I received a letter a while back from a not-for-profit that notified me that they were looking at borrowing against, or leveraging, the fundamental set of assets that allowed them to exist. In other words, if they lost those assets because they could not make the payments, they would simply no longer be around. They were doing so because of significant operating cash flow shortfalls that were systematic in nature. In fact, they had invested in capital assets that they hoped would increase operating cash flows, and had since seen a dramatic downturn in their fortunes.
No matter what the plan given for rectifying this situation, donors are likely throwing their money down a rat hole. From a business perspective, this not-for-profit is leveraging the assets they cannot afford to lose under any circumstances, a sign of desperation. Of course, this happens frequently in business, because the large majority of business start-ups are bankrupt within a few years. Sometimes it can actually save the business. But there is the smell of death to it, and the vultures are usually circling within a short period of time. This not-for-profit probably has few other assets to borrow against, so their behavior is understandable. But when you have a choice, be careful what assets you leverage.
Though I largely try to avoid debt, there are some assets that it makes sense to leverage. For example, as loyal Sienna owners, Toyota is willing to sell us a new Camry at 0% interest. Since our cars have a combined 6,000,000 miles (approximately) on them, this is an attractive offer, especially if you are not bothered by the prospects of sudden acceleration. Of course, this affects the price of the car, but assuming I can negotiate the price I want, it makes sense to leverage this asset. If I can’t pay it back, they will come and take the car. On the other hand, as my readers can readily attest, it would be financial suicide to take out a second mortgage on my house to syndicate this column.
The most important asset any of us have is reputation. A reputation for truth-telling or dependability enables us to enjoy opportunities that would otherwise be unavailable to us. There are times I leverage my reputation in order to recommend a student to an employer. In most cases that is a low-risk decision, but there are a few students that require me to put some conditions in the recommendation so that I protect my reputation. It is an asset I cannot afford to lose.
We read almost every day about people who have leveraged their reputation for short-term returns—in money, in romance, in success, or in fame. They leverage their most precious asset, the asset that is their reason for existence, in order to acquire other assets that are not central to who they are, and that are likely to be fleeting. And when they wake up on the due date for the debt, they have lost forever what allowed them to be who they are.
They are much like that not-for-profit who sent me the letter. I wish only the best for that organization, and I am hopeful that they will be able to retain those core assets that define them. But I have heard this song before, and they will not be getting a check from me.
Categories: Business
Jesus said, “The Father’s kingdom is like a merchant who had a supply of merchandise and found a pearl. That merchant was prudent; he sold the merchandise and bought the single pearl for himself. So also with you, seek his treasure that is unfailing, that is enduring, where no moth comes to eat and no worm destroys.
Too bad these companies or us as men are doing the opposite and leveraging our pearl for what we think we NEED. We end up not getting what we think we need and losing out most precious asset.
Dr. Shaub,
I think this is an interesting blog. We see a lot of companies, past and present, who have this behavior of putting themselves in risk. To have it compared to our own lives and what we stake our reputation against really makes you think. What am I leveraging my reputation against and is it worth it?
Colleen
I found the most interesting part of this blog was the 4th and 5th paragraphs. The phrase that most resonated with me was your reference to “protecting your reputation.” To what extent is it our duty to protect our reputation from lies and rumors? Is upholding the truth of a reputation worth the cost of socially awkward encounters and removal of disloyal friends/acquantances? Or does social capital trump acute misconceptions and betrayals?
In line with what Allyssa discussed, I believe that our reputation, as college students, is very susceptible to scrutiny (especially in this day in age where social networking sites are easily accessible by future employers). Many of us had to learn the hard way through rejection in the employment application process where employers are not impressed with our compromising pictures plastered across Facebook.
Another measurement of our reputation (a quantifiable one in fact) is our credit history and credit score. This measurement attempts to calculate how dependable and accountable we are with money, risk, and obligations to others. Credit is also something that employers will evaluate in the application process; so we might want to think twice when walking by the booths outside Sbisa offering free pizza when you sign up for a Visa card.
