Politics is Everybody's Business

Corporate reputation and the bottom-line

Increasingly, corporations are being forced to play the role that candidates play in a political campaign. Just as a successful political candidate can become the personification of an idea or program, a corporation can come to represent the promise of a new, transforming product or service--or the focus of intense dissatisfaction with, for example, the economy.

From the average man or woman on the street, to the policymaker in Washington or elsewhere, attitudes about a corporation are built on perceptions. At the top of the list: Does the corporation offer a quality product at good value?

Today, many of the price-and-performance issues that used to reside solely in the realm of market research are moving over to public affairs. Why? Because they affect the corporation's relationship with voters and regulators in ways that can profoundly affect the bottom line. A solid corporate reputation can help to sell products and services, attract and keep top employees, and assist a company wanting to move into new areas.

Examples:

• With Republicans in control of Congress and the White House, many industries anticipate an acceleration of the deregulation trend of the past decade. Financial institutions will be allowed to expand their service offerings into new areas, local telephone companies are allowed to offer customers long distance services, and fewer owners are allowed to own more radio or TV stations.

  Yet even in the current pro-business environment, industries and corporations have to make the case that they deserve to move into areas that were previously prohibited. Making that case is not as easy as it once was. Opponents know that helping to publicize consumer complaints about a corporation can raise doubts among regulators. Clearly, the opponent is "playing politics," in some cases to protect itself from competition. That leaves the company wishing to expand its offerings having to publicize its role and defend its corporate reputation.

  As well, regulated companies are finding that fines (for failure to meet service standards, etc.) that once attracted little notice are increasingly the objects of attack advertisements and negative media coverage.

• Everyone knows that incumbent politicians who happen to serve during an economic downturn can sometimes pay a political price for problems partly beyond their control -- President George H.W. Bush in 1992 comes to mind. His son may face the same situation next year. Corporations can find themselves in the same boat.

  Should investors be reimbursed for money lost in following bad investment advice? No doubt, some brokers will complain that they should not be asked to pay again for a broad market decline that could not have been avoided. But unless they make the political case supporting their position, brokerage firms may find themselves put in the position of protecting investors from the investor's own risky, bad decisions. Too bad. Life's not fair.

Scandals can re-ignite consumer ire

The political focus on corporate governance has dissipated--for now. Last summer, 14% of Americans in the Ipsos/Cook Political Report poll complained about "corporate irresponsibility, corruption, fraud, deception, accounting scandals" and related issues. That was up from no such comments in January 2002. Just 2% volunteered such comments in January of this year. But do not be fooled. The kindling is now scattered on the forest floor. A few more scandals could re-ignite the fire and prompt a firestorm of new corporate governance and accounting regulations.

In more general terms, consumer attitudes about the economy fell off the table in June 2002, and they have never recovered. The trend in the overall Ipsos CASH Index for the past year tells the story graphically.

The Ipsos CASH Index is a weighted measure of consumer attitudes about the state of the economy and their personal finances, their comfort with spending, their confidence in investments and their assessment of the job market. The CASH Index was set at 100 in January 2002, and nicely stayed around there through May, then in June it fell off the table and has never gotten up. Forget all the ups and downs of politics and foreign policy. Consumer attitudes, measured in the CASH Index, are the foundation on which everything else rests -- politics, the economy, and satisfaction with the direction of country. And it is in rough shape and not looking like it will recover soon. All major institutions, including businesses (maybe especially businesses) will soon pay the price for the sour attitude of consumers.

Should those trends continue, companies will increasingly find themselves forced to explain whether they are part of the problem or part of the solution when it comes to continued economic problems. The wrong answer will have consequences for corporations just as surely as it will for incumbent politicians.