Hats off to Alan Greenspan, but not for the usual reasons.Like the quatrains of Nostradamus, his testimony before Congress was once famed for its obscurity, and analyzed like tea leaves or Tarot cards.
Now, he's speaking with striking lucidity - and often on surprising subjects.
His recent House testimony shed light not just on the future economy and the Fed's intentions on interest rates, but also on corporate reputation.
Simply put, he thinks it's getting more important. And the reasoning poses concerns for our economy.
Why? Because Greenspan feels that the importance of corporate reputation is growing with "the ever-increasing portion of our GDP that represents conceptual as distinct from physical value.
This means that, relatively speaking, the US economy is spitting out a lot fewer widgets and a lot more ideas.
That's OK, says Greenspan, if it helps lessen the volatility of the economic cycle. Since "concepts cannot be held as inventories,
our economy won't suffer as much from a surplus of ideas as it might from a glut of cars, trucks, or telephone switches.
But as Greenspan notes, "an economy where concepts form an important share of valuation has its own vulnerabilities.
For example, a firm is "inherently fragile if its value added emanates more from conceptual as distinct from physical assets."
In other words, a factory can produce goods even if the reputation of its corporate managers falls under a cloud. But while a factory cannot vanish overnight, trust and reputation can.
So recent highly publicized corporate flameouts, according to Greenspan, show "the vulnerability of a firm whose market value largely rests on capitalized reputation.
And according to Fed data, such firms represent a bigger share of our economy.
Fifty years ago, tangible assets represented 78% of the total assets of the US' non-financial corporations. Today, that number is 53%. And this shift coincides with increased volatility in major firms' capitalized value.
Figures developed by money managers Aronson & Partners show that in the 1981-82 bear market, only three of the 100 largest companies in the S&P index lost at least two-thirds of their market value. In the latest bear market, 26 of the largest 100 companies sustained such drops.
Business failures of this magnitude heavily impact the economy. And here again, Greenspan sees corporate reputation as playing an important role.
The collapse of even one firm can have a multiplier effect if "problems at one firm tend to make investors uncertain about other firms that they see as potentially similarly situated,
Greenspan concludes. "The difficulty of valuing firms that deal primarily with concepts and the growing size and importance of these firms may make our economy more susceptible to this type of contagion."
All this should help us appreciate the awesome challenge of today's CEO.
It's not just running the company - it's the need to manage their own reputations. Because more and more, managers' reputations will be the basis for investors' valuation of the company, and possibly of their entire industry.
If that's the case, CEOs need all the help they can get from corporate communicators - not just in burnishing their reputations, but also simply in conveying accurately what is transpiring within their organizations.
Because in today's marketplace, investors hate surprises - and they are likely to place a premium on companies who can provide assurances that they are depicting themselves accurately.
That will likely mean more than just issuing reliable earnings forecasts and auditor-verified financial statements. It may also entail giving fuller descriptions of the company's operations, business practices and future prospects. Management "straight talk
- highly prized by evaluators of annual reports - may become mere table stakes in the contest for capital.
If this trend gathers force, corporate communicators will need new approaches.
For companies uneasy with increased transparency, third-party ratings of communications' accuracy may become a necessary substitute. The traditional "communications audit
may change its meaning and become a tool for assessing the validity of a company's self-representation.
Clearly, Greenspan may not have meant to go this far, but his insights are provocative. They highlight new burdens, responsibilities, and opportunities for corporate communicators who see their purpose not as putting their company's best foot forward, but as building strong, reliable stakeholder relationships.
Jim Sloan is director of the corporate practice in Hill & Knowlton's Chicago office. A specialist in corporate reputation management with more than 23 years' experience, Sloan holds a Ph.D. from Yale and has overseen a range of crisis management and repositioning efforts for major corporations.