Paul Holmes 01 Jan 2005 // 12:00AM GMT
Recent reforms in the corporate governance arena have been broadly accepted by senior business leaders worldwide, according to Corporate Reputation Watch, Hill & Knowlton’s annual survey of global management on business reputation issues. According to the study, corporate leaders have overcome their initial misgivings about the potential administrative and financial burdens of complying with the requirements of the Sarbanes-Oxley era.
Only eight percent of senior executives surveyed believe that the task of complying with the new financial disclosure and corporate governance standards poses a real challenge to running a competitive business, while almost half (45 percent) say the compliance burden is “heavy but manageable.” Expressing no misgivings about the compliance requirements, 48 percent say that the burden is “reasonable.”
Those findings provide a stark contrast to the very vocal protests of some corporate leaders, who say Sarbanes-Oxley and other good governance legislation was costing their firms (and their shareholders) million of dollars, and making it more difficult to recruit directors. One survey by a U.S. law firm claimed that 20 percent of U.S. chief executives were considering taking their firms private to escape the burden of Sarbanes-Oxley.
But the H&K survey—conducted in conjunction with The Economist Intelligence Unit—found two-thirds of those surveyed believe it is no more difficult to recruit board members today than it was before the new governance reforms were adopted.
“Moving from the denial stage to the acceptance stage, senior corporate leaders accept the recent wave of corporate governance reform measures and are now focusing their efforts on making substantive, sustainable changes to their governance profile. Their goal is to encourage long-term investor and customer confidence,” says Harlan Teller, president of Hill & Knowlton’s worldwide corporate practice.
“Executives are still split on whether the governance reform movement is justified or whether it is an outgrowth of just a few highly publicized corporate scandals. Yet there is a consensus that the spirit of reform is here to stay—and that enlightened corporations actually welcome it and embrace it as a means of reinvigorating stakeholder confidence.”
Reliable financial data, transparent disclosure and strong corporate governance are either essential or important elements of corporate reputation, according to 66 percent of those surveyed. The trend toward linking governance with company reputation is most pronounced among members of the financial community, according to the executives.
One longtime corporate board director echoed the survey’s findings about the search for new board members. “What we have found among potential directors is more of a concern about the time commitment rather than concerns about the new regulations,” said Bonnie Hill, president of B. Hill Enterprises, who counts Home Depot among her six board directorships.
“My sense is that most of the current Directors believe if they are diligent in their review of the company’s strategic plan and financial integrity, take nothing for granted and keep their focus on shareholder value, the reward of a wellmanaged company outweighs the risks associated with serving on boards.”
Despite their buy-in to governance reform, executive do see some downsides. Increased administrative complexity and the diversion of management time are cited as the two top drawbacks, while one in five senior executives (21 percent) admit that the new age of accountability has brought about an increased aversion to risk-taking.
As in past CRW surveys, the senior executives demonstrated a clear link between corporate reputation and customer attitudes. “Customers and consumers” rank first on the list of stakeholders for whom corporate reputation is considered “extremely important,” while “the ability to generate additional sales” is the second most salient benefit of reputation, according to those surveyed. In addition, when asked how corporate reputation is measured, “face-to-face meetings with customers” and “customer feedback mechanisms” were mentioned most often.
In a related finding, 76 percent of executives believe that “brand and marketing message” are either essential or important to the company’s reputation.
“It’s clear that senior executives see a link between corporate reputation and brand marketing,” said Teller. This is reflected in the number of companies seeking to integrate corporate and marketing communications disciplines, Teller asserted, and in the increasing amount of interaction between chief corporate marketing officers and chief corporate communications officers at many major companies.
This year’s CRW survey also reflected a growing preoccupation globally about the litigation epidemic that has already swept corporate America. Among those surveyed, 70 percent of the executives said that fear of litigation is either a “serious” or “growing” concern, with 32 percent having faced litigation. Only 20 percent of those surveyed are not concerned about the increase in litigation. In North America, almost half (46 percent) of those surveyed had recently faced litigation.
Corporate social responsibility continues to gain prominence in corporate boardrooms. Almost half of the survey respondents assert that responsibility for CSR efforts rests with the chief executive officer, and another 26 percent say that CSR is the responsibility of the board of directors. The three most commonly implemented CSR initiatives were considered to be strengthening employee hiring practices to promote fairness and diversity (46 percent), giving more money and time to community and charities (41 percent) and improved environmental practices (37 percent).
However, only nine percent of those surveyed mentioned “socially responsible behavior” as the most important factor relating to reputation, and only 10 percent of those surveyed mentioned it as important to investors, despite the recent increase in the number of investment funds that use social responsibility as a criterion for investing.