On average, companies lost 9 percent of business in the last year totaling hundreds of millions of dollars, says Makovsky study.
The financial crisis occurred five years ago, but the memories are fresh enough that the financial industry's black eye hasn't gone away.
Despite an improving economy and a strong stock market, financial services companies that participated in the 2013 Makovsky Wall Street Reputation Study reported an average loss of 9.0 percent of business in the year ended in May 2013 due to ongoing reputation and customer satisfaction issues. Makovsky, a communications firm that provides branding, crisis communication and other services to companies, estimates that the business lost by these companies totaled hundreds of millions of dollars.
‘We're startled. The Great Recession was five years ago, we're approaching the third anniversary of Dodd-Frank [Wall Street Reform and Consumer Protection Act]. That companies are still losing that much business is serious,’ says Scott Tangney, executive vice president of Makovsky.
The lingering impact of old financial scandals and more recent ones such as losses by JPMorganChase’s London trading desk, Facebook’s IPO and Barclay's LIBOR fixing scheme have further eroded public confidence in the financial services sector and kept companies on the defensive.
The study, which included 151 executives and managers at banks, brokerages, asset management and other financial services firms, confirms an observation by Bob Dannhauser, head of standards and practice outreach at CFA Institute, a global association of 113,000 investment professionals in 140 countries and territories.
‘Trust is no longer taken for granted in the financial services arena. Competing to win and keep business has always been tough on dimensions of price and performance, but now trust and integrity are equally important,’ he says.
Firms that said their senior management either lacked the commitment to repair reputational damage or mishandled a crisis reported a higher loss of business compared with the average loss, says Tangney. There was no significant difference in business lost between public and privately held companies, he adds.
‘The financial services business can't lose sight of the essential fundamentals of customer relationships,’ says Dannhauser. ‘Trust is the oxygen that sustains the world's financial markets, without it, financial services are a very tough sale.’
The question, however, is how to change perception? Tangney says boards should step up. ‘They should ask their companies what resources they are putting toward rebuilding their reputation, asking what's the reputation plan? How is the company measuring its reputation, and how does the company's reputation compare to competitors?’
Tangney also faults lack of industry cooperation on the issue. ‘You don't see industry associations addressing this, or companies and boards working together on this,’ he says. ‘Where's the collaborative effort addressing negative perceptions?’
The companies that are trying to improve engagement with external audiences such as customers and investors are primarily relying on outreach by their investor relations departments and corporate advertising efforts. In addition, some chief executives have launched initiatives to improve relationships with regulators. Many firms are using new strategies such as social media to communicate with clients or customers, while also increasingly communicating with their employees to address their concerns and negative perceptions.
So what should companies do to further repair their reputations? Dannhauser and Tangney offer three tips.
Think about clients first. ‘Act in a true fiduciary capacity where the interests of the practitioner and the firm are secondary to the best interests of the client, no matter the economic incentives otherwise. It is that kind of real, tangible commitment to customers that will earn back trust and enhance brand identities,’ says Dannhauser.
Put substance in marketing. ‘A consequence of frayed trust is suspicion of airy promises, so firms would be well advised to not only say the right things, but also do the right things,’ he adds.
Engage management. The C-suite must sell the message of how the company is different from competitors, how it is more consumer-friendly. ‘Show how you're taking on less risk and emphasize how you're helping society, be it giving to programs or your employees doing community service,’ says Tangney.
Tangney says he hopes next year's survey shows that management has increased its focus and resources on rebuilding reputations. Better yet, board members should engage with reputation experts or recruit them for their boards. ‘There's plenty of work to do. The study is a wake up call,’ he says.