I actually think it’s fine to leverage your most valuable assets, so long as you are confident in your investments. Basic financial theory would tell you to accept any venture with a positive net present value, regardless of how you pay for it. Put another way, if you can earn a higher return than the interest rate you are paying on your leverage, then go for it. Of course, if you have non-critical assets that can be leveraged, you should always use those first. But if not, it’s still a good deal.
The real problem is that many businesses are confident in investments that they shouldn’t be so confident in. Searching out individuals with financial competence could go a long way toward helping a lot of small businesses and other organizations. For instance, they could easily hire an MS in Financial Management from Texas A&M University for only a moderate share of their profits…
I agree that our reputation is our most important asset. However, I disagree with your implication that the not-for-profit was leveraging critical assets for a short-term reward. In times of economic stress, not-for-profits suffer greatly from decreased donations. If this short-term decision allows the not-for-profit to continue existing in the long-term, is it not worth it for the organization to risk bankruptcy? Indeed, it seems that bankruptcy is a certainty without the leverage of these assets. Further, it must be remembered that the continued existence of the not-for-profit allows the business to continue providing aid to whatever cause it represents. Perhaps the management of this not-for-profit considered the ends as a justification of the means?
I think this is an interesting topic to be discussing.Obviously risk is necessary to conduct business, the question is how much risk should your company take on? I think if a company can only raise capital by leveraging their most valued asset, they should go for it. If the company has other means to raise capital, it would be a poor decision to risk the asset necessary for its existence.
Thank you Dr. Shaub for writing this. I found it very thought provoking (and as a result hard to be succinct…obviously).
An overarching statement cannot be made about how a company always should, or shouldn’t, leverage it’s own assets in financial trouble or in opportunity. Obviously there are too many nuances that make up situations for there to be one answer that always fits. But what I think do exist are principles that help dictate how we should manage our assets. I also think it’s fascinating how a story about a business can apply to our lives so fluidly.
Certainly there are times where we financially risk something in order to gain a greater reward. In those situations it is easy to find people for advice, and generally receive a lot of support. There is a demand for that kind of support. How many financial advisors exist in the world? This demonstrates at least one thing, that as a people we think our money, and how we manage it, is important (and rightly so). But how often do we see such attention paid to the creation and management of our reputation?
Why I think this story about the non-profit is important is because I think it reveals the hidden nature of motivation and character. Reputation, as well as a strong company, is built on a solid track record. Over time, situations arise where you have a choice to act ethically, diligently, respectfully (or a whole slew of other reputation building actions), or not. These decisions would be the equivalent to a companies back account. In the long run you would hope that the deposits you make into your bank account would be greater than your withdrawals. If that is the case, then you are operating in the black and ultimately have greater assets to leverage. That’s the goal of any company, and of any person. We want to be trusted, respected, honored, helpful, and wealthy.
Now if any company came to me and the only thing I knew about them was that they were leveraging their own assets as collateral, and they asked me for money, I would probably react like Dr. Shaub did. Anytime someone has to vouch for themselves (i.e. if money came from their own assets, not from revenue), then I think it’s in our nature to view them with scrutiny until they prove themselves. Why do we ask for recommendation letters or references, because the testimony by someone else is the only thing that can vouch for our reputation. And I think I spend entirely too much attention on how to impress without focusing on the daily, unseen deposits that build my reputation. If I do that, then one day when my credibility is being questioned, people who have lived life with me and saw who I am, can vouch for me. Auditors spend their lives testing whether companies are who they say they are. How much more diligent should we be in testing our own lives to see if we are who we say we are. Then people may know our reputation, because someone, somewhere first knew our character.
Madeline Virzi, your point is well taken. But the need to risk these assets speaks to the quality of management and planning going on at the not-for-profit. So I would be unlikely to risk my contribution unless I had a clear idea that there was a different strategy that was going to be successful. Risking these assets is a clear signal to the market that you are going down, and that there are no other options.
