Verena A. Knipp. Trust the Brand. Corporate Reputation Management in Private Banking. Diplomica Verlag

Verena A. Knipp Trust the Brand Corporate Reputation Management in Private Banking Diplomica Verlag

Verena A. Knipp Trust the Brand - Corporate Reputation Management in Private Banking ISBN: 978-3-8366-3058-0 Herstellung: Diplomica Verlag GmbH, Hamburg, 2009 Dieses Werk ist urheberrechtlich geschützt. Die dadurch begründeten Rechte, insbesondere die der Übersetzung, des Nachdrucks, des Vortrags, der Entnahme von Abbildungen und Tabellen, der Funksendung, der Mikroverfilmung oder der Vervielfältigung auf anderen Wegen und der Speicherung in Datenverarbeitungsanlagen, bleiben, auch bei nur auszugsweiser Verwertung, vorbehalten. Eine Vervielfältigung dieses Werkes oder von Teilen dieses Werkes ist auch im Einzelfall nur in den Grenzen der gesetzlichen Bestimmungen des Urheberrechtsgesetzes der Bundesrepublik Deutschland in der jeweils geltenden Fassung zulässig. Sie ist grundsätzlich vergütungspflichtig. Zuwiderhandlungen unterliegen den Strafbestimmungen des Urheberrechtes. Die Wiedergabe von Gebrauchsnamen, Handelsnamen, Warenbezeichnungen usw. in diesem Werk berechtigt auch ohne besondere Kennzeichnung nicht zu der Annahme, dass solche Namen im Sinne der Warenzeichen- und Markenschutz-Gesetzgebung als frei zu betrachten wären und daher von jedermann benutzt werden dürften. Die Informationen in diesem Werk wurden mit Sorgfalt erarbeitet. Dennoch können Fehler nicht vollständig ausgeschlossen werden und der Verlag, die Autoren oder Übersetzer übernehmen keine juristische Verantwortung oder irgendeine Haftung für evtl. verbliebene fehlerhafte Angaben und deren Folgen. Diplomica Verlag GmbH http://www.diplomica-verlag.de, Hamburg 2009

Preface Both a healthy performance and a positive reputation lead to the development of sustainable worth and sustainable values. 1 For a long time, brand management was an unvalued field of knowledge and activity within the financial industry. Uncertainties in the financial system and a dramatical increase in competition forced a rethinking. Banks have begun to deal with the subject brand. In a competitive market environment, a bank brand needs to be more than just a name and a logo. It attaches managerial importance by the creation of identity and image. Both are essential for the development of a healthy reputation, the strategic asset in the competition of the 21 st century. 2 A good reputation does not come from nothing, it has to be managed. Reputation management has developed to a complex and interdisciplinary management function. It has a close relation to corporate governance. In this context, keywords like credibility, responsibility, sustainability and predictability come into mind. This is what reputation management deals with and this is what stakeholders expect from the bank of their trust. 3 4 5 6 This book investigates the current status of reputation management in private banking and identifies reputation drivers. Consequently, a survey on German private banks is being conducted. Based upon the findings, a structure for corporate reputation management under aspects of good corporate governance will be derived. Regarding corporate reputation management as a consulting product, opportunities for the consulting industry are presented in conclusion. Keywords Reputation, corporate reputation management, reputational risk, stakeholder value, branding, intangible asset, corporate governance, private banking, consulting. 1 Kraus, T. Dr., Member of the board TNT AG, Cologne, (http://www.wieseneder.at/html/0312_publications-&- research_pbl.html, released: 20/09/2008, 18:28 CET). 2 Bauhofer, B., (2004), p. 191. 3 Cf. Metzler, F. von, Germann, U., Wir denken langfristig und investieren in die Zukunft [We think for the long term and invest in future], in: Bankmagazin, vol. 54/2005, issue 1, p. 24-26. 4 Cf. Bastian, N., Schneider, M., Privatbankiers profitieren [Private bankers profit], in: Handelsblatt Die Wirtschafts- und Finanzzeitung, 27 th October 2008, issue 208, p. 24. 5 Cf. Schneider, M., Peters, H.-W., Unsere Berater haben Urlaubssperre [Our consultants are not allowed to take vacation], in: Handelsblatt Die Wirtschafts- und Finanzzeitung, 27 th October 2008, issue 208, p. 24. 6 Cf. Gratwohl, N., Ramponiertes Bankenimage [Battered bank image], in: Handelszeitung Online & The Wall Street Journal, 28 th October 2008, (http://www.handelszeitung.ch/artikel/finanz-ramponiertes-bankenimage_421895.html, released: 01/11/2008, 11:36 CET). 1

