WHAT ARE WE GOOD AT?:How seriously has Ireland Inc's corporate reputation as a 'Celtic Tiger' been affected by the events of the past year?

LET’S IMAGINE for a moment that Ireland is not a country but a corporation. In 2008, Ireland Inc was hit by a perfect storm of recession, falling GDP, falling employment and tumbling share prices. The Board – AKA the Government – issued, what was, in effect, a profits warning. In so doing, Ireland Inc joined the world’s economies in heralding the worst economic crisis for a generation.

Now let’s assess the reputation of Ireland Inc and its leading companies using the performance categories outlined in a recent study of the most-admired companies in the world. These include: quality of management, financial soundness, value as a long-term investment, use of corporate assets, innovation, quality of goods, people management, quality of marketing and CSER (corporate, social and environmental responsibility).

Corporate reputation is a key intangible asset for a company, along with its brand, intellectual capital, trademarks and patents. Intangibles can represent up to 75 per cent of a company’s value and are therefore vital to prosperity. But intangible assets have been hit hard by the current crisis and no longer seem to offer the competitive advantage they once did – as the experience of Lehman Brothers, Northern Rock, Royal Bank of Scotland and HBOS would confirm.

For some, the brand – rather than being associated with success – becomes an emblem of failure; for others, intellectual property is devalued.

But the one intangible that offers hope is corporate reputation. A recent study showed this was the most important intangible asset. In times of crisis, a good reputation could make customers more willing to buy products, shareholders more willing to invest and employees more motivated. The best companies care for their reputation as they would any other asset by focusing on the critical factors seen to affect reputation the most.

Many companies rated highly for corporate reputation have weathered the storms of previous recessions. The “most-admired business” surveys conducted by Fortune and Management Today before and after the recessions of the early 1990s and the bursting of the dotcom bubble in the early 2000s showed companies such as Procter and Gamble, Microsoft, Berkshire Hathaway, Coca-Cola, Wal Mart and Johnson Johnson in America kept their high reputational standings through recession to recovery, as did Marks and Spencer, Shell, Glaxo, Tesco, Sainsbury and Unilever in Britain. Whatever these companies did to make them “most admired” when times were good stood them in good stead when things turned bad.

To date, Ireland Inc has enjoyed a great reputation – one of the best among its competitors – and the Celtic Tiger has had a long run of high performance. But the current downturn has hit its reputation hard, forcing the Board to take unprecedented measures.

The most-admired companies demonstrate an ability to deal with crises; they stamp out top management hubris through good governance; they learn from their performance and fix things that aren't working. In recession, this often means getting the most out of the best performing assets, and cutting costs. Those companies with the best reputations not only listen but hear. They take on board messages from their stakeholders - and act. They have a vision - even if it is all about survival; they have courage and, most importantly, they execute strategy brilliantly.

Getting back to Ireland Inc's response to the current downturn. Firstly, when the Board first drew attention to the corporation's problem, they were granted a relaxation of borrowing rules beyond the 3 per cent previously agreed with the Bank - in this case, the EU. The company has taken full advantage of the new arrangements. Furthermore, Ireland Inc has stated it will reduce costs by some €13 billion over the coming years, timely actions to mitigate the economic effects of the downturn - a plus point in assessing corporate reputation. However, the company's pension scheme continues to offer challenges.

And there is still work to do to persuade the Bank and the 100,000 people who protested on the streets of Dublin last month that enough was being done. Indeed, the EU has asked that more money be put aside for future crises and have even suggested legally binding budgetary limits.
Secondly, Ireland Inc has put in place generous plans to ensure its finance arm stays afloat. Unfortunate mistakes made by the banking division were acknowledged and a full apology made by its boss. It is too early to say whether the lifeline offered to Ireland Inc's banks will achieve their desired objective. Evidence from other corporations - UK Inc and America Inc for example - suggests huge amounts of extra capital may need to be put aside to ward against future risk.

Finally, Ireland Inc has presented a vision for survival and demonstrated the courage to take hard decisions to achieve this vision - the unpopular cost reductions mentioned earlier, for example. But like many of its competitors, Ireland Inc has more work to do here. A proposal for organisational restructuring - bringing talent from all parts of the company onto the Board - has so far met with a cool reception. And external stakeholders have demanded more immediate action, more detail and more information about what the company is doing. The stakeholders have suggested, among other things, more fiscal consolidation to achieve the company's objectives. There's no shortage of suggestions for Ireland Inc.

At the highest level, the corporate reputation of Ireland Inc has taken a battering. But the Board has initiated a plan for recovery - and that's a start.

At micro level, the reputations of companies within Ireland Inc have also been tested by the economic crisis. Surveys of the corporate reputations of the world's most admired companies use a mix of the nine categories mentioned earlier to assess reputation. Using these criteria and data gathered from the votes of thousands of executives who participate in the annual surveys, we can compare some of Ireland Inc's companies - quoted on the Irish Stock Exchange - against those in other markets.

The best performing sector in Ireland Inc was that of restaurants, pubs and breweries, largely through the performance of Diageo - owner of Guinness - which was streets ahead of the average reputational score for Ireland Inc as a whole. It was the most admired company in Management Today's British survey in 2008, and also featured highly in its category in a survey of the world's most admired companies conducted by Fortune. Diageo finished at the top in every category against all comers in Ireland Inc.

Other high-performing sectors included the chemical industry (largely through the efforts of BASF and Bayer's Irish businesses) and oil. Tullow Oil's performance has been excellent and it finished in the top three in many of the characteristics mentioned above against other Ireland Inc companies. Peers perceived Tullow's quality of management to be better than all the other companies in the survey; this included Shell and BP. In addition, they were seen as more admired in terms of their capacity to innovate and how efficiently they utilised their corporate assets.

Ireland Inc's food production sector, led by Greencore (which rated highly for the quality of its marketing) and its building materials sector, led by CRH (rated highly for its people management) and Kingspan (admired for its products, innovation and CSER), have been in the middle to upper group of performers, against the overall average.

There was mixed feedback on the reputation of the Irish transport sector. Perhaps this isn't surprising given the intensity of competition. Aer Lingus did poorly, scoring well only in the quality of its goods and services. Ryanair did better, coming second in the Ireland Inc rankings for the quality of its management, and third for innovation. Its score was dragged down by poor ratings in the quality of its goods and services, and in CSER.

The Irish finance sector also fared poorly. Only AIB's moderate score for innovation stopped it from having the lowest reputational score within the Ireland Inc league table.

So what can we conclude about the reputation of Ireland Inc and its companies?

The quality of management in many of the corporation's firms is strong. Its innovation and people management remain positive, as does the quality of many of its products and services. But in the area of financial soundness there has been a sharp fall in reputation, and this has the potential to undermine the rest of Ireland Inc's initiatives.

Only time will tell whether this corporation can pull its reputation back from the brink.

Paul Turner is professor of management practice at Ashcroft International Business School, Cambridge. Michael Brown is director of the Centre for Corporate Reputation at Nottingham Business School.