Back in the good old days it was possible for a big company to defend its market position by splurging on advertising.
Whenever new competition came along, the CEO and the Board would sign a large cheque to a top-flight ad firm, and they would cover the town, TV, and radio with adverts for their products. The small guy didn't have a chance.
Brand value is more important than ever before
That's no longer the case. The internet has enabled plucky start-up companies to create more compelling and disruptive brands, usually attracting young consumers who place more value on environmental cost, workplace equality, CSR, and other ethical measures.
Just look at one of the biggest success stories of 2017: Dollar Shave Club. Founded in just 2011, the company's growth was fuelled by savvy marketing to younger people, and was bought by Unilever for $1 billion; a terrific achievement for its founders. It disrupted the market by focussing on what young people cared about: a socially conscious affordable brand they identified with. In one of its marketing skits, its founder – Michael Dubin – streamed his own colonoscopy live on the Internet to raise awareness of colon cancer.
But it's not just consumers, it's investors too. Over the last few years, more investors have been pressuring their fund managers to ‘screen out’ irresponsible businesses and pro-actively ‘screen in’ ethical ones. There has also been a rise in the number of activist investors, including pension funds, who take large stakes in a public companies to force them to change their behaviour.
Corruption & scandals matter more now than ever
As a result, corruption and scandals matter more than ever before. A serious environmental scandal can disenfranchise its consumer audience, and deal a reputational blow to the company that it isn’t ever possible to recover from.
Take VW. Immediately after Volkswagen admitted to diesel emissions cheating, its stock plunged 50% from the 12-month high it achieved earlier in that year. It still hasn't recovered. In April 2015, VW's share price was 253.20c; it is now 138.75c.
No matter how confident you are in your organisational ethics... you may be surprised by what you find.
As we go in 2017, all sensible CEOs and their Boards need to step back and make sure that they have taken every step possible to limit the possibility of corruption and scandals within their organisations – and all CEOs need to take their exposure seriously.
No matter how confident you are in your organisational ethics, if you dive under the hood, you may be surprised, and frightened, by what you find.
How to control risks within your company
Fortunately, there are a number of firm steps that you can take to limit your exposure and maintain a healthy internal company culture.
Firstly, break down organisational silos. It is very common in large organisations for departments to be disconnected and siloed, operating independently from each other without much interaction with the rest of the company. This means the executive management team lose oversight of these departments, and that individuals working within them lose touch with the values with the company as a whole.
Secondly, listen to other people. As a CEO, you are constantly put under pressure to deliver results, and deliver them quickly. You understandably value immediate action over discussion. But discussion and debate is healthy, and stops you taking rash decisions under pressure to try to deliver overly ambitious goals and targets which turn into poor and unethical behaviour further down the company. Surround yourself with a collection of trusted advisers who are willing to privately disagree with you.
Your Head of HR probably has a better oversight of your global or national operations than anyone else in the company
Finally, empower your HR departments, and elevate HR issues to Board level. Your Head of HR probably has a better oversight of your global or national operations than anyone else in the company; they can spot siloed departments; point out lapses in company culture and values; and recommend fixes. Recognise the advisory value that they can provide to your organisation, and take advantage of their expertise.
Maintaining the right culture can be easy, but simple errors and a lack of oversight and the absence of sufficient checks and balances on those at the top can be fatal to any firm. No company is too big to fail, and 2017 needs to be the year that CEOs recognise that.