Table of contents Preface 1 List of figures 5 List of appendices 7 Abbreviations 8 1. Introduction 9 1.1. The value of corporate reputation management 9 1.2. Aims and objectives of the study 12 1.3. Methodology 14 1.3.1. Research path 14 1.3.2. Limitations and risks of the chosen methodology 17 1.4. Structure of the book 18 2. Basic principles and conceptual demarcation 19 2.1. Reputation management 19 2.1.1. Definition and scope 19 2.1.2. Stakeholder value perspective 27 2.1.3. Reputation drivers 29 2.1.4. Reputation management 30 2.2. Private banking 32 2.2.1. Types and characteristics of private banking services 32 2.2.2. Target customer segment 35 2.2.3. Private bank 36 2.3. Corporate branding 40 2.3.1. Historic background 40 2.3.2. Identity based brand management 41 2.3.3. Legal aspects 43 2.4. Corporate governance 44 2.4.1. Definition and scope 44 2.4.2. German Corporate Governance Code 49 3

3. The development of reputation in private banking 50 3.1. Private bank as trademark 50 3.1.1. Development of private bank brands 50 3.1.2. Recent brand definition in private banking 51 3.1.3. Benefit of a strong bank brand 53 3.2. From bank brand to bank reputation 56 3.3. Benefit of a good bank reputation 58 3.4. Corporate governance and bank reputation 60 3.4.1. Stakeholder demands on corporate governance 60 3.4.2. Corporate social responsibility in private banking 61 4. Reputation management in German private banks a survey 63 4.1. Organization of the survey 63 4.1.1. Target group 63 4.1.2. Questionnaire design 64 4.1.3. Operating schedule 66 4.1.4. Pre-test 67 4.1.5. Response and data collection 67 4.2. Data analysis 69 4.2.1. General information 69 4.2.2. Key findings 71 4.2.3. Reputation drivers in private banking 76 5. Corporate Reputation Management System 77 5.1. Basic structure of the system 77 5.2. Basic assumptions and prerequisites 83 5.3. Organizational integration 84 5.4. Corporate Reputation Management Process 87 5.4.1. Process of supervision 87 5.4.2. Tools for the Corporate Reputation Management Process 88 5.5. Development of a consulting product 95 6. Outlook 97 Bibliography 98 Appendix A 122 Appendix B 126 Appendix C 130 Appendix D 133 4

List of figures Figure 1: Research path of the study 6 Figure 2: The process of induction 7 Figure 3: Collection of terms in the context of reputation 11 Figure 4: Multiple points of view on corporate reputation 14 Figure 5: What makes a good reputation? 15 Figure 6: Reputation affecting criteria per stakeholder group 16 Figure 7: Relationship of corporate identity, brand, image and reputation 17 Figure 8: Delimitation of the terms identity, brand, image and reputation 18 Figure 9: Categorization of stakeholders 20 Figure 10: Reputational audit 23 Figure 11: Three stage model of private banking services 25 Figure 12: Types of private banking services 26 Figure 13: Characteristics of banking services from consumer s perspective 27 Figure 14: Sector of private banks in Germany 29 Figure 15: Development of brand consciousness 32 Figure 16: Principles of the identity based brand management approach 33 Figure 17: Six components of brand identity 34 Figure 18: Elements of brand image 35 Figure 19: Relationship between corporate governance, compliance and risk management 37 Figure 20: Forms of Doing good 38 Figure 21: Corporate compliance and corporate social responsibility 39 Figure 22: Corporate governance in the context of general management 40 Figure 23: Brand benefit from customers perspective 46 Figure 24: Brand benefit from brand owners perspective 47 Figure 25: Development of private bank reputation 49 Figure 26: Stakeholder demands on corporate governance 52 Figure 27: Types of questions 56 Figure 28: Structure of the questionnaire 57 5

Figure 29: Operating schedule for the survey 58 Figure 30: Response rate of the survey 60 Figure 31: Functions of the bank representatives 61 Figure 32: Number of bank locations 62 Figure 33: Headcount of the banks 62 Figure 34: Comprehension of reputation management 63 Figure 35: Number of chosen definitions 64 Figure 36: Responsibility for strategic reputation management 64 Figure 37: Relevant persons / units for bank reputation 64 Figure 38: Measurement of bank reputation 65 Figure 39: Operational perspective in reputation management 65 Figure 40: Stakeholders and bank reputation 66 Figure 41: Channels of stakeholder communication 67 Figure 42: Corporate statements 67 Figure 43: Ranking of common reputation drivers 68 Figure 44: Elements and functions of the corporate reputation management system 71 Figure 45: Structure of the corporate reputation management system 72 Figure 46: Chief reputation officer 76 Figure 47: Process of supervision 79 Figure 48: Development of data 83 Figure 49: Structure of a stakeholder analysis 84 Figure 50: Structure of a corporate reputation management tool 85 Figure 51: Phases of the consulting process 88 6

