The peril of investors, C-suite execs and consumers ignoring corporate history

The emergence of an uncomfortable truth from the past doesn’t just affect the people who work there. It can affect those placing bets on the company.

By Jason Dressel

The Environmental, Social and Governance considerations and Corporate Social Responsibility trends are accelerating. But the tumultuousness of 2020 increased focus on not just what a company is doing today – and intends do tomorrow – but what it did years or even decades ago.

If you need proof, Lloyd’s of London insurance market just apologized for its role in the Atlantic slave trade. The company is among many that have proactively tried to reconcile their pasts as a result of “recent events,” a reference to incidents of racial injustice that gained attention in 2020. But companies of all types are working to make amends for past actions that may have once been acceptable but are now unacceptable.

With this as a backdrop, History Factory recently surveyed investors (all of whom were either from private equity firms or had participated in a private equity transaction in the last year), C-suite executives and consumers on the discovery of problematic past events in a company’s history. It’s instructive to view how investors and executives compare but even more so to contrast how those groups match up – or don’t – with consumers.

Stakeholders disagree on ramifications  

The parties surveyed understand the damage a problematic revelation can have on a company’s brand reputation and therefore its valuation. More than 90 percent of investors as well as C-suite respondents agreed that brand reputation affects investments.

Accordingly, 29 percent of investors said they would dismiss an investment opportunity at the emergence of a problematic discovery, 60 percent would require specific deal contingencies and 26 percent would require the company to respond in writing.

But investors and the C-suite largely disagreed on what types of discoveries are most problematic, besides past financial improprieties – about which two-thirds of both groups agreed that such actions would impact investments. Interestingly, consumers also were not aligned with the C-suite when it comes to what types of past actions are most damaging. Like investors, consumers were focused on the past support of potentially divisive social or political causes, whereas C-suite executives pointed most to instances of racial injustice.

How to regain consumer trust

We also analyzed what the three groups think about improving consumer perceptions after something troubling from the past comes to light. It’s here where investors and C-suites might need the most recalibration.

The top damage-control choice among investors and C-suite executives (at 71 percent and 70 percent respectively) was the CEO or company founder personally acknowledging wrongdoing. Just 44 percent of consumers said that would make things better. Slightly more effective in their eyes at 46 percent was a corporate statement from the company that acknowledged wrongdoing. That compared with 43 percent from investors and 28 percent from C-suite executives.

A smaller percentage of consumers (36 percent) picked a company donating to a relevant charitable cause, compared with fewer investors (26 percent) and C-suite executives (16 percent). Consumers were also more supportive of a company actively leading a cause counter to the wrongdoing (30 percent) than either investors (9 percent) or C-suite executives (22 percent).

What should be most troubling to investors and C-suite executives is consumer cynicism when it comes to these standard strategies, indicating consumers are fussier than business executives think and that new approaches need to be embraced to mend fences.

How to review corporate pasts

Here are steps a company can take to dig into its past, a practice that investors should support.

Past actions that can be problematic today generally fall in one of four areas: shady business practices (insider trading, espionage or predatory practices); harmful treatment of human resources (discrimination in the workplace or workplace safety); violations of human rights (health and safety or complicity with atrocities); and negative environmental or geopolitical practices (harm to ecosystems or neocolonialism).

Companies also have abundance of resources both internally and externally that can surface potentially troubling discoveries. These include media coverage, internal communications, annual reports, court filings, academic studies and publications.

Look through these four areas through the lens of your people, products and processes. Generally, a problematic incident can be found where people were looking to gain an advantage when implementing a process to deliver on a product or service.

If you find incidents of concern, they should be considered in a fuller context. Was it an acceptable practice at the time? Was it an isolated event or part of a recurring pattern? Is it something that still might go on or could happen again? Context is critical to understanding how threatening the discovery may be and how to respond.

Why should investors support these efforts? The emergence of an uncomfortable truth from the past doesn’t just affect the people who work there. It can affect those placing bets on the company.

Jason Dressel is managing director at History Factory, an agency that helps corporations, non-profits and associations employ their most underused assets – their history and heritage – to enhance and transform strategy.