Zach Howe, you are right on the money as to what basic financial theory would tell you. But return assumptions, as well as risk assumptions, are often inaccurate. And if you misjudge risk with the wrong assets, you can lose it all. It might be a “good deal”. It might also take you over the edge of the cliff. But we definitely train you well in business school maximize the present value of future net cash flow! I know you recognize what I am saying, as you make clear in the first sentence of your second paragraph. I would contend that there are things not worth risking, particularly with respect to our personal lives, but even in business. But maybe that’s why I teach auditing and ethics instead of finance!
I would definitely agree with the viewpoint about not leveraging your most valued asset when possible. At times, however, it might be the only thing left that a person/company has left to “gamble” with to survive. If the non-profit has nothing else of value to leverage with and they believe in what they are doing, why not risk it?
It comes down to each individual’s perception of the situation as to if the “gamble” should be taken. They obviously think what they are doing is right, whereas you and other donors may not. I believe that this relates to almost every ethical dilema in that the answer can almost always be “it depends.”
I was interested by what you said about what we leverage for short term returns. We live in a society that wholly buys into instant gratification- I want this and I want it as soon and as easily as possible. When we so desperately seek these things, our judgment can easily be compromised. We must be able to take a step back and ask what the long term ramifications are for the decision we’re about to make. Making a rash decision every now and then might not really hurt you, but a life spent constantly making rash decisions with little thought to the consequences will likely lead to you scrambling to pick up the pieces later.
I agree with Elizabeth. Short term rewards seem to be at the forefront of decision-making, without regard to the potential repercussions of that behavior. I know Tiger Woods is so over-used, but I wonder if he would have seriously considered the long-term effects of his…ladies…if his decision would have changed. If he knew he would lose his wife, children, endorsements, and, most importantly, reputation – would he have walked away from whoreville? Would he have done it for the money and endorsements or because of the pain his family would have to endure and love for his wife?
One of Warren Buffet’s most popular quotes reads as follows: “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” Most people wouldn’t argue against this statement, as we all readily see instances of broken reputations in the news every day. The true challenge is not choosing to believe in this quote, it is choosing to put this belief into action.
One of the common difficulties in putting beliefs into action is our time horizon. As many people have mentioned in the above posts, we live in a society focused on short-term gains, rather than long-term growth. If one can practice looking beyond the initial sacrifice of forming strong habits, they will ultimately realize stronger personal character in the long run.
I have several beliefs that I consider truth, but I find myself having difficulty living out some of these beliefs on a daily basis. I think I will have the best success in keeping a healthy perspective on long term growth and development.
I think that this is really interesting and I have never thought of my reputation as an asset. It is amazing that people can ruin such a long term item because of a few short term decisions. If people simply evaluated all the consequences, it would be amazing to see the different results if they actually considered their reputation. People might actually try to make the right choice. In addition, people always tell you to be yourself and not care what anybody thinks. However, in this situation if people actually took the time to care what other people think, it might save their career. No one looks up to a person who lied or commited fraud just to get ahead. No one wants that repuation on their record. I think that I can really take this forward and learn to consider that my reputation is more than just a description of my past, but an asset to helping me excel in the future.
The leveraging of one’s reputation reminds me so much of Warren Buffett’s quote:
“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently. ”
I feel like Buffett has lived up to that philosophy fairly well. As a value investor who is driven more by the long term health of his companies rather than making a quick profit, it is no coincidence that he is one of the wealthiest men in the world. On the other hand, I feel like Americans for the most part will continue to be motivated by short term benefits regardless of the consequences. It is in our blood to go 100 miles an hour and strive to be the world leader day in and day out. As a result, both positive and negative effects have resulted. We are still the leaders in education, innovation, market size, and other measures of economic prosperity, but numerous studies show that Americans are not any happier today in comparison to 50 years ago. In fact, some studies even say that Americans are less happy. Sometimes I question whether this move towards constant short-term growth has come at the expense of many of the traditional American values that used to have such a strong presence in most households. Simply, are Americans leveraging their own reputation while sacrificing many of the ideals that this country was founded upon? I think it would be a little extreme to say that this is the case, but I do think the argument can be made that there may be reasons for concern. I just hope that we continue to be an ethical world leader rather than a country that foreign nations look upon as a nation that is growing more self-interested. We cannot allow our current troubles to force us to think short-term with so many other countries observing our every move.