List of appendices Appendix A: Appendix B: Original questionnaire: Reputationsmanagement bei bei Privatbanken (German) 115 Translated questionnaire: Reputation management in private banking (English) 119 Appendix C: Specification of questions 123 Appendix D: Findings of the survey 126 7

Abbreviations BaFin BCBS CEO CRO CSR GCGC Ed. E.g. Etc. Et seq. FTE HNWI(s) HR HRM Ibid IIF Incl. KonTraG KPI KWG MNE(s) NGOs OECD German Financial Supervisory Authority Basel Committee on Banking Supervision Chief executive officer Chief reputation officer Corporate social responsibility German Corporate Governance Code Editor Exempli gratia [for example] Et cetera [and so on] Et sequens / et sequentes [and the following] Fulltime employees High net worth individual(s) Human resources Human resource management Ibidem Institute of International Finance Inclusive Corporate Sector Supervision and Transparency Act Key performance indicator German Banking Act Multinational enterprise(s) Non governmental organizations Organization for Economic Co-operation and Development P. Page PR UN US$ Public relations United Nations US-Dollars 8

1. Introduction 1.1. The value of corporate reputation management Nothing has more value than a good name. 7 This statement was part of an image campaign of Royal Dutch / Shell in the 1990s. Everybody knows the end of the story. Global players learned their lessons about reputation. They experienced the violability of their own name and brand. Many leading multinational enterprises (MNEs) had to learn painfully, that business success depends more and more on reputation, performance and corporate governance. Stakeholders demand MNEs not only to concentrate on financial and economical issues. They require social and ecological awareness in addition. 8 9 10 A healthy reputation has increasingly become a decisive factor, if a company is to be considered a business partner or employer. A good name contributes to customer s choice for a provider, for his goods and services and against his competitors. Additionally, outside financing and government grants benefit from a good reputation. This shows that reputation deals with long time perspectives, secures status and provides development. A discredited enterprise has to accept a lot of disadvantages 11 12 like employee mistrust or the reduction of company value. In order to prevent pitfalls, a company needs to identify how it is perceived and experienced by the corporate environment and for what reason. It needs to understand how to use reputation in order to maximize corporate value. The company has to learn how this target can be achieved in a sustainable manner. Despite all the negative consequences, the minority of enterprises tries to identify the picture they provide to stakeholders. Further activities like evaluation, systematic planning or supervision are quite out of the question. The majority of companies reduces reputation management to initiatives concerning employee, customer or public relations. Finances and hard facts dominate controlling and reporting structures; the management of intangible assets is usually neglected. 7 Slocum, D., Turner, E., (2003), p. 3. 8 Cf. Bauhofer, B., (2004), p. 120 et seq. 9 Cf. Randolph, R. M., (2007), p. 5. 10 Cf. Slocum, D., Turner, E., (2003), p. 3. 11 Cf. Fombrun, C., (1996), p. 62 et seq, 64 et seq, 67, 68 et seq. 12 Cf. Meffert, H., Burmann, C., Koers, M., (2005), p. 10 et seq. 9

Mechanisms for dealing with stakeholders and reputation are largely unknown or missing; this shows the need for a corporate reputation management system. 13 A worldwide financial crisis shook people around the world during the past month. Highly speculative investments, trading with unknown risks and depreciations in billions caused trouble and panic. One out of three top earners lost trust in banks. Reasons for this mistrust are primarily the insincere communication policies of big banks. Nine percent of the top earners declare they distrust big banks in general. Consequences range from redeployment of capital to changes in the bank. In contrast, private bankers maintain unchanged reputations. A few banks even record improvements in their reputation. It seems to be unaffected by the crisis. On 14 15 16 contrary, the crisis gives private owned banks chances to attract customers. How can this be? Private banking stands for discretion, individual services, personal customer care and sensitivity. 17 Therefore, it is called the premium label of the financial industry. Private banks profit from this superior prestige. It provides competitive advantages and secures the status. The brand private bank seems to be untouchable. It enjoys the sustainable trust of its stakeholders; this causes a good bank reputation. Private banks have a high reputational value. Therefore, a damage of corporate reputation is one of the major business risks. A private bank without a clean slate has hardly any chances on the market. Whitewashing to a broken reputation in private banking seems to be impossible. 18 19 20 21 22 23 13 Cf. Slocum, D., Turner, E., (2003), p. 3, 6. 14 BrandControl GmbH, (2008a). 15 BrandControl GmbH, (2008b). 16 Cf. Kolter, F.-R., (2008), p. 217. 17 Cf. Wistawel, B., (2004), p. 63 et seq. 18 Cf. Germann, U., Die Kleinen beweisen GrÖÜe [The small ones prove bigness], in: Bankmagazin, vol. 54/2005, issue 1, p. 19-22. 19 Cf. Metzler, F. von, Germann, U., Wir denken langfristig und investieren in die Zukunft [We think for the long term and invest in future], in: Bankmagazin, vol. 54/2005, issue 1, p. 24-26. 20 Cf. Germann, U., Rudolf, B., Privatbanken stellen ihre Qualitát unter Beweis [Private banks prove their quality], in: Bankmagazin, vol. 54/2005, issue 1, p. 23. 21 Cf. Bastian, N., Schneider, M., Privatbankiers profitieren [Private bankers profit], in: Handelsblatt Die Wirtschafts- und Finanzzeitung, 27 th October 2008, issue 208, p. 24. 22 Cf. Schneider, M., Peters, H.-W., Unsere Berater haben Urlaubssperre [Our consultants are not allowed to take vacation], in: Handelsblatt Die Wirtschafts- und Finanzzeitung, 27 th October 2008, issue 208, p. 24. 23 Cf. Fàser, K. Dr., DÖrr, M. Dr., Stetter, T. Dr., Fischer, K., Reputationsrisiken im Risikomanagement (Teil 1): Einbeziehung der Reputationsrisiken in ein práventives Risikomanagement [Reputational risks in risk management (Part 1): Integration of reputational risks in a preventive risk management], in: Risiko Manager, vol. 18/2009, p. 1, 6-11. 10

