Why it is important to measure Ethical leadership and Reputation

By Paolo Gallo, author, keynote speaker & executive coach.

We have been – and still are – in the middle of a crisis of epic proportions. Still: have we given any thought to the correlation between how companies are handling the crisis and the impact on their reputation?

Crisis is a Greek word that means “the necessity to take a decision”: a crisis does not build character but rather reveals it. Crisis is the acid test of leaders and will reveal the true colors of organizations and societies at large. Since the beginning of the pandemic we have witnessed very different responses to the crisis in a situation that is over and above normal crisis management we have dealt with in the past.

Why it is important to measure Ethical leadership and Reputation

The post-Covid legacy will highlight those companies who acted in the face of adversity with integrity,by caring for their staff, and companies that chose not to. Sure, the effect of Covid19 has been devastating for all of us. But we were stunned to learn about the 43,000 staff members furloughed at Disney, for example, or 95% of employees fired at Cirque du Soleil, along with many more corporate firings. And we’ve seen even worse, I’m afraid: Richemond Group has fired their VP of Human Resources. The Luxury Group has been trying to impose significant salary cuts across the Group’s 37,000 employees, while the remuneration of some senior executives soared from 1.9 to 3 million during the same period.

In fairness, we have also seen many examples of the opposite happening, where executives have decided to reduce their salaries while maintaining the wages of their staff at the same level. Or, for example, firms that have started producing goods and services for communities in need. Some companies (take IKEA for instance)have decided to give back government subsidies as they do not want to use up limited funds in already stressed communities. And then there’s Luxottica and Armani.

During March-May 2020, the Ethical Leaders quoted in the media include the likes of Giorgio Armani, Ferrari and many others around the world. People who lead with substance, with values, with courage, with financial means as well as with heart and emotion.  I found the example from Ferrari – the most recognized brand on the planet – very revealing.

Ferrari “Back on Track” program

The Ferrari “Back on Track” program (true to form with the racing reference) started as an initiative to reopen the factory safely while keeping staff healthy. But the concept developed into an actual strategic program with a call to action to all stakeholders involved. The mantra, which would hold true for the next 18 months, was to ensure the safest working conditions, the best operative and qualitative checks and emotional support – true team work: a participative program involving all employees at all levels, strengthening even further their sense of belonging.

Ferrari learnt in early January 2020 from colleagues in Asia and Ferrari Greater China offices of the potential impact and disruption of Covid-19. Well before any government action was taken, the team anticipated the need by working with experts, health professionals, virologists, and regional authorities to draw up a detailed plan of action.

This physically allowed Ferrari to re-open as soon as the region gave the green light. But more importantly, this preventative planning allowed the company to provide emotional support for all the staff, their families and partners in the ecosystem we share. By combining the capacity to anticipate and the agility to quickly react with substance and structure, “Back on Track” was implemented.

Ferrari backed up its health initiative with a number of additional key commitments, including a substantial financial donation, a separate charitable initiative together with “Ferraristi” (Ferrari owners), and a matching program on charitable donations. The company paid full salaries to all employees during this period (no furloughing, no state subsidies, no reduction of holiday allowances).

The CEO was in regular contact with employees, sharing with them the steps that were being taken, showing care and support, and listening to what they had to say. “Back on Track” is a strategic program of team participation in line with a sense of purpose and a sense of belonging, fully consistent with the traditional values embraced by Enzo Ferrari and the Ethical Leadership.

The big question: Can ethical behavior be measured in terms of reputation to attract and retain talent? RepTrack, a company that measures reputation and how it evolves, provides helpful insights and data. There are seven factors that have an impact on a company’s reputation: Products& Services, Innovation, Workplace, Governance, Citizenship, Leadership and Performance. Their findings based on a survey conducted in Italy at the beginning of the Covid19 crisis are revealing.

Reputation is among the few corporate assets – if not the only one – that has not eroded as a result of the crisis. This underlines and confirms that what companies have done in these first few months after the initial spread of Covid-19 responded to consumer expectations. Reputation drivers in January centered around (1) having a great product/service that met customer needs, representing 21% of reputation equity (2) demonstrating  transparent and ethical corporate behavior and (3) putting in action  proactive support to local communities and respecting the environment.

In April, as a result of the impact of Covid-19, consumers have dramatically changed their expectations of companies. As a result, reputation drivers changed at the speed of light, a trend that RepTrak had never witnessed before. At present, the top ranking driver of trust and esteem revolves around how companies behave in the marketplace. In other words, ethical behavior is now driver number one. The quality of products dropped to 15% and became driver number two, and in third place we are seeing the emerging importance of leadership.

Consumers now expect company leaders to take a stance on emerging challenges and issues affecting the economy and lives of consumers.Today 57% of a company’s reputation equity depends on soft aspects, corporate behavior, leadership, emerging workforce policies and the social role the organization plays in local communities. The era of only profit and product seems to be quickly fading away. The reason why companies kept their reputation value intact is that over the last 60 days, most if not all of them invested and prioritized helping and supporting the needs of the country, specifically on the health and safety needs arising due to Covid-19. Companies focused on five key initiatives:

Guaranteeing employee safety, moving most employees to a work-from-home format

Delivering donations through philanthropic initiatives to support hospitals and local administrations

Leveraging their core businesses to help meet/support emerging needs

Adapting their businesses to produce products and services in high demand (ex. production of face masks)

Upgrading their welfare policies and systems to support their workforce and employees

The change of focus and the way companies operated in the last 60 days is now posing strategic challenges, especially in the relationship between companies and their employees. Before the crisis, only a mere 5% of Italian employees had smart working benefits; in the last 60 days, this has had a tenfold increase, with over half of all employees working from home. This created a number of challenges that will impact the companies’ ability to recover productivity, which is greatly needed to emerge from the crisis. Over 70% of employees:

1. 1. are having a hard time balancing private and professional lives
   2. are feeling isolated from the rest of the company
   3. are less aligned with company strategy

And what we’re seeing is just the tip of the iceberg. In fact,90% of employees expect significant changes in work models moving forward, posing a challenge to leadership in redefining the relationship between employees and companies. We are entering an era where offices will see a dramatic change: five days a week at the office will be a thing of the past; there will be individual offices, but more digital transformation, virtual modalities and approaches.

The companies that will be able to quickly adapt and embrace change, placing at the forefront a laser-focused ethical culture and strong leadership, will win in the redefined reputation economy.

The future is unknown; there are no past models to refer to or best practices to take inspiration from. Great leadership and decisive actions are expected. Companies, it is your turn to design the future. Who will gain the competitive advantage?

So, Ethical Leadership is not a ‘nice to have’ or a beauty contest to showcase in elegant corporate videos, but rather a tangible asset that enhances a company’s reputation, with a profound effect on the perceptions of consumers and potential employees.

Being ethical is not only the right thing; it’s also the only way forward.

Paolo Gallo, author, keynote speaker & executive coach.

Hear @SeanPdeC, host of our podcast, The Speaker Show interviewing Paolo Gallo @pgallobussola1 about #futureofwork, #leadership and #skills https://t.co/IjZ4imACHm

— Speakers Associates – Global #Speaker #Agency (@SpeakerWorld) June 30, 2020

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