One aspect of leverage I appreciate is the high risk, high reward return it provides. More than anything else, managing risk will maximize the value of leverage and lead to smart and profitable investments. Watching the events of the financial crisis transpire illustrate the high rise and fast fall leverage brings. I’ve lately been following the process involved in the sale of the Texas Rangers to Chuck Greenberg and Nolan Ryan. This process has been excruciatingly difficult due to how highly leveraged the outgoing owner (Tom Hicks) became with the team essentially owned by a syndicated group of lenders. As the proceeds Hicks receives from the sale will go to pay off the lenders, agreeing on a sale price for so many involved parties has been difficult, with the MLB now stepping in. I think Hicks illustrates the American culture of trying so hard to keep up with the Jones’ that you soon become a house built on quicksand. Hicks partcipated in the rewards of leverage having the most expensive house in Dallas while owning the Dallas Stars, Texas Rangers and part of Manchester United. He is now experiencing the fast and humbling fall from grace trying to liquidate what assets he can.
I think young people, myself included, have a heightened sense of invincibility. For whatever reason past generation’s qualities of patience and caution have been replaced by what I consider a form of arrogance. An arrogance that would suggest, “I am too smart for that to happen to me” or “I will figure a way out of that situation.” It is important to remember we are susceptible to consequences and most of the time, those consequences are severe. I’m reminded of the saying, “Never bet anything you can’t afford to lose.” I think it is crucial to remember this and also consider the fact that we are not invincible, and you will be faced with tough choices sometime in your life. Also, you will have to live with the consequences of those choices. Our reputation is one of our greatest intangible assets, and it’s important to remember the value of that asset is dependent and directly correlated to the choices we make in our lives.
I never thought of giving a recommendation about someone as leveraging your reputation. I now understand why some people are hesitant to recommend others for jobs, internships, scholarships or even school. I didn’t realize the amount of trust people placed in me when I asked for a reputation and that makes me all the more grateful that they would go to those lengths for me. The important thing to remember about this is to never let yourself disregard the importance of your reputation. I feel that your reputation is almost always the most important thing you possess and to just haphazardly disregard it seems ridiculous, but it does happen. I really appreciate reading this because sometimes you forget that a silly action you commit may have dire consequences.
It is incredibly sad to me how quickly some people are willing to risk their reputation for short term gain. When you actually look deeply at some of these ethical situations that we have been discussing in class, the answer seems to obvious. Of course, WE, as aggies, wouldn’t commit fraud, or overlook fraudulant activities as auditors, etc.. but is this really true?? Can we say with confidence that we wouldn’t have done the same thing as these “villians” that we have been learning about? I have appreciated this ethics course for the simple reason that we have been forced to ask ourselves these hard questions. We have had to commit to ourselves that we would in fact, do the right thing, regardless of what it cost us.
Sometimes by putting everything on the line, you can come out a winner. In poker, sometimes, you have to go all in order to come out on top. You should be holding good card when you do it, and bluffing is probably not a good idea when everything is on the line. It reminds me about the story about how my dad’s church go the land that the church occupies. They out grew the church that they were in, and were looking into building a new one. The found some land in an up and coming suburb, and borrowed a lot of money (they didn’t have) to buy the land and build the new church. They took a big gamble in buying the land, but the property value sky rocked, and were able to sell of about a fourth of their unused land. The profits they made off just this section was enough the entire land they purchase.
In this situation, I can see the comparison between the non-profit and the value of your reputation. I do think sometimes you do have to put your reputation on the line when you believe in something, and sometimes you can’t be completely sure how it will turn out. I think the best you can do is trust your ethical code and try to make the best and most ethical decisions you can.
I am really big on reputation, however, I never really considered it an asset until now. Your reputation is something that follows you no matter where you go. This is why it is so important to build a good reputation and protect it. As many say, your reputation can become tarnished in a split second because of a dumb decision. Then you must spend however long it takes to rebuild that good reputation. You mentioned people that leverage their reputations for short-term return. When people do this, I do not think they make accurate calculations of consequences that follow certain actions. Just because your reputation isn’t tangible, doesn’t mean that it doesn’t have as much value.