The good name is one of the key success factors in private banking; German private banks are aware of the issue. In this context, a few questions arise: Which factors influence bank reputation? Is the reputation of private banks already managed? How should a corporate reputation management system in banking look like? And how should it be organized? Examinations on these topics are seldom yet seen. This study aims to answer the previous questions. It describes the development of bank reputation and explains the need for systemic corporate reputation management. Furthermore, it analyses the current status of reputation management in German private banks and presents a concept for corporate reputation management in private banking. 11

1.2. Aims and objectives of the study One challenge of today s fast moving banking business is the development of credible, responsible and sustainable corporate governance. In this context, a strong bank brand and a positive corporate reputation are prerequisites. They are key success factors for long term continuity, competitiveness and long lasting customer relations. The reputation of the banking partner is the decisive criterion of investment decisions. Successful is one who lives trust and credibility consistently. 24 From a scientific perspective, private owned banks intuitively manage their reputation better than banks with external management. 25 It has been proven, that a systematic integration of single activities into a holistic system raises efficiency. 26 27 Consequently, an integration of reputational activities into a corporate reputation management system raises efficiency as well. With regard to this theorem, this study works on the following research question: How can the reputation of a private bank be managed systemically? Aiming to answer this question, the study intends to identify the impact of reputation by analyzing brand management of private banks in order to develop a concept for corporate reputation management, which meets the requirements of corporate governance. This aim will be worked out in three stages by pursuing the following subordinated objectives: a. Investigate the branding of private banks, describe the development of bank reputation and examine relevant factors of reputation management in German private banking. 24 Veyder-Malberg, Constantin, Member of the board Capital Bank AG, Vienna, Austria, (http://www.wieseneder.at/html/0312_publications-&-research_pbl.html, released: 20/09/2008, 18:26 CET). 25 Cf. Randolph, R. M., (2007), p. 14. 26 Cf. Horvâth, P. (2008), p. 77 et seq. 27 Cf. WÖhe, G., DÖring, U., (2008), p. 112 et seq. 12

b. Describe the corporate governance approach, identify the elements that affect reputation and analyze the findings with regard to the role of reputation. c. Derive a concept for systemic corporate reputation management in private banking. 13

1.3. Methodology 1.3.1. Research path A research methodology consists of a philosophy, an approach, a strategy and methods. Thereby it refers to more than a simple set of methods; rather it refers to the rationale and the philosophical assumptions that underlie a particular study. 28 The chart below summarizes the research methodology of this study: 29 Figure 1: Research path of the study 30 31 Research philosophy This study concentrates on the subject corporate reputation. Reputation is the sum of individual perceptions, experiences and beliefs in a stakeholder s mind. It is intangible and value-neutral. These characteristics of the study subject justify the philosophy of interpretivism. Interpretivism represents the view that all knowledge is a matter of interpretation. Although interpretivism can be identified as underlying research philosophy, aspects of positivism and realism have additionally to be considered. Positivism has the basic belief that the world is external and objective. The observer is an independent person who looks for causality and fundamental laws. He reduces phenomena to their simplest elements. Aims are the operationalization of concepts and measurement. 28 Wikipedia, the free encyclopedia, status: 18 September 2008, 01:56 UTC, URL: http://en.wikipedia.org/wiki/methodology#cite_note-0, released: 21/09/2008, 13:47 CET). 29 Cf. Saunders, M., Lewis, P., Thornhill, A., (2006), p. 82 et seq. 30 Burkhardt, R., (2008), p. 6. 31 Cf. Saunders, M., Lewis, P., Thornhill, A., (2006), p. 83. 14