We live in a moment when career-ending scandals multiply day by day. At least we work in an industry where metrics help managers weigh penalties against reputation risk.
When Kevin Spacey’s long-buried indiscretions got him kicked off House of Cards, losing the role cost him around $6 million, but Netflix had to choose whether to keep production going to fill a $50 million hole in their schedule
Likewise, when Harry Potter fans protested that known spousal abuser Johnny Depp was in the new movie, author J.K. Rowling had to defend what could easily become her own $10 million slice of the profit.
Extremely well-compensated people don’t just wreck their own careers when they crash and burn. Their failures can bankrupt entire industries.
Every wealth manager needs to quantify exactly how much collateral damage from colleagues, subordinates and even clients they can handle.
And then they need to take out organizational insurance to cover the risk.
Return of the morals clause
Reputation is a two-way street. When an advisory network hits the rocks, individual reps jump in order to salvage their personal reputation, literally saving face in the community before the taint spreads.
After all, the institution with its name on the door doesn’t have to deal with individual investors face to face at the golf club, in restaurants or at the office. But when those investors shun a damaged corporate brand, it’s the advisor who suffers.
A decade after the 2008 crash, I think most of you know how to sever yourselves from a corporate brand in trouble. When the rumors start, you’re already on the phone making preparations.
But when you’re the firm and a key individual like Spacey or Depp turns toxic, the damage control goes the other way. You’ve got to protect the enterprise.
The first step is a formal procedure in place that spells out what happens when an employee’s public image starts to pollute the firm’s ability to do business.
Standard operating procedure at many firms triggers a compensation clawback if an employee error directly hurts the bottom line. Rogue traders give up their bonus, managers who make bad calls — directly contributing to a regulatory fine or worse — forfeit deferred pay.
With scandal thick in the air, I’d come up with a moral code as well that protects the firm’s reputation. At a minimum, if an employee deliberately attracts bad publicity that reflects badly on the firm, it’s a termination offense.
Sure, people make mistakes and if they’re accused unfairly, you want to defend them. But when their personal lives get out of control, the firm needs to cut them loose until their behavior turns around.
Hollywood is doing that by firing toxic players like Spacey. Arguably Congress is doing that too. Even NPR is cleaning house.
Wealth management firms — which live and die on their ability to earn public trust — need to be absolutely above reproach.
It’s not personal. It’s about remaining viable as a business. And when everyone in the firm feels the same way, making it explicit builds confidence among staff and clients alike.
You can control your behavior. If the people around you vow to do the same, you all sleep better at night. Publicize the firm’s code and it’ll impress its share of clients.
Of course not everyone wants to gamble their job on their ability to follow a code. That’s okay. It’s a big industry and there’s room for all kinds of people.
But think of the aura that develops around a firm where the staff is so confident in their ability to treat each other and their clients so professionally that they’ll sign a contract to back it up — and if they can’t, the penalties are apparent to all.
The SEC doesn’t ask for it. It’s not really part of any fiduciary standard. But as a voluntary insurance policy, I can think of a lot of firms where everyone would embrace it.
Cross-industry analogues
Of course Hollywood doesn’t have an SEC or even a self-regulatory body like FINRA to police industry standards. They mostly do the job through peer pressure, which can swing too far for justice in either direction.
Once upon a time, the big stars accepted morals clauses in their contracts designed to indemnify the studio when the crowds shunned someone like Fatty Arbuckle. The intent was abused but the language was clear. Embarrass yourself, lose the sweet roles.
The stars know how much they earn and their advisors can calculate roughly how long their career will last in various scenarios. There’s a baseline income stream at risk.
Weighing that income stream against the urge to follow a Kevin Spacey or Harvey Weinstein into disgrace should be enough to keep all but the most spoiled stars on track. Their handlers have a vested interest as well — the better they can quantify the cost of getting caught, the lower their risk of losing their piece of the financial action will be.
Johnny Depp’s management team did their best to keep him in line. He didn’t listen, but at least they kept him solvent and kept booking fees as long as humanly possible.
If you’ve got a trouble client, why not welcome him or her into the code of conduct? Write penalties into the contract as a form of insurance policy as well as a behavioral trick to encourage discipline.
The companies that sponsor pro athletes do it all the time. The code is vague and flexible, literally evolving with public taste. If the spokesperson loses public goodwill, the penalties trigger. Otherwise, it’s business as usual.
That flexibility is important. We don’t live in a Mad Men moment defined by “benign” professional harassment or sexual adventurism. Maybe the next generation will be different. Those who are around in the industry then will need to police their behavior to match the mores.
But those who don’t police their behavior now won’t be in the industry a generation from now. The firm can calculate what “goodwill” means, based on prospecting and retention benchmarks. You know more or less what the public’s trust in you is worth.
Multiply that by the amount of time you expect to stay in the business and that’s what your career is worth. Don’t let some idiot jeopardize that without paying you back.
E&O insurance doesn't really cover reputation risk. Maybe it's time to protect your firm -- as well as your clients -- from a Kevin Spacey in the office.