A business’s reputation is just as important as an individual’s reputation. When shareholders see information about a company acting in an unethical manner, it makes investors not trust the information that company presents to the public. Most companies involved in scandals have to change their names if they decide to reemerge because investors still see the bad reputation.
I definitely agree that your reputation is the most valuable asset you own. Truer words have never been spoken then “It takes years to build your reputation and only one bad decision to ruin it.” One has to decide early in school, career, and life what kind of person they want to be and live to be that person. Every decision must be evaluated from every angle, and despite the desire to do what it takes to be who you are, sometimes unforeseen consequences happen. I think it is when these situations arise that we build character. It takes a lot from a person to admit that they made the wrong choice and to try and get back on the path they were on. As we’ve discussed many times in class, it is never too late to stop unethical behavior and take the right path.
When you mentioned: “the most important asset any of us have is reputation.” This defines our character and I agree with other posters on how fast this can be destroyed. As college students, many of us are oblivious to the consequences of jeopardizing our reputation because we look forward to the immediate short term gain. The importance of our reputation will be much more significant as we enter the workforce.
I think that your reputation is EXTREMELY valuable, but even that can be deceptive.
Sometimes the “right thing” doesn’t always look so right to outsiders. (at least for a while)
I think that your most valuable asset is how you look to yourself, more than to others– to be able to look at yourself in the mirror, knowing that every day you try your best to be the person you want to be.
Reputation is very important to many people. I also believe that following your values and being honest to yourself is also important. To have a good reputation you must know the kind of person you want to be and be able to evaluate, honestly, who you really are. Creating your own set of ethical principles to follow will help you determine who you want to be. Right now I am trying to determine what mine are. So far I have determined my top one to be the Golden Rule. I believe this principle is best at maintaining a good reputation and choosing the most ethical decision. The hard part of maintaining a good reputation is taking a step back and evaluating yourself. People are unwilling to admit they have made a mistake which eventually will hurt your reputation. Admitting you have made a mistake will allow you to effectively stay true to your values. The values you hold are the ones that determine your reputation. Its never too late to stop unethical behavior and take the right path. We all need to remember this in order to maintain a good reputation.
“Riding a dead horse” comes to mind pondering the situation for a not-for-profit. Sometimes, it is best to just realize that your goal may not work and you are just throwing good money out the window. Most businesses aren’t going to work, and a prudent business owner must realize when they are to far in the hole and to stop digging.
If the entity is currently able to continue without leveraging its assets then it should simply ride out the storm instead of wanting results immediately. You mentioned they had a natural ebb and flow when it came to cash flow, you must simply be patient.
The first two paragraphs made me think of something I had never thought of before. Typically, whenever I invest my money, I study up on the company and sometimes even model the company. But in giving to charities, I do much less, if any, due dilligence. Typically I have always relied on the reputation of the charity and have never once combed the financial statements. It’s irresponsible to place your money with a failing charity like the one that you described regardless of your intentions. I would argue that you should treat how you screen for charities the same as you would investments and seek the highest return on your funds. It is important for us to be prudent in where we place our funds (God even calls us to it) and check out how stable these institutions are before giving to them.
Cara mentioned it above, but I like the quote “A reputation takes a lifetime to build, and a few minutes to tear down.” If we all lived by this, wouldn’t we make better decisions? The reality is that our reputation sometimes takes a backseat to more “pressing” issues in the heat of the moment. If any of us were asked right now, “What is more important, having a million dollars, or a pristine repuation?” Most (if not all of us) would answer, “of course a pristine reputation.” But in crunch time, when the cards are on the table, a lot of us would be tempted to take that pile of money. While this charitable organization is doing what it can to survive right now, this most likely will damage their ability to raise funds in the future. The ability to visualize long-term effects of a decision is elusive nowadays, and so is the business industry’s reputation.
