Corporate reputation is a fragile but invaluable asset in today’s hyper-transparent world. A single misstep—whether related to a scandal, an ethical lapse, or a controversial business decision—can erode decades of brand equity in a matter of days.
While reputational risk is often seen as the domain of marketing, legal, or PR teams, a new and critical mandate has emerged for corporate treasury. As the steward of a company’s financial health, treasury’s decisions and actions can be a significant source of reputational risk, and conversely, a powerful tool for safeguarding it.
The Financial Roots of Reputational Risk
Reputational risk is no longer a purely abstract or brand-related issue. Its consequences are tangible and financial, and they hit at the very core of treasury’s responsibilities:
- Increased Cost of Capital: A damaged reputation can make it harder for a company to attract investors. ESG-focused funds, in particular, will shun companies with poor governance or ethical track records. This can increase the cost of debt and equity, limiting access to capital for growth.
- Loss of Revenue and Market Share: Reputational damage can lead to customer boycotts, a loss of market share, and a decline in sales. This directly impacts a company’s cash flows and working capital.
- Talent Attrition and Recruitment: The best talent, especially among younger generations, seeks to work for companies with strong ethical standing. A tarnished reputation can lead to an exodus of top employees and make it difficult to attract new, skilled professionals.
- Regulatory Scrutiny and Fines: Reputational crises often trigger increased scrutiny from regulators, leading to more frequent audits, fines, and operational restrictions.
Treasury’s Unseen Influence on Corporate Reputation
Treasury’s decisions, though often made behind the scenes, have a direct bearing on a company’s reputation:
- Banking Relationships: The banks a company partners with are a reflection of its values. Treasury must now consider the reputational risk associated with its banking partners—are they involved in controversial lending, or do they have a history of financial misconduct? A proactive treasurer will diversify relationships to avoid over-reliance on a single institution that could become a reputational liability.
- Investment Policy: A company’s short-term investment policy reflects its values. Treasury is increasingly tasked with ensuring that surplus cash is not invested in entities with poor ESG track records or those involved in controversial activities. Ethical investment screens are now a key component of a modern treasury investment policy.
- Funding Sources: The sources of a company’s debt can carry reputational risk. Taking on debt from controversial lenders or from jurisdictions with a history of poor governance can reflect negatively on the company. Conversely, securing a green bond or a sustainability-linked loan from a reputable institution can enhance a company’s reputation.
- Payments and Supply Chain Ethics: Treasury’s payment processes can create reputational risk. For example, delaying payments to small suppliers in a way that impacts their financial health can create negative press and damage a company’s reputation as a reliable business partner. Treasury must align its payment practices with the company’s ethical standards.
- Sanctions and Compliance: In an era of increasing geopolitical tensions, treasury’s role in ensuring compliance with sanctions and capital controls is vital. A single, small, unauthorized transaction could lead to severe fines and a major reputational crisis.
A Proactive, Collaborative Approach
To manage reputational risk, treasury must evolve from a reactive function to a proactive guardian of corporate reputation. This involves:
- Integrating Reputational Risk into Decision-Making: Incorporate reputational risk into the treasury risk management framework. For every key decision—from selecting a new bank to securing a loan—treasury should ask, “What is the potential reputational impact?”
- Cross-functional Collaboration: Work closely with the Chief Reputation Officer, legal, PR, investor relations, and sustainability teams. Treasury holds the financial data that can inform reputational risk analysis, and it needs to be an active participant in crisis management planning.
- Developing an Ethical Financial Framework: Establish clear, board-approved policies that guide all treasury activities, from banking to investment. This framework should be transparent and aligned with the company’s core values.
- Communicating with Stakeholders: Be prepared to articulate the financial decisions and the ethical principles that guide them. This transparency builds trust and can mitigate a crisis before it starts.
Reputational risk is a multifaceted threat with a clear financial component. For the modern treasurer, understanding this link is a new mandate.
By acting as a proactive guardian of corporate reputation, treasury not only protects financial value but also elevates its role to a strategic business partner at the highest level of the organization.
