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PUBLISHED : Wednesday, 27 November, 2013, 2:56am
UPDATED : Wednesday, 27 November, 2013, 2:56am

Judging reputations when it comes to business is never an exact science

Judging reputations when it comes to business is, in reality, neither quantifiable nor tangible

The best joke floating around in the wake of the scandal that has sunk Reverend Paul Flowers, the former boss of Britain's Co-operative Bank, is that his activities threaten to give bankers a bad name.

For readers who are having trouble keeping up, Flowers was video-taped buying hard drugs and then there was something about rent boys and, by the by, under his stewardship the bank suffered a capital shortfall of some HK$19 billion.

Well, I suppose we are starting to get blasé about large sums of money going AWOL in banks and, frankly, it is far more intriguing to watch video images of a bank chief and former clergyman buying cocaine and amphetamines.

Reputation is a matter of impression and … it is not an exact science

Scandal is at the extreme end of something called reputation that can make or break businesses. Clearly it is also at the juicy end of this narrative and, as such, often obscures the really crucial nature of reputation for businesses. I have written about this quite a lot over the years but must admit that it all seemed rather theoretical before being faced with the nuanced reality of reputational issues when running a business.

Sensitive readers who swear by the gospel of MBA courses should probably skip the rest of this article because it scandalously ignores some of the things these courses preach about "reputational issues" and, even, "reputational leverage".

The MBA method of communication likes to accompany discussion of more or less everything with impressive-looking PowerPoints containing flow charts showing how things work.

The problem is that the intangibles of reputation for business are not, in reality, amenable to fine theory nor are they quantifiable.

Reputation is a matter of impression and although there is some science as to how impressions are formed it is not an exact science and the list of caveats is too long.

In the case of Flowers, for example, there are now plenty of people emerging from the woodwork to declare that they "never trusted that man" or had "serious doubts" about him. Clearly these doubts were insufficient to deny him the job at the helm of a major bank in Britain.

In many ways Flowers was plausible, and he worked at it because, by all accounts, he was very good at networking and in a bank that stressed its ethical credentials it did no harm to brandish clerical credentials to convey integrity.

The thing about impressions is that the old adage that "first impressions are what count", is clearly true; moreover revising first impressions is not easy. Let me give you an example: my company recently entered into a partnership with another company and before signing a scrap of paper or getting down to any details I formed the impression that the people who ran the other company were straightforward and would be easy to deal with. They also had a good reputation.

The project to hand required rapid action so we got down to business very quickly. As ever there was a bit of trouble but the personal relations with people in the other company remained sound and friendly.

This meant that I ignored the signs that should have been noticed when the partnership between the two directors on the other side of the table fell apart. When we were about to enter another venture with this company we were left with just one of these partners and it did not seem to be a problem. This time however we needed a written agreement before the new venture could commence. Our previous partner teamed up with someone else who somehow assumed a leading role in these negotiations and was clearly under the impression that because our previous relationship was more casual we would not be quite sharp enough to notice the rather sweeping changes he proposed making to our agreement, one of which amounted to a subsidy for his side of the business. Unsurprisingly this deal never came to fruition and the original partner was hurt and puzzled over this outcome.

I'm not sure how you put that lot on a PowerPoint but it lingers in my mind as a classic illustration of how personal dynamics and perceptions work in business relationships. There are many intangibles in this mix and no ready formula for making deals involving people.

And here's the rub because most, if not all, deals involve a personal relationship element and it's the personal stuff that is hardest to manage.

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