I agree with Dr. Shaub about protecting your reputation. I would just say to protect the reputation that you actually want to have. Many people will see your reputation to be different from what you actually want it to be. Because of this your reputation will open and close many different doors. You just have to make sure that you keep a reputation that opens the doors you actually want opened. I can easily assume from my experience with Dr. Shaub that he wouldn’t want a reputation that would’ve opened doors to being friends with Andy Fastow back when he was getting himself in trouble with Enron schemes. As future accountants, it’s very important thatwe make sure not to risk losing our good reputations for poor reasons. It will be a very important asset to all of us in our future careers.
For me personally, two assets that I do not want to risk losing are my integrity and respect for myself. These assets allow me to show my love for others and compassion for the world. They guide me on what actions I should take and help force me to look at the bigger picture. Hopefully, protecting these assets at all cost will also protect my reputation for being this kind of person. Unfortunately, as Dr. Shaub pointed out in class today, theworld does not always work that way. Sometimes people may perceive you to be a person of little integrity eventhough that is not the case. With this in mind, I have made it my duty to protect my assets of integrity and respect for myself before trying to protect my reputation.
To address the first part of the blog, I agree that it is probably a bad idea to leverage your most important assets. While there is a chance that the NFP may pull through, the likelihood is that it will fail. My question is, so what? As you said the majority of start ups fail, and fail fast, but this is just part of our economy. I recently read that many start companies will only hire someone to run their company if that person has already been part of a failed start-up. As long as we learn from our mistakes, failure is not always a bad thing. It could just be the start of the next step in our lives. Debt is not necessarily a bad thing either, but too much debt always is. As long as we are financially smart, and don’t get in over our heads, debt can be a very helpful tool. As far as our reputations are concerned, I do believe that it takes a lifetime to build one and instant to destroy it.
I think having a good reputation is important but I think at the end of the day it’s just someone’s opinion of you. I can do things to try and make my reputation better but sometimes that’s useless because before you even meet them they may have already stereotyped you or something. With that said, I think having a good reputation is important only if you care about how the other person thinks of you. I think it’s pointless to care whether some random guy you don’t know thinks highly of you or not. As long as you know the other person well and trust them then I think it’s ok to put your reputation on the line for them.
The talk of leveraging your reputation hits too close to home. I encountered a situation this last year with an organization where the organization’s reputation and reputations of those involved were compromised by the actions of other members. It’d be a little complicated to go into anymore detail and for the privacy of others we’ll leave it at that. One can act with integrity their entire life, but one slip up and you could be fighting accusations, rumors, or distrust for the rest of your life. This also brings to mind what was said in class…”you become like those you surround yourself with.” By association, by action, by leveraging a reputation something you have worked for so hard in your life could be taken from you in an instant and it’s almost impossible to get back. I went down fighting for the truth for the sake those who had worked so hard, but they still do not receive the respect they receive today. All throughout this semester, each ethics discussion has brought me back to the same point, “What could I have done to protect those innocent from this corruption?” “Was it my toleration that led to the demise?” “Did I leverage our reputation as whole for peace through toleration?”
This was an interesting read for me. I had never thought to question the validity of charitable organizations operations. Without knowing the full story my thoughts are that people donate to charities “knowing” their dollar will benefit a cause. When a charity’s promise to have the ability to benefit a cause is leveraged I question whether they should continue operations.
I cannot agree more with your idea that the most important asset we have is our reputation,and accordingly we should take caution whenever we use it to attain or promote something else. In addition, I agreed with you when you said that we must be careful leveraging certain assets, or leveraging the wrong type. I believe this is especially true in our professional careers, and parallels the idea that we should always be truthful and transparent about who we are, and what we plan to accomplish. The fact that most of us plan to become CPA’s and work in public accounting makes this notion even more important. We must always remember what our central and core assets are, being mindful not to overstate them with promises, and protect those sacred assets with all that we are. By doing this, we develop a healthy path for our careers, as well as a contingency plan to handle any events that are sure to transpire.
I disagree. Our most important asset is our self-image. If we don’t respect ourself, how can we expect others to respect us?
You cannot build a solid reputation of respect without starting with yourself. You have to believe that you deserve to be respected before anyone else will respect you. Which leads back to your blog.
