve their reputation and manage reputational issues early on.  


Video: World Economic Forum 2014: Pierre Goad

A purpose-driven tomorrow

Increasingly, companies are embracing concepts of sustainable growth and corporate citizenship – because they are indispensable to attracting and retaining talent and because they can also be good for business.

We are also seeing leaders make the case for purpose-driven business (The Stengel 50) and partner with organizations and other corporates to reinvent the way we do business (Plan B). Indeed, this was the central theme at the recent World Economic Forum at Davos – Reshaping the World: Consequences for Society, Politics and Business.


Video: WEF 2014: Sir Richard Branson and Arianna Huffington talk about Plan B

For banks, financial institutions and other companies to recover, maintain and build good reputations, we believe they must implement six actions across the organization, at all tiers and locations:

  1. Establish a shared purpose. Identify a core purpose that drives the organization and its people, and align programs and strategies around this shared heartbeat.
  2. Co-create the future. Engage customers and other stakeholders in helping defining the organization’s policies, services and corporate citizenship actions.
  3. Lead the dialog. Harness social, digital and other media to lead, or at least contribute to the continual dialogue around issues that are important to customers.
  4. Win over influencers. Demonstrate new priorities through bold outreach to influencers, governments and media.
  5. Minimize risks. Anticipate and plan for issues that may still negatively impact the organization’s reputation.
  6. Empower employees. Amplify good news by encouraging employees to be strong ambassadors for the good work the organization is doing.

These actions are not easy and transformation will not happen overnight. But over the long term, they will help safeguard a company’s reputation and re-gain the loyalty of stakeholders.

As Warren Buffett said:

“If you lose money for the company, I’ll be understanding. If you lose a shred of the company’s reputation, I’ll be ruthless.”

This post is part of the People’s Insights magazine “The Future of Reputation

MSLGROUP People's Lab

2 Responses to “The Reputation Journey: What we can learn from the financial services crisis”

  1. @sgmclean8

    It’s #EarthDay2014: Do you know what your company’s purpose is? #FutureofReputation @fleurot5 http://t.co/DIHqUSsPAz

    Reply
  2. MSLGROUP Peoples Lab (@PeoplesLab)

    RT @sgmclean8: It’s #EarthDay2014: Do you know what your company’s purpose is? #FutureofReputation @fleurot5 http://t.co/DIHqUSsPAz

    Reply

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