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Beyond Complying With the Law
Business Journal

Beyond Complying With the Law

If financial services firms really want to win back the public's trust, they must go beyond simply following the rules and start engaging customers

by Tracey Gunn and Jim Asplund

No company wants to be the next Enron. And no public accounting firm or investment bank wants to be associated with the next Enron. So it's not surprising that many companies are actively addressing the problem of corporate governance and trying to put investors' minds at ease. And they have been pressured to do so by the U.S. Congress, which passed the Sarbanes-Oxley Act of 2002 on the heels of the widely reported Enron and WorldCom scandals. Sarbanes-Oxley aims to increase public confidence in corporate governance and to create stricter rules for companies or individuals that thought they could defraud the public and go unpunished.

While all industries may have to reform their corporate governance policies, financial services companies -- particularly investment banks and public accounting firms -- cannot miss the huge warning Congress has directed at them. Congress has created a Public Company Accounting Oversight Board to oversee the standards for auditing public companies and to investigate and enforce compliance among registered public accounting firms. Congress also imposed rules to ensure that auditors maintain more independence.

What's more, federal laws were created to prevent conflicts of interest among investment analysts. The government also greatly raised the stakes regarding corporate responsibility and corporate and criminal fraud accountability.

To comply with these new laws and regulations -- and to prevent plunging stock prices, huge fines, and ultimately bankruptcy or jail time -- businesses are turning to a variety of sources for help. They are particularly seeking advice on how to manage complaints and allegations from their own employees about fraudulent behavior. Companies are also rushing to fraud investigation services, corporate fraud hot lines, and security firms. And, of course, they are tapping law firms to find out exactly what the laws mean for each company's policies and procedures.

But are businesses merely scratching the surface of these corporate governance problems? Beyond compliance with the law, financial services firms must regain their customers' confidence -- including the confidence of their shareholders and the organizations that use their financial services. Essentially, these firms must figure out a way to engage their customers again, or maybe for the first time.

So, how do companies get at the root of corporate governance problems and achieve true customer engagement? The answer lies in the engagement and selection of their employees.

Customers judge how they're treated

Employee engagement has a profound effect on a company's brand image because customers' perceptions of a business are largely shaped by their relationships with its employees. What's more, the misconduct of just a few associates can tarnish a brand, particularly when that misconduct generates negative media attention. Witness the bad publicity The New York Times endured after it revealed that one of its reporters had concocted fictitious "facts" for several articles. This scandal threatened the newspaper's standing as the "newspaper of record." And, of course, when Enron executives misled investors, they damaged the brand forever.

The fact is, customers constantly make judgments about the way an organization treats them -- and that means how that organization's employees treat them. The values a company or brand demonstrates have a strong influence on customer engagement: What are a company's standards? What ethics does it live by? Does it treat all its customers fairly, following through on promises even if doing so costs it money in the short term?

These are some of the questions that get to the heart of "integrity" -- one of the four key dimensions of customer engagement, according to The Gallup Organization. And corporate integrity is very similar to personal integrity. Indeed, people often project human personalities onto organizations. Someone with a high degree of integrity would treat people fairly even if he or she had a chance to take advantage of them.

Is the company an honest place to do business? Does it look after its customers? Does the company consistently do the "right thing" for its customers? Does that business always keep the needs of its customers in mind? These questions go beyond consistent delivery on a brand promise to a company's attitude toward its customers. When a brand doesn't demonstrate integrity to its customers, those customers can be deeply and personally offended, and that may permanently change their attitude about and behavior toward the brand.

Engaged workforces build trust

Because customers' perceptions of a business are largely shaped by their relationships with its employees, employee engagement is vitally connected to a company's brand image -- particularly among businesses with extensive direct customer contact. Perceptions of integrity are especially relevant in the financial services industry, and evidence suggests that these perceptions become even more important as the magnitude of the brand relationship increases. Three recent financial services case studies provide examples of this distinction:

  • Credit card call center

In this case, customers gave call center reps from engaged workgroups integrity scores that were 5% higher than those for reps who were not from engaged workgroups.

This overall result included many new customers with almost no experience with the brand. The correlation was considerably stronger for customers with a longer term commitment to the brand. These customers were 34% more likely to say that call center reps from engaged workgroups showed more respect for them as customers than reps who were not from engaged workgroups.

  • Large retail bank

In this example, customers from multiple product and geographical segments were asked to rate their engagement levels with the bank. Customers ranged from individuals who only had checking accounts to those who had invested hundreds of thousands of dollars across multiple accounts and products. The sample also included new customers and customers who had used the same bank for decades.

In this case, the average customer had a longer standing relationship with the brand, and the bank's overall scores were quite high. Nevertheless, customers whose branches had more engaged employees gave integrity ratings that were 14% higher than those whose branches had fewer engaged employees.

  • Large investment bank

Customers' views of this bank's integrity were much more varied. Customers of employees from engaged workgroups gave integrity scores that were 46% higher than customers of employees from workgroups that were not engaged. This example had fewer study units than the other examples cited, so the range of these estimates is slightly more subject to measurement error. Nevertheless, this difference is significant.

Intuitively, these results make perfect sense. Belief in a brand's ethical commitment is more strongly influenced by employees when those employees are seen as integral to the brand's value, as would be the case for the investment bank versus the credit card call center.

A brand that is perceived to have integrity is one that clearly defines the principles to which it will adhere -- and the ways it will apply those principles in its relationships with investors, public entities, the media, its employees, and its customers. These principles can either be formally adopted or tacitly understood. It's not a logical leap to assert that employees who are psychologically and emotionally invested in their jobs would be more likely to conform to both the letter and the intent of these principles. Gallup has seen a great deal of evidence to that effect working with organizations to measure and improve their employee engagement.

Take the matter of procedural compliance, for example. Across a range of industries, engaged workforces consistently show stronger adherence to core processes and procedures. They possess a culture of excellence and therefore make fewer mistakes. The body of available evidence strongly suggests that engaged employees are not only more likely to "play by the rules" in their workplace activities, but they also implicitly communicate corporate integrity to their customers. Engaged employees deliver significantly greater value -- both tangible and intangible -- than employees who are not engaged. As a result, performance management systems designed to increase employee engagement will have a positive net benefit to the company's bottom line.

Selecting the right people

While employee engagement has direct links to an organization's integrity -- and to how customers perceive organizational integrity -- some companies may also be struggling with the reality that they just don't have the right people in roles that demand honesty, integrity, and procedural compliance. The effect of poor hiring decisions can cause losses in the organization's brand image and position, resulting in a loss of customers and market share. Having dishonest employees can also cause stress and anxiety among other employees who may worry that their company will become the next Arthur Andersen. Employees need to feel that their coworkers are trustworthy and credible and that they play by the rules.

For financial services companies to prevent insider trading, "cooking the books," and theft, they must not only engage their employees, but they must also select the right people in the first place. This will help reduce corruption and keep their stock from plummeting.

The purpose of the Sarbanes-Oxley Act is to improve consumer confidence and create more corporate accountability. But full compliance with the spirit of this law for companies in the financial services industry won't exist until these companies can promise integrity to customers and deliver on that promise through employee engagement and selection. Then these firms can be confident that they will have sustainable growth and real profit increase -- not the kind of increase that comes from cooking the books.

Author(s)

Tracey Gunn is a former consultant at Gallup.
Jim Asplund is Chief Scientist, Strengths-Based Development and Performance Impact Consulting, at Gallup. He is coauthor of Human Sigma: Managing the Employee-Customer Encounter.


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