If you start rationalizing your self-image to yourself, know that others will not make the same rationalization. Just judgement. Or unjust judgement.
I really like the idea of being cautious on what a person leverages their reputation against. It is so difficult for a person to win back trust after it has been broken, and leveraging your own reputation is certainly a risk.
As a reader commented above me, it is interesting (perhaps sad) that it is necessary to question the validity of even a non-profit organization. I have met some people before whom I have negatively judged because they don’t trust in someone else until that person has earned their trust. I still think this is a bit to the extreme, but it is sad to say that in this day and age perhaps that person is smarter than the one who unknowingly trusts all. I feel and hope that I lie somewhere in the middle.
In class, we discussed duties to friends, family, the workplace, and society. But we also have duties to ourselves to build and protect a strong reputation, realize our full potential, etc. Compromising our reputation is a disservice to the work we put into our accomplishments, capabilities, and the future we will experience if an accurate reputation remains in tact. I define success as the satisfaction one feels with her life and herself. Reputation is how others perceive her life and her person, but as a human who is susceptible to the judgment of others, it directly affects her sense of satisfaction. I think that is why people protect their reputation- it is an outward portrayal of who they are and/or want to be.
As far as leveraging one’s reputation goes, I feel that alot of times this happens inadvertantly. You can call this bad calculation of risk, but at times people blindly put their reputation on the line. Obviously there is a significant difference between risking your personal reputation and a corporation risking it’s assets, but as we learned from your previous blogs, the reputation and intergrity of key executives is an integral part of business. Guns don’t kill people, people do; much like companies don’t fail, it’s employees do.
I think reputation is very important, but not everything. You don’t have to maintain a good reputation at any cost; there is always someone who doesn’t like you, and never will. Maybe you should feel OK as long as they don’t say anything bad behind you. I used to care about how people think of me a lot, and tried hard to be helpful when friends in needs, I want to be a person who liked by everyone. But at the same time I ignored my loved one’s needs and feeling; what make it worse were, those people I have been helped just take it for granted and keep asking for favor over and over again. At the end I was tired of it and realized if you can love someone and have his/her loves you back, that’s enough.
During my asset management class, I learned the concept of maturity/risk matching. This is a concept that one needs to build his portfolio based on the intended holding period of the assets. For example, you use short-term financing to finance short-term project or vice versa. This means you may not use your credit card cash advancing services to invest in stock market.
I think it is very interesting those how certain topics can be related to each other. IT is very true that it is not appropriate for charity to leverage its portfolio, least not the level that they can’t afford. Since charity’s assets are intended long-term basis, one must match its asset class by appropriate risk level.
I find it very interesting that how our reputation can be related to such an asset class theory. Often times, many businesses are claiming their assets are the best assets. It is often disappointed that the business is compromising its reputation by short-term sighted decisions. For example, I don’t see there’s anything illegal about Goldman’s recent act. In fact, it is totally ok to sell such a thing. I remember learning in MGMT 211 class that, it is not legal to not to disclose something when they are trading the land (of course it is legal if material FACT is different). I’m sure those real estate assets classes looked very safe back in 2007, when everyone believed housing prices are going up forever. However, Goldman did not match appropriate risk for their most important assets for their business: its reputation.
This blog really strengthened what I got from my last weekly reading and I would like to share with you what I did with my peers. I read When Genius failed and described the rise and fall of Long Term Capital Management. What struck me in my reading was the attitude of LTM’s top partner Hildibrand and the selfishness he displayed throughout the entire process. Hildibrand convinced himself time after time that LTM would bounce back and when it did, “he would prove investors that decided to sell LTM stock wrong. The last paragraph tells of how he was in tears when asked to sign the contract and he wailed; “there was nothing in it for him, better to file for bankruptcy than be someone else’s indentured servant with no hope of earning his way out.” This made me question, how would I act under the same circumstances?… How does one act when asked to sign their life’s work away and is it unethical to resist?
I found your quote “The most important asset any of us have is reputation” very enlightening for how to handle these situations. When it’s all said and done, our reputation is all we have left and while it takes many years for use to build it, it can be ruined one fatal action.