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May 29, 2007
Protecting the brand reputation
We all know that corporate reputation is a major intangible asset. Here is a great example of how corporate governance works as a part of that reputation -- Allan Sloan - Aflac Looks Smart on Pay - washingtonpost.com:
When the public face of your company is a duck, you can't afford to foul up your reputation. (Yes, you can groan now.) Take Aflac Insurance, best known for its ubiquitous quacking commercials.
Something funny happened at the company's recent shareholder meeting: nothing. That's because, unlike any other U.S. company with publicly traded stock, Aflac has been smart enough to voluntarily offer its shareholders a "say on pay." Giving in to social-activist shareholders, as Aflac did, doesn't make you popular among the CEO set. But boy, was it the smart thing to do.
Why did Aflac take this course? As Sloan explains:
despite being a big company ($1.6 billion of annual profits, $25 billion in stock market value), it prides itself on holding upbeat, family-type annual meetings. [Chairman Don] Amos told me that the company, founded in 1955 by his father and two uncles who went door to door seeking investors, has never had a dissident proposal on its proxy statement and didn't want one this year.
But more than that was involved. Aflac's top management knows that its reputation is built on more than a duck. The product it sell -- disability insurance -- depends on its reputation for delivering. Disability insurance is not something high on the priority list. If Aflac had a reputation of nickeling and diming its claimants, the reaction might well be "why bother." But the ads stress how well the company takes care of people. Getting into a messy fight over CEO pay could undercut that reputation (by making them look like just another big greedy company). A whole flock of ducks couldn't undo that damage.
And speaking of the duck, top management knows a good thing when they hear it:
"The duck's the cheapest guy we've got working for us -- and the most valuable," Amos said.
So, when do shareholders get to vote on the duck's pay raise?
Posted by Ken Jarboe at May 29, 2007 11:07 AM
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