Santiago Fernández-Gubieda -- Milton Friedman and the reputational value of companies

The generation of economic benefits is not incompatible with the generation of social, ethical and environmental value for companies.

Last Sunday, 13 September, marked the 50th anniversary of Milton Friedman's famous article in The New York Times, in which he stated that "the only social responsibility of business is to increase its profits". The passage of time has little understanding of nuance and that phrase has remained sculpted, half a century later, as one of the most famous aphorisms of economic liberalism.

In the last year, coinciding with the anniversary, there have been several developments that revisit the debate between a shareholder-centric and a stakeholder-centric business perspective. In August last year, the Business Roundtable, the liberal elite par excellence comprising nearly 200 American CEOs, stated that the purpose of a company is no longer just to serve the interests of shareholders (shareholders), but to give value to all its stakeholders (stakeholders): investing in their employees, protecting the environment, treating their suppliers fairly and leaving a social footprint in their communities.

The celebrated text has changed twenty years of corporate orthodoxy and has been the prologue to a chain of events: in November the World Economic Forum released the Davos 2020 Manifesto, which asserts that corporate performance should be measured by social, environmental and governance objectives; in January this year Larry Fink, founder of BlackRock, the world's largest fund manager, issued a circular to his investee companies, announcing scrutiny of their investments and a veto on lack of transparency and sustainability. The current pandemic calls for corporate social contribution over economic profit.

It is no secret that these reactions may be just a surfboard for the new environmentalist wave. But the truth is that they demonstrate one thing: the excesses of the economic system have much to do with the articulation of a new world order marked by mistrust and the delegitimisation of the system, including the democratic system. It is urgent for corporations to understand that business and relationships, understood as they are now, seriously damage the reputation of organisations.

The latest pronouncements from the world's business community highlight the importance of intangibles in defining corporate governance. Values such as purpose and corporate reputation have become the real assets that ensure the sustainability of the system. In this context, companies need to cultivate their reputation to avoid being delegitimised in this new social order. We can say that growing in reputation means understanding three things: 1) reputation is a social licence granted by the context in which you operate, you need social intelligence to understand the ecosystem, meet its demands and correct your priorities; 2) reputation is based on good long-term performance, coherence between corporate purpose and efficient and sustainable performance, which increases the difference between the market value and the real value of the organisation; and 3) reputation is not in the company but in the perceptions of all stakeholders: employees, customers, customers, suppliers, shareholders, local communities... Only when you listen to your stakeholdersYou measure your reputational gap, correct your path, dare to innovate and incorporate their expectations into value creation.

Taking reputation seriously means turning a mission commitment into an action plan. The credibility of the system depends on good intentions being turned into performance indicators, into sustainable development objectives, incorporated into corporate scorecards, with levers for change that break down silos and introduce corrective measures.

Fifty years after Friedman's text, a new leadership is needed that understands that the generation of economic benefits is not at odds with the generation of social, ethical and environmental value for companies. We must understand reputation as the best intangible for verifying corporate purpose, caring for relations with all stakeholders and legitimising the organisation by placing it at the service of society. With this new refocusing of the debate, long live economic, social and sustainable profit.

A company's reputational value: 360-degree results

Brand reputation influences the actions of your stakeholders. If your reputation is solid and sustained over time, customers will be more willing to buy your products and recommend your services; employees will want to work for the company; shareholders will want to invest in it; and journalists will project a better image in the media and on the Internet.

The following are the stages in the implementation of a corporate reputation model.

• DiagnosisDo you know your company's reputation gap? Discover the difference between the real and perceived value of your company. Know, measure and manage your stakeholders' perceptions to protect and grow your reputation. Trust is key to the sustainability of your business.
• Implementation. Incorporate the management of intangibles into your scorecard. Today, ESG indicators (enviromental, sustainability and governance) are increasingly in demand by investors and customers, and form the intangible assets of your company. Taking care of intangibles always brings tangible results.
• Innovation. Introduce innovation dynamics in the company to improve the relationship with your internal stakeholders (managers, employees) and external stakeholders (customers, shareholders, media, etc.). Reputation is transversal and should permeate all divisions of your organisation.
• Communication. Communicate effectively and proactively with all strategic stakeholders in your organisation. Applying listening systems, implementing indicators, introducing change dynamics and communicating them properly avoids risks, builds trust and increases the value of your organisation.